Since the publication of its first report in 2009, I’ve closely followed the Shift Index initiative of Deloitte’s Center for the Edge. The initiative, co-led by John Hagel and John Seely Brown, is an attempt to quantify what Deloitte calls The Big Shift, the long term transformations in the global business environment over the past several decades, brought about by the rapid advances in digital technologies as well as major changes in public policy.
One of their major findings is that the return on assets (ROA) of US companies have been steadily dropping, and are now 75 percent lower than their 1965 levels. ROA is a general indicator of the profitability of a company, so this means that something profound has happened in business to cause the ROA of US companies to drop to a quarter of their 1965 levels. This ROA decline is expected to continue into the foreseeable future.
The Shift Index is composed of 25 metrics grouped into three major indices that render explicit some of the major drivers behind this historical transformations. The Foundation index, measures the fast moving advances in technology performance and adoption, as well as the shifts of global public policy that are reducing the barriers to entry and movement. The Flow index measures the flows of capital, talent and knowledge across institutional and geographic boundaries that, enabled by an increasingly powerful digital infrastructure, are transforming the business landscape. And, the Impact index aims to quantify the impact of these changes on companies and individuals, as well as on competition, volatility and business performance.
The Flow index can then be viewed as a kind of gear box between the potential for change at the technology level, and actual change in the marketplace. In the past, our stocks of knowledge, - what we know, - was a great source of economic value. That is no longer the case, because the increasing rate of change all around us is rapidly obsolescing knowledge. Therefore, the real economic value has now moved from the stocks of knowledge to the flows of new knowledge that we are now able to quickly acquire, and thus refresh and expand our rapidly depleting stocks of knowledge. The Flow index is an elegant concept that nicely captures the essence of the knowledge economy.
The Shift Index has been updated twice before since it was first published. For the 2013 edition, Deloitte chose to break up its findings into five separate reports, each focused on a different topic. I was particularly intrigued by The burdens of the past, a report which focuses on the growing gap between individuals and institutions in their adoption of knowledge-sharing technologies.
“Long-term trends help to tell a story,” says the report. “In the case of the 2013 Shift Index, the story centers on the puzzling discrepancy in technology adoption between individuals and organizations. In their personal lives, individuals are enthusiastically harnessing the power of rapid technological advances and the information flows they unleash to create more value. Why then do so many corporations and institutions seem unable to effectively embrace technological advances that speed up the flow of knowledge?”
This discrepancy in technology adoption has been observed for the past few years. For example, during a panel discussion at the 2012 MIT Sloan CIO Symposium, I learned about Sunday-night/Monday-morning syndrome, the name given to the tension between employees and their IT organizations. People are increasingly frustrated that, at home on Sunday night, they have access to the latest devices and applications, purchased on their own, that have become such an indispensable part of their daily lives. But, when they show up at work the following morning, they have to use the more primitive and limiting devices and applications supported by their IT departments.
“The business environment is changing in a more fundamental way than short-term, boom-and-gloom market and employment numbers show,” observes the 2013 Deloitte report. New products and services are hitting the market faster than ever, brand loyalty keeps decreasing, and the increased competition is continuing to shift power from institutions to individuals.
A few leading edge companies are able to keep up, but the vast majority of more traditional firms are lagging behind. These companies are working harder than ever, trying to achieve greater efficiencies and predictability. They keep trying to fit new technologies and practices into old business models. This is a holdover strategy that worked well in the relatively stable business environments of the industrial economy but falls short in our fast changing digital economy, where new products, business models and competitors keep emerging from all corners of the worlds.
“[T]he world of the Big Shift demands resilience and learning over routine and the status quo. Scalable learning trumps scalable efficiency, and participating effectively in knowledge flows within and across organizational boundaries becomes a critical skill.” Firms must now embrace knowledge-age organizational structures designed to help them reach out, absorb and integrate all the expertise and talent out there, including employees, partners and clients.
For the past decade, individuals have been embracing all kinds of new tools and social media platforms that make our communications easier and faster. But, despite the widespread success of public social networks, many companies have been slow to embrace social media as an integral part of their workplace. This is a problem, particularly for younger employees who are extensively using these technologies in their personal lives, but cannot properly do so at work.
The Social CIO, a 2012 study by Forrester Research, concluded that the number of businesses that are truly executing social initiatives remains surprisingly small. Companies are making investments in social platforms and technologies, but, in general, their efforts remain haphazard and disjointed. The report observed that:
“While the speed at which ideas traverse public social networks is phenomenal, surprisingly few organizations have managed to fully exploit the power of open knowledge sharing inside and outside their company walls. Many businesses have set up social technologies in their organizations, yet few have truly made the technical, cultural, and process changes necessary to reap the full opportunities and benefits of these tools or the vast amounts of data they capture. This puts business and government leaders at risk of being overcome by the tidal wave of rapid change and innovation spearheaded by knowledge-empowered customers, partners, and competitors.”
According to the 2013 Deloitte report, the use of social media in companies is actually declining.
“[T]he ways we connect and share in our personal lives have not carried over to how we connect, innovate, and learn from each other professionally. This is in spite of the fact that the Internet and Web 2.0 tools are driving a convergence of the personal and the professional. More and more people are using technology to work anytime, anywhere; the traditional boundary between work and life is rapidly dissolving. One might expect social media and other knowledge-sharing tools to be as widely used within as well as outside the workplace. But rather than increasing, the integration of such tools into the work environment is actually declining. In 2012, participation in work-related online forums, professional and community organizations, and social media networks decreased from their 2011 levels. Corporate social media usage, in fact, is lower in 2012 than it was in 2009, with participation rates in social media below 20 percent across most levels of the organization - including middle management (18 percent), lower-level management (13 percent), and non-management (9 percent).”
Why is this happening? The Deloitte team believes that a fundamental force may well be at work: “the historical value accorded to efficiency and controllability by businesses accustomed to a less changeable, less transparent world”
“Simply put, there is a growing mismatch between the old frameworks and practices that many companies use and the structures and capabilities required to be successful in a rapidly changing environment. Legacy corporate practices are holding businesses back from fully participating in new opportunities. . . .As long as our institutions continue to resist the Big Shift, the journey ahead will remain stressful and pressure-packed. As workers and as leaders, our lives will not get easier unless we decide to shape, rather than simply adapt to, the future.”
We are indeed in the middle of a historical transformation as we transition to the 21st century knowledge economy. The traditional, industrial-age way of doing business is under siege and must evolve. But, as the 2013 Shift Index study uncovered, this transition will be quite difficult for many institutions.
Very nice work Irving
Posted by: Mark Montgomery | December 12, 2013 at 12:46 PM
Irving, some other thoughts on enterprise adoption lag in my post below
http://dealarchitect.typepad.com/deal_architect/2013/12/enterprise-adoption-laggards.html
Posted by: vinnie mirchandani | December 13, 2013 at 01:38 PM
Irving, let's take you and I as an example. Here we are conversing on a subject each with our own set of facts and opinions. Each of us is able to express his thoughts without threat, one to the other, except maybe that one may have an opinion of the others credibility, knowledge, genuineness in the discussion. Each of us is an address on the other end of the Internet. One may have a wider experience and knowledge base, a greater public persona than the other, but we are able to communicate on a one-to-one basis. There is little to fear other than one electronic address (individual) may embarrass him or herself in the demonstration of his knowledge, opinions and writings.
Now, let's take you and I in our past business relationship ...you at a very senior level within the corporation, me much further down the hierarchy. Could we have had the same level of communications via corporate social media? Maybe if we had otherwise become business or socially acquainted, but not generally speaking in the course of our daily business lives.
The failure of the communication aspects within the corporation will stand as long as the military form of management-employee relationships exist within the organization structure. In the old Armonk CHQ building, I was just down the hall from Lou's office, never once did I pop into his office to share a bit of business wisdom with him. Nor, for that matter did I pass anything along electronically. Rightly or wrongly, there were perceived consequences to the brashness of such interaction. The perception was not for positive results. Aside from perception and hierarchical hurdles, there was also the gate-keeping of layers of management, Lou's executive secretary, administrative assistants and executive assistant. All this in a company that, we would both agree, was a leader in recognizing the management open-door policy, the value of the Internet, business and social communications.
When you move from our company to others that I have had the opportunity to observe, it is understandable that traditional corporations would be falling behind enlightened management, younger companies, in younger economies. You and the Deloitte study authors are absolutely right. To become able to effectively compete, we must get ourselves, our companies, governments, and/or other organizations to a technology base and communications comfort level equivalent to or greater than the level that we as individuals currently display in our personal social interactions.
Posted by: Bud Byrd | December 15, 2013 at 10:46 AM
Traditional methods of exports/imports / local economies growths perhaps reached their peaks in delivering performance. Monetary and fiscal policies have failed in perform in India/other economies in controlling inflation/deflation/recession etc. Millions of tonnes of materials have moved from this part of the earth to another for value additions. Perhaps similar quality nations have to market themselves and not the commodities. Once the Nations market themselves; the economics shall open up 1000 times for each other and that shall lay the foundation for growth for next 50 years.
Posted by: DrBMSharma | December 22, 2013 at 07:26 AM