Join MIT Sloan Management Review and MIT Sloan School of Management on Twitter at #MITSMRChat and learn about the intersection of business and sports analytics. The discussion centers around how insights from the sports industry can help your company excel at performance measurement.
The Twitter Chat will feature Counterpoints cohosts Ben Shields (@benryanshields) and Paul Michelman (@pmichelman) and guest Ben Alamar (@bencalamar). Shields is a senior lecturer at Sloan School of Management, and Michelman is the editor in chief at MIT Sloan Management Review. Alamar is a sports analytics expert, the author of Sports Analytics: A Guide for Coaches, Managers, and Other Decision Makers, and the former director of sports analytics at ESPN; he will share his data on how the NBA draft could make fewer mistakes if they measured basketball intelligence.
Listen to the first episode of Counterpoints (“The Quest to Measure Basketball IQ”), MIT SMR’s sports analytics podcast, before joining the Twitter Chat for a more in-depth experience. At the end of the chat, Shields, Michelman, and Alamar will take questions from participants.
To join the Twitter Chat, go to MIT Sloan Management Review’s Twitter feed at 12 p.m. EST on Dec. 6, or search Twitter for the hashtags #MITSMRChat or #MITSloanExperts to follow along.
Questions we’ll discuss include the following:
How are analytics changing professional sports?
What lessons from sports analytics can managers take away when facing the analytic challenges of performance measurement?
Is basketball intelligence simply intelligence?
Should NBA teams implement basketball IQ as part of the draft process?
Every company operating today is a data company. Most have access to an array of data on their supply chains, operations, strategic partners, customers, and competitors. Yet most companies are leaving money on the table, with only one in 12 monetizing data to its fullest extent. Data on its own has value, but insights derived from data substantially increase that value. These insights can be used to direct activities as varied as customer segmentation, demand and churn prediction, pricing optimization, retention marketing, and cost management — and they can also command even greater margins when sold externally.
There are two primary paths to data monetization. The first is internal and focuses on leveraging data to improve a company’s operations, productivity, and products and services, and also enable ongoing, personalized dialogs with customers. The second path is external and involves creating new revenue streams by making data available to customers and partners.
These paths are not mutually exclusive, and some companies accomplish both, as is the case with telecommunications companies such as Verizon, Deutsche Telekom, and Telefónica. They’ve achieved internal monetization by using data to optimize operations and client services, and they also leveraged that data, anonymized and aggregated, across various use cases for their B2B clients and partners by offering:
Geotargeting and geofencing for retailers and tourism.
Traffic flow and density planning for ad agencies, government agencies, public transportation companies, city planners, and health care organizations.
Fraud detection for financial institutions and credit card companies.
Smart targeting and click-stream insights for brands and digital advertisers.
Location, layout, and staff planning for retail stores.
Internet of things (IoT) applications for a variety of companies.
Successful data monetization requires a careful approach that focuses on the highest-value opportunities that are consistent with a company’s overall business strategy.
Preparing for Data Monetization
John Deere is one company that has created a new source of revenue for itself and value for its farmer customers through data. They did this through a partnership with Cornell University, using Ag-Analytics, Cornell’s data platform that syncs with John Deere’s operation center to access and analyze farm data. Farmers can access analytics tools such as estimators for crop insurance and forecasts for yield and risk management. The platform integrates public data sources, including soil type and weather.
Combined with detailed agricultural data from John Deere, farmers can get estimates on USDA Risk Management Agency insurance, satellite vegetation imagery, and real-time feeds on field conditions. Additionally, the Environmental Defense Fund is partnering with Cornell to investigate the potential for an agricultural sustainability data hub, which would guide farmers in regard to implementing conservation practices. Integrating with John Deere’s Operations Center was an important first step in this process. Longer-term, anonymized, and aggregated data could be used to show larger, regional improvements such as nitrate runoff or nitrous oxide emissions. This data hub would be important for boosting supply-chain transparency between major food companies as a way to quantify progress and verify the practices farmers implement on the ground.
Increasing the value of data. Not all data is valuable or saleable in its raw form — it typically requires harmonization with other sources (for example, market share, meteorological or satellite imagery, or commodity markets) to yield valuable insights. Most companies that enter the data monetization business identify partners who can enhance internally farmed data.
Sizing the market. It is important to not only understand the full array of potential customers (both internal and external), but also all the ways in which they might use and benefit from a company’s data. These use cases include a wide range of possibilities, such as leveraging data from one business unit for use by another part of the company to optimize a broader system or helping an external client with the ability to make better decisions by tapping into data-based solutions packaged by the company.
Maximizing value potential. How much is a company’s data worth? The answer depends on such factors as market demand, the data’s shelf life, competitive offerings, and how potential customers will use that data. To reach maximum value potential, companies need to identify trends and insights from the data that are not easily replicated or available from competitors. Automating the process of generating insights using advanced data analytics (business intelligence) will enhance value.
Pathways to Data Monetization
Internally, there are two main ways companies can monetize their data:
Cost reduction — using data to increase productivity or reduce consumption and waste (either of raw materials or low-value activities).
Revenue growth — using data to improve sales performance or reduce customer attrition.
Companies are monetizing data to optimize their operations by both reducing operating costs and increasing productivity. As an example, energy and process industry companies (think refineries, hydroelectric dams, and other power-generating facilities) are urgently reengineering to outperform competitors and increase productivity and profitability. As these companies work to meet ever-increasing global demands for energy, external challenges often arise from their operating environment. Rising production costs challenge their bottom lines, and fluctuating prices challenge the top lines. These tightly squeezed margins increase the companies’ reliance on the power of data and analytics. Using data, operators can proactively make better decisions, machines and equipment can be monitored digitally, and analytics can predict and diagnose issues early.
Digital-native disruptors, such as Amazon, Netflix, and Airbnb, and digitally transformed (and savvy) players, such as Capital One and Disney, monetize data internally by gaining an intimate understanding of their customers. They look at things such as demographics, special needs, historical purchases and interactions, shopping behaviors, and pivotal events, offering highly personalized products and services within an end-to-end experience, delighting customers at every touch point — from discovery and purchase to post-purchase and reengagement. This customer-centricity allows internal data monetization, creating competitive advantage.
The external path to data monetization actually offers the greatest opportunities. The three primary external data monetization business models include data as a service, insight as a service, and analytics-enabled platform as a service. The three vary according to revenue potential, value to customers, and degree of data analytics and business sophistication required, as “Business Model Spectrum” illustrates.
Business Model Spectrum
External data monetization models vary by level of value impact to customers, analytics sophistication, and revenue potential.
Data as a service. Also known as data syndication, this is the simplest of the three business models. Anonymized and aggregated data are sold either to intermediate companies or end customers who mine the data for insights. For example, telecommunications companies provide aggregated and anonymized customer geolocation data to local governments, allowing city planners to design more effective traffic management systems and officials to better establish “smart city” technology solutions. Customers can also be the downstream or upstream players in a company’s value chain: Grocery retailer Kroger captures shopping data generated by its rewards card and sells it to consumer packaged-goods companies thirsty for a deeper understanding of their customers’ shopping habits and evolving tastes and preferences.
Insight as a service. Companies also can combine internal and external data sources, applying advanced analytics to provide actionable insights. AkzoNobel has created a decision-support model for ship operators to enable fuel and CO2 savings. They make available to ship operators and owners an advanced analytics-enabled mobile iOS app that provides continuous performance prediction of coating technologies. This approach empowers vessel operators by allowing financial and performance benefit analysis of coating choices, thus optimizing important investment decisions.
Analytics-enabled platform as a service. This is the most complex of the three business models, and it offers the greatest value to customers. Companies use sophisticated and proprietary algorithms to generate enriched, highly transformed, customized real-time data delivered to customers via cloud-based, self-service platforms. The model allows access to new markets, sometimes building an entirely new business. One example, GE’s Predix platform, provides additional value to customers through data-based services that increase the efficiency of its machines. GE delivers integrated and technology-enabled energy management systems (EMS) for lighting and energy to commercial, industrial, and municipal customers, such as San Diego, California and Jacksonville, Florida. They combine the capabilities of GE’s energy-efficient LEDs, cutting-edge sensors, cloud-based software, and advanced analytical models. Through Predix, GE makes predictive and prescriptive analysis available to its customers around energy use, maintenance, and other outcomes, allowing cost-reduction decisions by simplifying energy processes, leading to automation and operational efficiencies.
Setting up a Data Factory
To maximize the potential for internal and external monetization, companies should set up a “data factory” that automates the process of collecting, enriching, transforming, and deriving insights from data. It’s a complex undertaking requiring a set of design principles that touch on design thinking, lean startup, and agile methodologies for success.
Create a data platform. The architecture and technology stack that support a data monetization business model typically involve a robust enterprise data strategy, and a “data platform” with an intuitive interface to allow analysis, synthesis, modeling, and interaction with the data at a higher, more visual level. The goal is to create a “single source of truth” via data storage, harmonization, and processing. This enables data to be used by internal and external parties. Building the right data platform can require large-scale, multiparty data sharing and scalable computing, typically enabled by public or private cloud options. The four options for creating such platforms — build, buy, lease, or partner — are outlined in the “Data Platform Options” table:
Data Platform Options
Enable analytics, insights, and outcome. The platform architecture should provide interactive self-service analytics, interactive user interfaces, and data visualization. For instance, the Nielsen Connected Partner Program opened its data pipelines, enabling partner companies and clients to find each other and collaborate in an open-data ecosystem. As a result, Nielsen clients and partners have been able to get better results from more efficient and accurate analytics.
Adopt an operating model. There is no one-size-fits-all organizational structure for driving a data monetization strategy. The most successful companies adapt the structure for each phase of the journey. Regardless of which business model a company adopts, all operating models must address the full range of data monetization operational requirements, including technology, infrastructure, analytics, and platforms, as well as management oversight, organizational structure, key performance indicators, and of course, profit.
Prepare for governance and compliance. Operationalizing a data monetization strategy requires a robust governance model that considers appropriate standards, guidelines, and compliance policies across teams. Companies need to be particularly responsive to outside compliance requirements driven by government regulators or outside partners who contribute to the data monetization business model. In both cases, legal and technical counsels need to shape policy and ensure compliance.
Demonstrate cybersecurity and privacy. While leaders point to cybersecurity as one of their biggest concerns, it is often an afterthought when it comes to solution design. As companies shift their business models and set up data factories, cybersecurity must become one of their core competencies, and they need to be able to demonstrate that sensitive data is being adequately protected. If data monetization operations involve enriching, transforming, and selling data contributed by an external party, companies will also need to comply with the requirements of their external data suppliers.
Turning Data Into a Strategic Asset
All companies are data companies, and most have a substantial amount of untapped, underutilized data, which could unlock tremendous financial value.
There are three key components to complementing and even transforming a business model with a data factory:
Identify potential internal and external monetization opportunities.
Appraise your data, identify any hidden opportunities to enrich it, and increase insight value.
Develop a strong monetization strategy and assess business opportunities, dependencies, and capability gaps.
Companies can increase their “earnings per byte” by reimagining a future where they not only maximize value creation internally, but also create a market for their highly valuable data and insights. This approach will mean they are not only changing the playing field, but reinventing the game, and securing market dominance early on.
When legacy industries, like the legal field, take on droves of freelancers, you know the rules of the working game have changed.
As an NPR piece illustrated, one West Virginia law firm is bypassing the tradition of hiring associates and paralegals and is instead delegating its mounds of niche work and tasks to freelancers and technological solutions. It's a bold way to reimagine legal life, but it also signifies that the freelance wave will hit the economy like a talent tsunami.
Although about 20 percent of positions are freelance today, NPR and Marist predict that freelancers will account for half of U.S. jobs by 2020. With this looming occupational shift, companies of all sizes will need to find a way to leverage the freelance workforce.
Faced with this new reality, members of C-suites must prepare for the influx of freelancers. Otherwise, they could be slapped with the harsh realities associated with unpreparedness.
Facing the freelance future head-on
Hard as it might be to imagine, the internet was once considered a fledgling concept. It was deemed a trend, a passing fad that would go the way of other promising yet poorly conceived ideas. That was, until, businesses envisioned what the internet could add to the future of shopping and retail. The companies that saw that potential (e.g., Amazon) were rewarded when that shift occurred, while everyone else is just trying to keep pace.
Think of freelancing as a second cousin of the early internet. Like the internet, companies that refuse to be proactive or pay attention to the emergence of freelancing open themselves up to several challenges that include financial shifts, potential legal problems and being labeled antiquated by their contemporaries.
Plus, a reactive approach to freelancing can drain a company's access to innovative talent and knowledge workers. America's economy is booming, stellar candidates are scarce, and there is a war for talent. Knowing that, top freelancers aren't desperate; after all, they're the hunters, not the hunted. They won't stick around with companies that treat them like second-class citizens, even at giants like Google and Facebook that are renowned for their great treatment of full-time employees.
Even if you hire just a handful of freelancers today, you can be sure you'll consider more in the quarters to come. It's an inevitability, even in fields that seem impenetrable to change. That's why you need to address infrastructure challenges through proper planning now.
1. Build an internal task force to enact your approach. If talent is a business's best resource, an internal task force dedicated to helping it live its best life is key. Coordinate a team with members from legal, payroll and other departments that can address this new workforce. The more voices you bring to the table, the less likely you'll be to expose your business to potential risks.
For example, appoint a group or its members specifically to track regulations regarding compliance and employee classification. One study reported that between 10 and 20 percent of employers incorrectly classify at least of their workers as an independent contractor. And with new freelancer regulation popping up whenever the wind blows, especially in the U.S., protecting your company from those types of gaffes is vital.
Netflix came under fire for a similar breakdown with its "Project Beetlejuice" system. The project paid participants $10 per film to watch and pick the most representative images and videos for that title. Participants claimed Netflix classified them as contractors instead of full-time employees to keep from paying overtime and time and a half, prompting a class-action lawsuit from two participants to be compensated as full-time workers. In the case of intentional fraud, the criminal penalties don't stop at the wallet.
2. Decide where your freelancers will live. A freelance workforce means that the world is your office. Employees are scattered at all ends of the globe, which can be an overwhelming prospect for those responsible for managing talent.
Freelancer management doesn't reside in any one department. Some days, it's with operations; others, it's with HR or finance or procurement. No matter where it is from day to day, make sure it has a well-defined home with a department that can devote the necessary energy toward it.
Expect to make a significant upfront investment to put bandwidth in place to deal with all your needs. Of course, you don't have to make HR the home for freelancers. But no matter what, have a place where the responsibility for freelancers lies.
3. Identify and rectify technology issues. Businesses routinely underestimate how much they need to rethink their technology when they're onboarding and retiring freelancers. The processes just aren't the same as with full-time and on-site workers, which means the technological infrastructure must support freelancers.
Due to freelance work being short-term, high-volume gigs, centralized systems designed for full-time workers who work normal shifts just aren't ideal for freelancers hopping in and out of businesses week after week. Entirely new processes and systems need to be established around onboarding practices, integration and systems access and payment terms.
Let's face it: Freelance workers aren't a bolt-on service, and they aren't a quick fix. Don't treat them like they are. Instead, put money toward strategy, tech and processes that are built to handle a dynamic, fluid, flexible and distributed workforce. Sure, you might have to put capital behind creating proprietary processes different from your regular ones, but that's the price of leading the workforce revolution.
Sooner or later, your company will be in some way touched by the overwhelming cadre of freelancing professionals. Be certain that you've crossed all your t's before signing on anyone who doesn't fit into the traditional employee mode.
You probably understand what it's like to be extremely focused on growing an endeavor you care so much about. While growth may be exciting, it can be dangerous when unrestrained. Unfortunately, some businesses sacrifice the early characteristics that made them successful in the first place.
I'm fortunate that my digital marketing agency, Logical Position, has seen dramatic growth over the last few years. But we've taken steps to preserve the key differentiators fueling our growth. In a recent Forbes article, I wrote about managing our unique corporate culture through growth.
However, another key preservation component can be found in the attitude we adopted toward clients in the early days. From day one, we've made an effort to ensure that our smallest clients are treated with the same attention, commitment, and respect as our largest clients. While this might sound like more work, this attitude has been a key driver of success that we want to preserve.
This same approach could benefit your business as well.
Our company built its reputation serving small businesses. Early on, we saw mom-and-pop operations spending their hard-earned money on pay-per-click (PPC) campaigns with agencies that weren't upfront about where all that money was going or how it impacted their sales. In response, we decided to make transparency our key differentiator. We pulled back the curtain, fearlessly walking our SMB clients through our strategy and its impact on their bottom line. That unique approach drove much of our early growth.
Eight years later, our client list now includes a large number of mid-size and enterprise-level businesses. It would be easy for us to focus our resources on the clients with budgets that dwarf our average SMB client. Some might even call that a smart allocation of resources. Or, at the very least, we could take a volume approach to our SMB clients by dialing back our service level, ramping up automation and just focusing on growth.
I imagine some of you might be facing these same decisions. You made your bones by being exceptional in one way or another and now – after a period of growth – stand at a crossroads. Do you stay true to what first brought you success or do you compromise that approach to pursue new opportunities? For my agency, here are three reasons why providing every client with the same level of service paid off:
First, it's the smarter long-term decision. You never know which client could become your next big evangelist. If your smallest client suddenly refers 10 new clients, their value to your business immediately skyrockets. Conversely, it's impossible to know how much money a dissatisfied client might cost you in reputation alone.
Second, treating your smallest customers as if they are your largest is simply the right thing to do. Every month, people are handing you their hard-earned money as an investment in their own hopes and dreams. It's therefore incumbent upon you to take them very seriously.
And lastly, but most importantly, it's not easy to provide remarkable service to everyone. But through that struggle, we're reminded of who we really are. And because we've figured out this challenge, and continue to demand it of ourselves, we're now able to provide a better level of service than ever.
Remember what brought you here
As your business grows, I encourage you to reflect on what brought that initial success and then define it. For my business, it was transparency, customer service and company culture. For you, it might be product superiority or location or a thousand different variables unique to your business. Here are a few tips to keep in mind as you continue with these efforts:
Define what makes you different and don't sacrifice it. Codify that differentiator in your mission, vision and values statement.
Be careful about who you put in leadership positions. Your managers and senior leadership must personify your corporate values and disseminate them among your employees.
Make smart decisions about automation. What might seem more efficient could compromise personal interactions and hurt customer service.
Humanize your clients. All of them — especially the small business owners — are real people with bills, obligations and goals for their businesses.
Don't skimp on training. Investing in people will always pay off.
There are some who argue that human-centered customer service is outdated in an automated age, but our internal metrics show the opposite. In fact, our client retention rate today is better than it's ever been. That's strong anecdotal proof that remaining true to your strengths will bolster your bottom line.
As you continue forging ahead, building the business you care so much about, remember what brought you here. That's how you'll stay focused through growth and remain positioned for further success.
Living with a chronic disease or illness doesn't have to stop you from running your own business. In fact, dealing with constant health concerns can prepare you for the ups and downs of business ownership.
"There are a lot of analogies between chronic disease and entrepreneurship," says Bill Balderaz, the president and founder of data analytics company Futurety. "Both tend to have either really, really good days or really, really bad days and few in-between days. Both require a lot of faith. Both require a lot of experimenting and risk."
Balderaz is HLA-B27 positive, which has caused ankylosing spondylitis, uveitis and rheumatoid arthritis. He has also started three successful businesses since 2006. At times, managing his health has made running a business difficult. But it has never made him want to quit. "Just because something is hard doesn't mean you shouldn't try," he says. "It means you should try harder."
Struggling with a chronic condition doesn't have to stop you from starting your own business either. Business.com spoke with five entrepreneurs who live with the daily challenges of chronic illness to get their best advice on how to manage your time, care for yourself and still create a thriving business.
Listen to your body
Running a business is mentally and physically taxing, and the risk of wearing yourself out is ever present even if you're in perfect health. If you're managing a chronic condition, though, listening to your body and paying attention to your symptoms becomes a vital part of being able to continue working.
"If you neglect your health in the long term for a short-term business need, you may find that you've created bigger long-term problems for yourself," warns Kyle Brost.
The CEO of research firm Spark Policy Institute, Brost has suffered from an autoimmune disorder for 15 years. To stay healthy, he pays careful attention to what both his business and his body need on a given day and adjusts his workload when he can, rather than pushing himself unnecessarily. "I try to be in tune with how I'm feeling and can notice when things may be headed downhill. When this happens, I take the necessary steps to prevent it from getting worse."
Laura Prestwich, an illustrator who runs the digital art store MakerDoerMama, recommends keeping a journal of symptoms in order to predict when you may need to scale back or avoid triggers that cause your health problems to flare up. "My whole focus right now is trying to learn cues that will help me head off some of the worst symptoms," she says. "I have become a lot better about listening to my body because of it."
Manage stress levels
High levels of stress can often make chronic health problems worse. Paying attention to your stress, both at home and at work, is necessary to remain active and productive in your business.
"Keep stress to a minimal level," recommends Robyn Young, the founder of boutique branding agency Robyn Young & Co. Young was diagnosed with Hashimoto's disease five years ago and experiences chronic pain and poor adrenal function as a result. But by delegating where she can and simplifying both her work and home routines, Young keeps her stress levels low and stays on top of her business's day-to-day needs.
Young has also found that running her own business improves, rather than elevates, her daily stress. "Not all days are easy … but for the most part, I've found that being able to control my schedule has worked in my favor."
Build a team that understands
Every business owner needs a support team. That team includes your colleagues, employees, as well as family and friends, who can provide practical and mental support as you navigate the challenges of business ownership.
This team becomes even more important when you have a chronic illness. There will be days when you need additional emotional support, help at home or someone to call on when you're struggling to deliver what a client is expecting. Whether or not you have employees, surround yourself with a team that understands the challenges you face.
"When I started to be honest with others and ask for support, it humbled me to realize how many people had their own struggles and were glad to offer support," says Brost. "Once you start to be honest with others, it will free you up to manage your illness appropriately. Until you do that, you will push yourself in impossible ways."
There is a balance to strike, however, between being honest with your team and involving them too deeply in your health struggles. Especially in professional relationships, it's important to be honest without making your employees and colleagues think you can't handle the work.
"I tend to be transparent but err on the side of sharing less. I address it all in a very matter-of-fact manner and sometimes even with humor or irreverence," says Balderaz. His condition has led to multiple surgeries, temporary loss of sight in one eye and occasionally needing to wear a sling or cast. He hasn't hidden these physical challenges from colleagues or clients. Instead, to keep his business running smoothly, he lets people know what's going on and asks for help when he needs it. But he doesn't dwell on the details or seek out sympathy.
"Be candid with your team and clients," Balderaz advises. "Let them know what you are facing and how they can support [you]. Then move on."
Let yourself be flexible
Having a chronic illness or autoimmune disorder means that your health can interfere with work at unexpected times. Symptom flare-ups, sudden doctor visits or lingering fatigue can all prevent you from doing the work you thought you would be able to. When this happens, embrace some flexibility.
"When I get tired, I step away from the computer and relax in another room or outside for about 15 minutes to a half hour. I'm usually able to jump back in again after that break," says Karen O'Brien, the owner of virtual legal assistance and notary service KanDo Organization LLC.
O'Brien suffers from arthritis and fibromyalgia, both of which cause severe chronic pain. She says that trying to "be superwoman" and not taking breaks leaves her worn out and unable to work. But when she lets herself work flexibly, she gets more done. "I try to pace myself when I'm feeling good," says O'Brien. "I know if I push, I'll take longer to recuperate."
Prestwich recommends creating systems for your business so that the essentials can get done no matter what. Having these in place, she says, helps her take care of both her business and her health on days when she has a flare-up or feels exhausted. "You don't have to think too hard or reinvent the wheel," she explains. "Just follow the process."
"Your time and your health are as precious a resource as they come, and [they] should be treated with the same regard as your capital, materials [and] relationships," says Young. "You're going to naturally test your limits, but be sure that you know them as well and ask for help where you can."
Digital business reached a tipping point in 2018 as organizations scaled their digital capabilities. Eighty-seven percent of senior business leaders say that digitalization is now a priority and in many cases is a do-or-die imperative.
In our surveys, more than 66% of CEOs said they expect their companies to change their business model in the next three years, with 62% reporting they have management initiatives or transformation programs underway to make their business more digital.
Clearly these leaders believe that digitalization offers exciting new, technology-enabled ways for organizations to engage with stakeholders, deliver a superior experience across the life cycle of their business, manage costs, and improve productivity.
Yet 72% of corporate strategists in a recent survey said their company’s digital efforts are missing revenue expectations.
Why are companies seeing this gap between expectation and results in digital business, which Gartner defines as the creation of new business designs that blur the boundary between the digital and physical worlds?
Our research shows that a company’s ability to gain strategic clarity on its path to business model transformation is crucial to its success.
Some organizations see digital business as an opportunity to totally reinvent themselves and their business models. Other enterprises and their functions are looking to leverage technology to optimize and augment existing operations.
But whatever the extent of an organization’s digital ambition, our research shows most corporate strategists tend to play it safe, favoring incremental investments. But in some companies, strategists are bolder. They test entirely new business models while also finding ways to reduce the associated risks. These progressive strategists take specific steps to identify future differentiators and engage the whole organization in a better, faster way to clarify their path to business model transformation. Without that clarity, returns from digital initiatives suffer.
Ultimately, every organizational function is having to manage the pressure of change in digital transformation, business models, and other areas.
The pressure is real, but market intelligence from across Gartner’s research and advisory teams shows progressive functional organizations are proactively realigning or reinventing themselves to respond, at the requisite speed, to enable their enterprise to capture the opportunities presented both by digitalization and today’s buoyant economic conditions.
Aligned Organizational Culture and Capabilities
Digital business also is creating new challenges for information and technology (I&T). In what Gartner calls a third era of enterprise IT, existing investments must be rebalanced and combined with new, disruptive technologies.
Organization-wide disruption also is causing dramatic shifts in culture and capabilities. New skills are emerging, and existing skills are evolving and expiring. Employees are concerned about their skills becoming irrelevant: better upskilling is their top concern.
Strategic workforce planning, and talent management and reskilling initiatives, are already top of mind for many in HR and among functional leaders. But on a macro level, there is near-universal demand for digital dexterity — a set of beliefs, mindsets, and behaviors that help employees deliver faster and more valuable outcomes from digital initiatives.
Just as digital technology is now fully within the purview of all organizational leaders, so is the question of digital-ready talent.
But disruption also breeds cultural tensions — as the digital ambitions of the enterprise conflict with longtime operating objectives and create competing priorities that employees don’t know how to balance. Especially without strategic clarity, employees are unsure if they should focus on speed or quality, efficiency or innovation, for example. The more tension employees feel, the more stressed they are and the worse their performance becomes.
In progressive companies, business leaders work proactively to surface these tensions, acknowledge tough trade-offs, and help leaders set and articulate priorities. The result is more effective culture-informed judgment by employees — and better performance.
Customer-Centricity at the Forefront
Digitalization is also characterized by transformative shifts in customer needs, which are compounded in today’s buoyant global economic conditions. In this environment, every functional leader has a role to play in translating digital ambition into commercial success.
Leading supply chain organizations, for example, are embedding agility and responsiveness into their DNA to catalyze the digital supply chain into action.
On the sales and service fronts, leaders are increasingly focused on positioning employees to be more effective and productive in the new paradigms they face.
In B2B sales, reps are confronted with buyers who spend more time researching in digital channels and exchanging information within buyer groups than they do engaging directly with sales reps. Progressive sales leaders position reps to help buyer groups navigate this complex purchase process, an approach we call “buyer enablement.” Proactive service leaders have turned their attention to improving the experience of their reps at work — which, in turn, benefits customers — rather than simply arming service reps with more and more tools meant to directly improve service.
High-performing marketing organizations have developed a more agile style of working to keep their brands competitive amid rapid marketplace shifts. Their leaders are building a diverse, adaptable range of team capabilities — allocating people and resources based on the work that needs to be done, regardless of where resources sit in the organizational structure.
Drive Digitalization — Or At Least Don’t Be a Drag
The digital era also demands that consumers and organizations be secure. In most organizations, the CIO remains accountable for cybersecurity, but information and technology (I&T) top performers are more likely to report that their boards are ultimately accountable for cybersecurity. All CIOs need to educate their boards and the C-suite on how to think about and take more responsibility for cybersecurity risk.
This new operating reality of multiple stakeholders and rewired accountabilities is playing out in all enterprise functions, challenging them to meet their core responsibilities and manage new risks at the speed of digital business as evolving business models change the value proposition, customer base, profit model, and/or business capabilities.
Progressive procurement departments deliver a feeling of certitude to business partners that lessens their anxiety, uncertainty, and exasperation during purchasing and thus alleviates the kind of pressure that can force procurement to make bad and costly trade-offs just to speed up buys.
In functions where governance is a key responsibility — from risk and audit to finance and legal and compliance — leaders are identifying effective ways to inject their expertise and guardrails into business strategy and operations even when decision making is highly distributed.
We’re used to thinking of high-tech innovation and startups as generated and clustered predominantly in fertile U.S. ecosystems, such as Silicon Valley, Seattle, and New York. But as with so many aspects of American economic ingenuity, high-tech startups have now truly gone global. The past decade or so has seen the dramatic growth of startup ecosystems around the world, from Shanghai and Beijing, to Mumbai and Bangalore, to London, Berlin, Stockholm, Toronto and Tel Aviv. A number of U.S. cities continue to dominate the global landscape, including the San Francisco Bay Area, New York, Boston, and Los Angeles, but the rest of the world is gaining ground rapidly.
That was the main takeaway from our recent report, Rise of the Global Startup City, which documents the global state of startups and venture capital. When we analyzed more than 100,000 venture deals across 300-plus global metro areas spanning 60 countries and covering the years 2005 to 2017, we discovered four transformative shifts in startups and venture capital: a Great Expansion (a large increase in the volume of venture deals and capital invested), Globalization (growth in startups and venture capital across the world, especially outside the U.S.), Urbanization (the concentration of startups and venture capital investment in cities — predominantly large, globally connected ones), and a Winner-Take-All Pattern (with the leading cities pulling away from the rest).
These major transformations pose significant implications for entrepreneurs, venture capitalists, workers, and managers, as well as policymakers for nations and cities across the globe.
The Great Expansion
The first shift is the Great Expansion, as the past decade has witnessed a massive increase in venture capital deployed globally.
The annual number of venture capital deals expanded from 8,500 in 2010 to 14,800 in 2017, for an increase of 73% in just seven years. The amount of capital invested in those deals surged from $52 billion in 2010 to $171 billion in 2017 — a gain of 231%. These figures represent historical records aside from the peak of the dotcom boom in 2000 (and may even exceed it). By all accounts, 2018 will be even bigger.
The second shift is the accelerating Globalization of venture deals. For decades, the United States held a near monopoly on venture capital, where as late as the mid-1990s, the U.S. captured more than 95% of all venture capital investments globally.
That share has declined since then — gradually for the first two decades (falling to about three-quarters of the global total by 2012), and rapidly in the last five years (dropping to a little more than half by 2017).
The third shift is the Great Urbanization of startup activity and venture capital activity in the largest global cities in the world. For decades, startups and venture capital activity was located in the quaint suburban office parks and low-rise office buildings of “nerdistans” like Silicon Valley, the Route 128 Beltway outside Boston, and the suburbs of Seattle, Austin, or the North Carolina Research Triangle. But our research shows that the startup activity and venture capital investment are now concentrated in some of the world’s largest mega-cities.
The table below shows the 10 leading cities for venture capital investment in the world. These 10 cities accounted for more than $100 billion in venture capital investment on average each year between 2015 and 2017, or more than 60% of the total. Three of the 10 leading global metros have populations in excess of 20 million people and three more have populations of between 10 and 15 million. Three more cities have between 4 and 10 million people, while one has less than 2 million (San Jose, the heart of Silicon Valley).
A separate study by one of us and a colleague that looked at the factors associated with venture capital investment across U.S. metros found population size and density to be key. The only other factor that was slightly more important was high-tech industry concentration, which is what entrepreneurs and venture capitalists are aiming to create over the long run.
Startups and venture capital increasingly take on a winner-take-all pattern geographically. Venture capital investments are highly concentrated geographically. Just the top five cities account for nearly half of the global total, and the top 25 for more than three quarters of global venture capital investment. And, previous research one of us has done for the United States and globally, shows that even within cities, venture capital activity tends to be highly concentrated among just a few postal codes.
The geographic concentration of venture capital has also increased over the last decade. This is particularly the case at the very top, where the top 10 cities account for 61% of venture activity worldwide in the latest three-year period, but just 56% a decade ago. Given the large amount of underlying activity going on each year, even small percentage point changes represent meaningful shifts in concentration.
Forces Behind the Shifts
We can point to three major factors driving these trends, though there are others. The first is technological, as the confluence of high-speed internet, mobile devices, and cloud computing has made it possible to start and scale digitally-enabled businesses at a fraction of the cost. As these technologies have fallen in cost, they are within reach in more markets, meaning that it’s easier to create and grow these high-growth, high-tech businesses in more cities.
The second factor is economic. The world has just gone through the largest global reduction in poverty and concomitant expansion of the global middle class in history, and multi-national corporate giants are emanating from more countries, particularly in emerging markets. This has increased demand for many digital goods and services in more places, giving technologically-enabled entrepreneurs in more places a robust market to sell into.
The third factor is political. Many nations around the world are doing more than ever to compete on a global stage by improving their education systems and universities, investing more in research and development, and bending over backwards to welcome high-skilled foreigners and company founders. The United States, on the other hand, is sliding backwards on all of these fronts — and in our view, has become complacent with its long-held dominance as a monopoly for high-tech entrepreneurship.
What It Means for Leaders
These trends have important implications for entrepreneurs, investors, managers, and workers, as well as national and local policymakers across the world. For entrepreneurs, it’s fairly straightforward. The San Francisco Bay Area remains by far the leading location for venture activity and the most robust ecosystem for growing a high-tech startup by a long shot. However, many of the key resources found in The Valley are increasingly available in other places. Whether non-American founders can’t obtain a U.S. visa or choose to stay at home for other reasons, it will only get easier for them to do so while building their companies.
For investors and corporations, the big takeaway is this: You can no longer look only in your own backyard for startups, innovation, and the talent that power them. Venture capitalists, used to looking close to home, need to broaden their horizons and think, look, and act globally. Corporate managers, especially those in the United States, are used to strong local sources of innovation, but they too must increase their awareness of global innovation and startups as they look to as address competitive threats and capture new sources of innovation. Large established corporates may see opportunities in building globally disturbed teams. Techies and entrepreneurs around the world can count on greater opportunities in their home markets.
For global policymakers, the lesson is that globalization of high-tech entrepreneurship and venture capital mean greater competition across the board. For U.S. policymakers, they can no longer take its long-established lead in innovation and startups for granted. China is nipping at its heels and other nations are also gaining ground quickly. Sure, the US remains the dominant place by far, but it is time to stop doing counterproductive things like imposing immigration restrictions on highly-skilled individuals and founders with validated business ideas. Such actions chill the climate for global talent. For countries that are emerging on the global stage, it means continuing and even expanding on recent improvements in education, innovation, and immigration. For the world as a whole, having entrepreneurs and techies build companies where they are may eventually help to address the growing spatial inequality and winner-take-all dynamics that currently define the global geography high-tech startups.
Of course, innovation and entrepreneurship are local, not national, games. That means mayors and city leaders must take the lead. And it means nations should consider devolving responsibility for innovation and economic policy functions to the local level, especially as most countries will only have one or a few cities that can compete on a global stage. But it does not mean throwing government money at venture capital, which too many national and local governments tend to do. Instead it means investing in local universities and innovation, creating greater local density, and generating the kind of quality of local talent. And it also means working with the private sector not just to improve the preconditions required for innovation and startups, but to address the growing economic inequality and housing unaffordability that is causing a growing backlash against big tech in cities across the globe.
James Detert, a professor at the University of Virginia Darden School of Business, studies acts of courage in the workplace. His most surprising finding? Most people describe everyday actions — not big whistleblower scandals — when they cite courageous (or gutless) acts they’ve seen coworkers and leaders take. Detert shares the proven behaviors of employees who succeed at speaking out and suffer fewer negative consequences for it. He’s the author of the HBR article “Cultivating Everyday Courage.”