Thursday, January 23, 2014

Macro-Innov 6: Strategy in the Technosphere

Following the suggestions in my December 2013 blog on the possible strategy of Google Inc, I had an interesting discussion with a friend and colleague - twitter  who is a keen observer of the strategy literature and the strategy of firms. His point in simple terms was that I was arguing that Google was pursuing a strategy in non-related activities. For me, I don't have a problem with that if 'related' is conventionally understood. It then occurred to me that it is was the perfect point in the blog cycle to discuss corporate strategy in the technosphere and in doing so help give more depth to the concept. All that said, the ideas here are rough sketches, there is the tip of an idea but they are not well developed.

However, I am happy to point out that in my blog on Google I suggested it was positioning itself as the new GE, a conclusion that the Economist came to as well in a recent print edition 2014 Jan 18. 


There are many different academic 'takes' on strategy. Mintzberg has come up with a list of 10 different perspectives on what the study of strategy focuses on. This comes from his book Strategy Safari.

  • The environmental school
  • The cognitive school
  • The entrepreneurial school
  • The power school
  • The positioning school
  • The cultural school
  • The planning school
  • The learning (or emergent) school
  • The design school
  • The configuration (or transformation) school

Currently, the Resource Based View of the firm and the Dynamic Capabilities concepts are both popular issues in the strategy literature. Both look for some core attribute of the organisation that give it the edge through time. Of course defining those capabilities and even what capabilities are is proving to be tricky even in abstract academic terms.

Traditionally, strategy modelling were built around ideas that seems less nebulous like industry or markets. 

Classically we have Porter's five forces

  • Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.
  • Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.
  • Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.
  • Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.
  • Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
  • - See more at:

Such strategy methods are often written rather abstractly, away from place and time. Who are your competitors for example? Even this is rather problematic sometimes. For me the 4Ps of marketing has often been the most clear for defining the issues - Product, Price, Promotion and Place. Obviously, this is not without problems either and can be extended in multiple ways but for simplicity its still hard to beat.

But the 4Ps is probably not helpful for giving a perspective on overall corporate strategy particularly if we talking Google at the moment. The first problem is to define the current economic structures, not as easy as it sounds.

Techno-Economic Structures

We often speak of economies as though they are an object that we can measure and visualise, a idea that is not undermined by texts that rarely present multiple views of the economy side by side. But economies are like ecologies they have multiple layers. There industries, transport routes, resource supplies, component supplies, 

Industrial Interdependencies

Fig 1. An Econscape Image of the the World Economy 2008 (approx) 
The data for this econscape comes from the WIOD database y2008.
It's an approximation because Excel is limited to 255C*255R whereas the full dataset is 1435*1435 so some averaging of 6*6 cells was done. When I find some software that can do the full dataset I will create a blog about the global economy.

This image is constructed from the industrial interactions within and across 41 economic regional (40 nation-states + 1 rest of world). The diagonal in this image is national economies - ordered alphabetically. The large cluster at the bottom right is the USA visually merged with the Rest of the World as the last two economic blocks in the table). Within each economy (the diagonals) there is in the original data interactions between 35*35 industries).

The interactions of industries is one perspective but it is but no means the only one.

Economic Geography

Fig 2. Geography of GDP (geo cells)

If you go to William Norhaus' homepage at Yale you will discover economic geography images for most countries on the planet and on the home page you will see a rotating gif image of a globe (economic activity) - unfortunately they didn't create a flat version. So the industries interacting (Fig 1.) do so in particular places (Fig 2.). Mostly economic style value is captured in cities and more value is captured perhaps disproportionately in strategic 'global cities'.

Natural Resources
The curious thing about the economy is that it is measured in money - obviously D'uh. But the economy is also stuff. So for example cities are the interstices - those places where transactions occur, but the stuff can come from elsewhere - the geography of raw stuff looks different.

Fig 3. Metal Ores Extraction 2007

This map morphs the globe to emphasise the source of metal ores - it would be fabulous to have a geo cell (AKA Nordhaus image) for raw materials - ie where are the mines and the fields.

To move this stuff (Fig 3) in between industries (Fig 1.) requires transportation routes

Roads, Shipping and Air routes. Taken from an article accessed 13 Jan 2014.

Fig 4. Just Cargo shipping

Published  Pablo Kaluza, Andrea Kölzsch, Michael T. Gastner and Bernd Blasius Journal Royal Society Interface 2010.

While money moves electronically between global cities (an entire literature in its own right but visible in the Nordhaus images) goods flow on road/rail/shipping and air routes between nodal gateway cities. Global financial capitals are rarely the nodal gateways although many were once the important trade cities. 

Product complexity

U.S. Product complexity map

AUTHORS: Ricardo Hausmann | César A. Hidalgo | Sebastián Bustos | Michele Coscia 
Sarah Chung | Juan Jimenez | Alexander Simoes | Muhammed A. Yıldırım 

The big point

Read up on ancient history and the organisation of the economy bears remarkable similarities to today. The ancient Greeks moved 100s of thousands of litres of wine around Europe and the Mediterranean basin. Individual vineyards had their own brands and were known for their quality.

Or if you think product complexity and modularity are new, read the history of Bolton and Watt before they built their factory. At this point in their history they only built specialised parts - the main components of the steam engines well built by standard producers. Everything was shipped as components to the site for assembly.

Operating Systems

So the technosphere for any particular point in time is the accumulation of the ability to extract resources move them and transform them into the stuff that gives human life a certain standard of living. But we are moving from the the industrial technosphere to the digital technosphere - one where the linkages shown above can take on new dimensions. At this point I could show a map of the internet traffic but that would not show the digital technoshere IMHO, it would only show physical linkages or at best the flow of bytes and bites.

 But many feel that something different is happening, not just a change in extensiveness but qualitative difference. What I am thinking is the idea is that economies run on operating system principles.

Perhaps and analogy might help.

Computers OS v1. Direct input. To program the original computers you had to know machine code and directly tell the computer what to do.  If you want to runs some stats you had to know the code and would not know there was an error till it had printed out.

Computers OS v2 WYSIWYG what you see is what you get. The Mac introduced a new thing; it was an operating system that took care of the machine language. Then there were programs that sat of top of that. People could then interface somewhat normally typing and drawing on the computer so that what you see is what you get. But this was rather limited traditional programs no matter how good they get are kinda clunky.

Computers OSv3 Apps. Apple much later then marketed the next great innovation; Apps. Combined with the internet they can be like old programs (games, wordprocessors, drawing etc) or more importantly they can interact with the real world - start your car, turn on the heating in your house etc. Apps can be static but they can be dynamic - controlling and integrating with real world objects - this is where the digital technoshpere is evolving to an Internet of Things as it is called, where everything is online and therefore app-able.

So the digital world needs Operating Systems....

If we stand back we could say that the economy works on operating system models. Pre-industrial agriculture was direct machine language - humans and animals did all the work.

The Industrial Revolution was OS 2 - carbon energy freed up the ability for machine power and industries developed - large clunky blocks of activity with large orgnsations of scale and scope at there centres (a bit like word processing or spreadsheet programs on a computer).

As I can conceive of it at the moment Technosphere Operating Systems are kind of the rules of the system operating at multiple levels. Now usually Rules of the Systems means institutions but I am meaning here the actual physical connectedness - even if that is digital.

Strategy in the Digital Technosphere (OS3)

So here is a picture of the U.S. Economy.

Lets discuss some peaks.

Many of the peaks are still basic industries - mining, metals, agriculture/food - which digital technology is certainly getting a strong foothold but is perhaps a little harder to explain.

The services complex - bottom right.
Over the last couple of decades governments and service industries have faced the problem of inter-operability - data transfer. I suspect that the problem is still not solved but it is obviously getting better. It is a big deal moving data between banks and governments and other services is hugely important.

But those issues will move into the rest of the economy.

The auto Industry
At the recent Consumer Electronics Show, the auto industry was more represented that usual. The big news Apple and Google moving inside the car to connect the car to the world with their Operating Systems. I suspect Apple does not actually have much of a strategy here - except that lots of people use their tech so Apple should give them access in their cars. Google, I think has a bigger strategy. This is the first step in connecting their technologies up. They can auto pilot a car but that is distant from the normal car - the intermediate step is to get Android inside the car and then introduce full car control systems, which if successful would leave Google as the Mircosoft of auto transport. The car makers will just be sophisticated metal bashers.

The Electronics hardware industry
Curiously, the interactions in the matrix of electronics equip buying from electronics equip is quite small in the USA, presumably because manufactures are mostly imported now. But the hardware, computers, mobile devices etc which is where Apple is happy to focus is only the tip of the iceberg of the digital technoshere. the real money will be in the Internet of Things operating systems.

Google's strategy

So here is my point, digital connectiveness links up real devices, objects and entire industries. Thus what links up Google's diverse unrelated activities is its operating system relatedness. Back here I discussed the changes 3D printing could make to global manufacturing structures. Google is not just an advertising company although that is where it is getting its revenue. It isn't just a company with some strange auto industry technology, it will introduce an electronic operating system for cars and it will own the technology. Just as we see it buying Nest that links the home to the owner, we will see it own technology that brings digital control and operating systems to the industrial sector.

Think of the all those existing layers of the economy as a piece of hardware, the box and the bus and circuit board, the chips and harddrive - what will really make the digital technosphere fly are the operating systems that makes it run. Google, won't be the only company and in the end maybe it going too fast, but if it wins the prize it will be the mega-goliath corporation of the 21st Century.

No comments:

Post a Comment