Found at http://knowledge.wharton.upenn.edu
Authors Barry Libert, Megan Beck Fenley and Jerry (Yoram) Wind
Libert is CEO of OpenMatters and Fenley is his associate. Wind is a Wharton marketing professor and also director of Wharton’s SEI Center for Advanced Studies in Management. The authors would like to thank Liquid Hub for sponsoring the research that informs this series.
Exploration why companies whose business models involve leveraging networks generate more value than traditional firms.
*“Society is undergoing tremendous change right now — the sharing and collaboration practices of the Internet are extending to transportation (Uber), hotels (Airbnb), financing (Kickstarter, LendingClub) and music services (Spotify).
The rise of the collaborative economy, of which the Open Source community is a part, should be a powerful message for the business community. It is the established, proprietary vendors whose business models are at risk, and not the other way around.”— Dries Buytaert, Founder of Drupal
Klaus Schwab, founder and executive chairman of the World Economic Forum, stated earlier this year that he believes we are experiencing the fourth industrial revolution.
This is a revolution of networks, platforms, people, and digital technology that is “blurring the lines between physical, digital and biological spheres.”
Our research supports this theory. We believe that digital networks are the key differentiator, which tie together these spheres in a way that enables new forms of sharing, distributed intelligence and value creation.
This revolution marks a critical inflection point.
We are navigating great, worldwide shifts from physical to digital, closed-source to open-source and linear to exponential. New forms of assets (intangibles) and new ways of doing business (networks) mean that the formal frameworks and foundations used globally to design, measure and value organizations by investors, leaders, regulators, economists and accountants are increasingly inadequate and misleading, leading to the misallocation of limited human and financial resources.
A few leaders and investors saw this shift coming and have benefited greatly — just look at the unicorns.
But most leaders and investors were not so prescient. It’s now time for all business leaders, economists, educators and investors to recalibrate and adjust — and quickly. Funding, investors, customers and talent are all flowing towards digital networks.
“Physical things do not scale quickly, easily or cost effectively. Building the U.S. interstate highway system took 35 years and an estimated $425 billion…. Facebook grew to 500 million users in a little more than six years.”
We have spent the last decade researching this shift.
Our book on the topic, The Network Imperative, will be published in June.
This series of articles with Knowledge@Wharton approaches the shift from a different angle, by examining how digital networks, technology platforms and network-based business models are affecting all industries.
Meeting the Challenge of Networks
Our insights are based on the simple premise that different business models, based on different types of assets and technologies, create different economic outcomes.
We identified four business models, each with its own value proposition:
Asset builders deliver value through the use of physical goods (physical capital). These companies make, market, distribute, sell and lease physical things.
Service providers deliver value through skilled people (human capital). These companies hire and develop workers who provide services to customers for which they charge.
Technology creators deliver value through ideas (intellectual capital). These companies develop and sell intellectual property, such as software, analytics, pharmaceuticals and biotechnology.
Network orchestrators deliver value through relationships (network capital). These companies create a platform that participants use to interact or transact with the many other members of the network. They may sell products, build relationships, share advice, give reviews, collaborate and more.
Knowledge@Wharton readers may recall this business model framework from a previous article published in 2014.
When we applied this framework to the S&P 1500 Index (a mix of small-, mid-, and large-capitalization companies), we observed that companies using these business models were not equal.As we had noted back then, there were clear and dramatic differences in performance. By leveraging technology and the network effect, network orchestrators outperformed the rest. Network orchestrators, on average, grew revenues faster, generated higher profit margins, and used assets more efficiently than companies using the other three busines
My point of view: It’s not a an industrial revolution i believe. It is a revolution/evolution of merging, emerging and disappearing industries in which platforms and chains will become dominant. And yes, customer experience too!