Philip Evans: How data will transform business

Strategy and Technology

In this section, the speaker discusses the relationship between strategy and technology in business. They argue that business strategy has always been influenced by assumptions about technology, which are now changing dramatically.

The Origins of Business Strategy

• Bruce Henderson and Michael Porter were influential figures in the development of business strategy.

• Henderson's idea focused on concentrating mass against weakness to achieve competitive advantage.

• He recognized the importance of increasing returns to scale and experience in business.

• Porter expanded on this concept with the idea of the value chain, where different components of a business may require different strategies.

Changing Assumptions

• The speaker argues that the premises of traditional business strategy are being invalidated.

• Transaction costs, including information processing and communication, have been radically transformed over time.

• Falling transaction costs have consequences for value chains, as there is less need for vertically integrated organizations.

• Competitors can use their position in one step of the value chain to attack or disintermediate competitors in another.

Examples of Disruption

• The example of the encyclopedia industry demonstrates how falling transaction costs led to its collapse.

• New technologies made knowledge distribution much cheaper, leading to disintermediation.

• User-generated content and social networks became dominant phenomena in the second decade of the Internet economy.

Distinguishing the Third Decade

In this section, the speaker argues that something distinguishes the third decade of business strategy. This distinction aligns with Porter-Henderson logic discussed earlier.

Unveiling a Distinction

• The speaker suggests that there is something unique about the third decade compared to previous decades.

• This distinction maps onto Porter-Henderson logic previously discussed but is not elaborated upon further in this section.

New Section

The speaker discusses the massive substitution of digital for analog and the significance of data with an IP address. They highlight the exponential increase in connected information and patterns that can be observed. The cost reduction in genomic mapping is also mentioned, leading to a revolution in medicine.

Digital Substitution and Connected Information

• About half of the digital data has an IP address, allowing it to be connected to other data with IP addresses. This enables the aggregation of knowledge and identification of patterns.

• The stock of connected information via IP addresses is expected to multiply a hundredfold, resulting in a ten-thousandfold increase in patterns observed within the data.

• This transformation represents a profound change in the world's economics.

Cost Reduction in Genomic Mapping

• Mapping James Watson's genome took 10 years and $200 million.

• The cost of genomic mapping has significantly decreased over time, with predictions that it will drop below $100 by 2015.

• The accessibility and affordability of genomic mapping have shifted it from being solely a research endeavor to becoming part of clinical practice.

New Section

The speaker explores how technology drives scaling beyond institutional boundaries, impacting business models. They discuss transaction costs, scale economies, and the shift from vertical to horizontal structures within industries.

Technology Driving Scaling Beyond Institutional Boundaries

• Technology facilitates scaling activities beyond traditional institutional boundaries.

• Transaction costs decreasing weakens value chain integration while scale polarization allows scalable communities to replace conventional corporate production.

• Business strategies need to adapt as vertical structures evolve into more horizontal ones due to technological advancements.

Implications for Business Models

• Institutions relying on proprietary data face challenges when sharing across databases becomes essential for achieving value from technology.

• Colossal sharing across various databases conflicts with current business models based on proprietary data and competitive advantage.

New Section

The speaker discusses the horizontalization of industry structures driven by technology, transaction costs, and scale economies. They emphasize the need for fundamental changes in strategic thinking.

Horizontalization of Industry Structures

• Technology-driven changes lead to a shift from vertically integrated competition to horizontally structured industries.

• Transaction cost reduction weakens value chain integration, allowing for separation and fragmentation.

• Scale polarization favors small-scale communities and substitutes traditional corporate production.

Fundamental Changes in Strategic Thinking

• Strategy should focus on curating horizontal structures rather than assuming predefined business or industry definitions.

• Big data is not the sole driver; similar transformations can be observed in other sectors such as telecommunications, pharmaceuticals, university research, and energy.

The transcript does not provide enough information to create additional sections.

New Section The Impact of Social Motivations on Infrastructure

This section discusses the social motivations behind infrastructure built by governments and cooperative institutions built by competing companies, highlighting how these transformations render traditional business strategies obsolete.

Social Motivations in Infrastructure Development

• Governments and companies often build infrastructure with social motivations in mind.

• Cooperative institutions are formed when competing companies collaborate to achieve scale.

• These transformations challenge traditional business strategies.