The Only Sustainable Edge

The Only Sustainable Edge: Why Business Strategy Depend on Productive Friction and Dynamic Specialization, by John Hagel III (former senior advisor at McKinsey & Company) and John Seely Brown (former Chief Scientist at Xerox Corp.) is a book that builds on the conclusion of Peter Fingar's Extreme Competition. Like Fingar, Hagel and Seely Brown draw the same conclusions about the "flattened world" described in books by Thomas Friedman (The World is Flat), Barry Lynn (End of the Line), and Clyde Prestowitz (Three Billion New Capitalists) . . .

The new flattened world means that the only way to get and stay competitive is to continuously innovate at a pace that your competition cannot match, and utilize technology to that end. But where Fingar delves deply into the drivers and forces and forward looking solutions, The Only Sustainable Edge focuses on the process of how to achieve such continuous fast-paced innovation and what is necessary to create and sustain it.

From the book's website at www.edgeperspectives.com, the following areas are covered:

• Developing New Business Strategies: Traditional approaches to strategy are broken and what must be done going forward
• Understanding China and India: Contrary to popular perception, China and India are emerging as global centers of management innovation
• Competing in a Flat World: As Tom Friedman suggests, the world is flattening, but companies can use pragmatic approaches to create powerful new sources of strategic advantage
• Finding Innovation on the Edge: In pursuing innovation, shift attention from the core to the edge - the edges of business processes, the edges of enterprises, the edges of emerging economies and the edges of new generations of tech savvy consumers and workers
• IT Matters More than Ever: New generations of technology are converging to create even more powerful sources of innovation and strategic advantage
• Reassessing Public Policy: Public policy can amplify or undermine business strategies - business leaders must become catalysts for public policy change

The thesis of the book is that effective business strategy "depends on productive friction and dynamic specialization." They write of "the core" versus "the edge":

First, we mean the edge of the enterprise, where one company interfaces or interacts with another economic entity and where it currently generates marginal revenues rather than the core of its profits.

Second, the edge refers to the boundaries of mature markets as well as industries, where they may overlap, collapse, or converge...

[Third], geographic edges, especially those of such emerging economies as China and India, where consumers of all kinds crave Western goods and services that will ease their burdens and improve their lives.

Finally, we refer to the edges between generations, where younger consumers and employees, shaped by pervasive information technology, are learning, consuming, and collaborating with each other and where baby boomers are preparing to retire or switch careers over the next decade.

The authors focus on three strategic imperatives in order to build and sustain this strategic competitive advantage: dynamic specialization, connectivity and coordination, and leveraged capability building. Some key excerpts from reviewer comments at Amazon.com:

Fred G. Sanford:

Hagel and Brown are two well pedigreed authors, and they attempt to explain their view on what is the next frontier in corporate strategy. The answer is that value of the firm lies not inside the firm but at its edge. The edge is a broad metaphor for geography (India, China and Brazil), maturity (old econ and new economy), physical edge (inside the firm as well the partners outside). The key insights from this book are:

• Two types of forces have converged to squeeze margins -Informational technology, and Public policy shifts. Try telling this to the 500,000 people who have lost their jobs in the valley.
  
• Three key elements of the new model for business strategy are:
  
  1. Reconceive sources of strategic advantages by accelerated capability building across boundaries. This implies - Dynamic specialization, Connection and Coordination of 3rd parties and Leveraged capability building. Elaborated using the Li & Fung, Hong Kong retailer example.
     
  2. Master new mechanisms to build advantages - This implies focusing on efficiency as well as effectiveness, process outsourcing and offshoring, loose coupling of extended business processes and production friction
     
  3. Adopt new approaches for developing strategy
• Given this framework, conduct a diagnostic that inventories the key initiatives for the last 12 months, as well as the proposed initiatives for the next 5 years. At the end of this diagnostic, you should be able to identify what activities you can offshore and outsource and therefore you can dynamically specialize.
  
• Process networks are predicated on loose coupling of processes and Productive friction. Productive friction can be decomposed into four factors, Performance Metrics, People, Prototypes, and Pattern Recognition.
  
• Process networks are enabled by performance fabrics and IT is critical in achieving a solid performance fabric. Web services is critical in implementing this new fabric.

Laurence Stybel:

The current fad is to talk about business models organized along industry lines. The authors argue that industry focus is insufficient for a proper conversation about strategy. Within that industry-focused model, there needs to be a second strategic focus. They see this new strategic focus along three dimensions:

1. Infrastructure Management. Financial services, pharmaceuticals, and the computer industry are already structured in significant ways along these lines. State Street Corporation is an example of a company that services the financial services industry but its value clearly revolves around infrastructure management. UPS revolves around infrastructure management of logistics. An infrastructure management theme works well for relatively routine, high volume business activities.
2. Product Innovation. Specialized biotech companies are taking on more of R&D activities so that large pharmaceutical companies can focus on scale intensive manufacturing and distribution. There are specialty design shops that serve the fashion industry. There are specialty semiconductor design shops that serve the electronics industry.
   
3. Customer Relationship. These firms concentrate on identifying target customer segments, getting to know that segment very well, and using its resources to mobilize third party products and services to address the needs of their customers. Physicians who practice general medicine, financial planners, real estate agents, and attorneys all provide this framework. Accenture is a company with this type of framework.

Emily Levine:

Dynamic Specialization:

The pre-globalized world world was divided into what Isaiah Berlin called "hedgehogs" - generalists, who know a little about a lot of things; and "foxes" - specialists, who know a lot about one thing. In a globalized world, the specialist is neither fox nor hedgehog: the specialist must know a lot about one thing...and how it works in many, many different contexts. To grok the specialist as a boundary-crosser, moving laterally across a broad spectrum, is also to understand the shift from a vertical to a horizontal focus (what Thomas Friedman calls "flattening"). Likewise, the transcendence of the fox/hedgehog paradigm suggests that oppositional constructs themselves may be passé. Indeed, throughout the book, the authors look to maintain the tension between opposites rather than resolve the tension either one way or the other. (Thus, unlike the early enthusiasts of chaos theory, who replaced "things" with "flow", Hagel and JSB have a healthy respect for both.)

Performance Fabric:

Pre-globalization, growth was measured size and/or efficiency. In a globalized world, growth is measured by complexity. You grow by deepening and broadening your connections, forming new partnerships, entering into new collaborations, growing one's skills across many more contexts. That tapestry of connections is what Hagel and JSB call "a performance fabric". I'd be tempted to say that the richer the tapestry, the richer the company and its shareholders, but now I'm thinking "tapestry" doesn't do justice to the elasticity of the performance fabric. Perhaps "trampoline" would be better - it gives you that added bounce you need to vault into a higher stratosphere, a higher level of complexity. (Perhaps it could be said that in a globalized world, companies have to grow up.)

Productive Friction:

Pre-globalization, boundaries were thought to be hard and fast, built like moats around a castle to protect one's enterprise against competitors, predators (or pirates) and/or regulatory bodies. In a globalized world, boundaries are points of connections as well as separation. Companies and individuals have to collaborate with competitors. Those working in and with countries that have different ideas of property and the boundaries we create to protect property, need to negotiate boundaries rather than impose them. Rubbing up against each other in this way creates friction, but, as anyone who's ever watched "Survivor" knows, rubbing two sticks together produces fire. Likewise, productive friction sparks new ideas and new solutions.

Next, I will look at a Whole New Mind, by Dan Pink (also see Dan Pink's blog)