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Digital Divide

Companies innovating with "pull" technologies are on the edge of a broad shift in business design, says a co-author of a new book, The Power of Pull.

What could bring Bill Clinton and Newt Gingrich into harmony? Not much, at least politically. But the former president and ex-House speaker are among a host of luminaries who are offering high praise for a new book that describes how the concept of “pull” presents companies with unprecedented opportunities.

John Hagel III, co-author of The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion, says pull is about designing platforms that allow knowledge resources to be drawn on as needed. By contrast, the “push” mode that has been common to virtually all organizations, whether corporate, educational, or governmental, involves trying to forecast demand and mobilizing in advance the resources that would be necessary to meet it.

Clinton told publisher Basic Books that the book highlights “passionate thinking, creative solutions, and committed action that can and will make it possible to seize opportunities and remain in step with change.” Gingrich said it provides “a body of learnable principles that will revolutionize our ability to access and work with knowledge flows.” And from Google CEO Eric Schmidt: “If you want to meet the challenges of working and living in the 21st century, this book should be your guide.”

Hagel is co-chairman of Deloitte’s Center for the Edge, a three-year-old research group devoted to identifying business opportunities that should be on CEOs’ agendas but aren’t. He wrote the book along with the center’s other co-chair, John Seely Brown, and Lang Davison, a longtime leader in the professional services industry. The following is an edited transcript of CFO‘s interview with Hagel.

The revolution in digital architecture seems to be at the heart of your argument. Is that a fair statement?

Yes, but one way of thinking about that is that it’s a key part of both the problem and the solution. The technology infrastructure that is concentrated around the Internet and digital technology is dramatically intensifying competition on a global scale. Last year we looked at return on assets for all public companies in the United States back to 1965. It has come down 75%, and there’s no sign of it leveling off, much less turning around. Digital technology reduces barriers to entry and barriers to movement on a global scale.

At the same time, larger enterprises have built up a very rich technology infrastructure, but it’s a very hard-wired one that is relatively inflexible and makes it hard to change and adopt new business practices.

That’s the problem. What’s the solution?

The opposite side of it is that technology is creating the potential for platforms that allow us to connect much more richly and broadly, not just within enterprises but across enterprises. A key theme in the book is that increasingly, economic value depends on the relationships we build beyond our individual enterprises. Digital technology has a key role to play in supporting that and making it scalable in ways that we couldn’t before.

Can you give a real-life example of such a platform?

What SAP has done with its software developer network started as quite a small move. The company had developed an application called NetWeaver that allowed its enterprise applications to work together more seamlessly. [To help sell the product], SAP created a platform for independent developers who were writing SAP applications. If someone ran into a problem and couldn’t figure it out, they could post the problem [and other users could post solutions].

Developers began using it in a very aggressive way to improve their ability to write code. Now there is [a huge number of] programmers participating. The average time from posting a problem to resolution is only a few minutes. It’s been an enormous driver of productivity for software programmers, but it’s gone far beyond that. Programmers are developing reputations based on their ability to answer difficult coding questions, and they’re building relationships around the world. This platform is a spawning ground for all kinds of development teams to organize around new application-development opportunities.

So, it sounds like you’re not really arguing for something that should happen as much as documenting that it’s already happening.

It’s a bit of both. One of my favorite quotes is from William Gibson, who said, “The future is already here, it’s just unevenly distributed.” That’s exactly the case. At the Center for the Edge we do detailed case studies of companies that are farthest along in terms of exploring these opportunities. They are doing really powerful things with pull techniques, but there are relatively few of them.

How should companies that haven’t embraced the power of pull get started?

First, don’t try to transform the core of your business that’s all hard wired and consists of standardized business processes around the push model. It’s with new business segments, markets, and products where you can start to apply pull. Often those are areas of great uncertainty, where prediction and forecasting are particularly challenging. Find people who are attuned to the techniques of pull, help them to connect with each other, and demonstrate some performance impacts from using these techniques. It’s a process of building credibility so that over time more and more of the organization sees the potential.

One of the book’s core concepts is what you call “shaping serendipity,” or making choices that improve your odds of meeting people who are relevant to your interests and then influencing their endeavors so that they amplify your own. That’s an interesting phrase — if you shape it, it’s not serendipity anymore, is it?

Think of it as a spectrum. At one end there’s pure luck, and at the other you plan to meet somebody and you have that person specifically in mind. In the middle, you can alter the probability and quantity of productive encounters through choices for where and how you spend your time, both in the physical world and the virtual world.

That seems to put the focus on the individual. We’re all used to companies setting the agenda and employees following.

Yes, it’s pointing to a huge shift in the center of gravity. In the 20th century great visionaries like Henry Ford came up with a blueprint for how an assembly line should work, and the job of every individual was to figure out how they fit into that. The big shift now is that success increasingly depends on developing talent more rapidly. That makes the individual the center of attention. You have to figure out who your people are and how to provide them with platforms and environments where they can learn faster and take performance to the next level by working with each other.

With SAP, the whole thing was understanding the kinds of issues programmers were encountering and saying, how could we help them? What kind of platforms could we create to let them be more productive? It shifts the center of gravity from the visionary institutional leader who develops a blueprint that everyone has to fit into, to saying OK, we have to start with who we’ve got and what their challenges are.

Can this discussion be customized for finance executives? What should they specifically take from this in their roles?

One of the broad themes in the book is that when you’re facing increasing economic and competitive pressure, a natural response is to try to protect the shareholders. One way to do that is by adding more debt to the balance sheet so you can continue to reward them. But large debt structures have big overhead. We’re making the case that there’s an alternative form of leverage, which is capability leverage. It’s the notion of, what are you uniquely positioned to do, and how can you connect to other companies that can provide complementary resources and talent?

Capability leverage works both in a high-growth environment — it allows you to scale much more rapidly because you don’t have to build it all yourself — and in a downturn, because you can also scale back much more quickly. It’s a variable-cost proposition, which has huge value for a CFO.

Speaking of scalability, cloud computing allows you to tailor your use of computing resources as needs shift. Where does that fit into this conversation?

We’ve done a whole research stream around cloud computing. CIOs tend to be very resistant to it, in part for some legitimate reasons around security and auditability. But cloud computing also means a significant downsizing of the internal IT organization. I think CFOs have a significant role to play in understanding the economics of cloud computing and how it can create capability leverage and turn fixed costs into variable costs. They can become champions for cloud computing.

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