Marshall Van Alstyne Discusses Platform Strategies

At the recent Platform Strategy Summit, Van Alstyne talked about 'extraordinary changes' taking place.


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      Digital Business Transformation

      How would you describe the current pace and accomplishments of digital technologies at your business or enterprise?

      Paula KleinCreated by Paula Klein on Sep 21, 2015 in Public Site: MIT IDE

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      Growing opportunities to collect and leverage digital information have led many managers to change how they make decisions – relying less on intuition and more on data. As Jim Barksdale, the former CEO of Netscape quipped, “If we have data, let’s look at data. If all we have are opinions, let’s go with mine.” Following pathbreakers such as Caesar’s CEO Gary Loveman – who attributes his firm’s success to the use of databases and cutting-edge analytical tools – managers at many levels are now consuming data and analytical output in unprecedented ways.

       

      This should come as no surprise. At their most fundamental level, all organizations can be thought of as “information processors” that rely on the technologies of hierarchy, specialization, and human perception to collect, disseminate, and act on insights. Therefore, it’s only natural that technologies delivering faster, cheaper, more accurate information create opportunities to re-invent the managerial machinery.

       

      At the same time,

      large corporations are not always nimble creatures. How quickly are managers actually making the investments and process changes required to embrace decision-making practices rooted in objective data? And should all firms jump on this latest managerial bandwagon?

      We recently worked with a team at the U.S. Census Bureau and our colleagues Nick Bloom of Stanford and John van Reenen of the London School of Economics to design and field a large-scale survey to pursue these questions in the U.S. manufacturing sector. The survey targeted a representative group of roughly 50,000 American manufacturing establishments.

       

      Our initial line of inquiry delves into the spread of data-driven decision making, or “DDD” for short. We find that the use of DDD in U.S. manufacturing nearly tripled between 2005 and 2010, from 11% to 30% of plants. However, adoption has been uneven. DDD is primarily concentrated in plants with four key advantages: 1) high levels of information technology, 2) educated workers, 3) greater size, and 4) better awareness.

       

      Four factors are driving data-driven decision-making:

       

      IT: DDD is more extensive in firms that have already made significant IT investments. Quite intuitively, firms make better use of DDD when they have more sophisticated IT to track, process, and communicate data. Likewise, they enjoy higher returns from IT when it guides decision-making and action at the firm.

       

      College degrees: Having a larger share of workers (including both managers and non-managers) with Bachelor’s degrees also predicts the use of DDD. This may reflect the way formal education can make people more comfortable with quantitative and data-centric ways of understanding the world.

       

      dddchart.png

       

      Size: Both single-plant firms, and those with multiple plants are increasing their reliance on DDD at roughly the same rate. However, single-plant establishments are still at less than half the adoption level of their bigger brethren (see Figure at right). That’s no surprise — plants that belong to larger, multi-unit firms have the advantage of being able to learn from each other and share infrastructure.

       

      Awareness: Last but not least, even DDD-ready firms may lag behind due to a simple lack of awareness about its benefits. In order to adopt DDD, firms first have to learn about emerging practices and how they might work (or not) in their particular organization. Plants that report a larger number of opportunities to learn about new management practices – like hearing about it from other units of the same firm, from outside consultants or new employees, or from trade associations or supply chain partners – are far more likely to report being at the frontier of data-driven decision making. If you share this article with your co-workers, you might see your own firm’s use of DDD jump up a notch.

       

      For all its benefits,DDD may not be the path to salvation for every firm. Even managers who have received the DDD gospel may oversee environments that do not permit reliable data collection. For many types of decisions, especially those for which little quantitative data exist, the broader knowledge and experience of leaders still outperforms purely data-driven approaches. Furthermore, the costs of moving to the DDD frontier are not trivial, and may outweigh the benefits – particularly if the scale of operations is just too small.

      That said, the tripling of DDD rates in just five years suggests that firms are overcoming any implementation barriers quite rapidly. Our analysis sheds considerable light on what makes DDD a good fit for a wide range of firms. Yet even among plants that are, on paper, likely adopters, only a minority had adopted DDD by the end of our sample period in 2010.

      We expect adoption to continue to trend upward, as technology costs fall, management practices evolve, and awareness spreads.

       

      Our follow-on research is focused on pinning down how much firms may expect to benefit from DDD, and on discovering the ingredients for success in different settings. No doubt the hype surrounding big data and analytics is great. However, our results offer objective empirical evidence that there is something beyond the hype: firms are rapidly adopting DDD and fundamentally changing how they approach management in the digital age.

       

      Kristina McElheran is an Assistant Professor of Strategic Management at the University of Toronto and a Digital Fellow at the MIT Initiative on the Digital Economy.

      Erik Brynjolfsson is the Schussel Family Professor at MIT’s Sloan School of Management and the director of the MIT Initiative on the Digital Economy.


      This blog first appeared in Harvard Business Review on Feb. 3, 2016 here.

      For me, the best thing about [the recent] World Economic Forum in Davos was an exposure to worldviews very different from my own. Professionally, I hang around mainly with technologists, entrepreneurs, businesspeople, and economists at American universities.

       

      People within these groups certainly don’t agree with each other all of the time, or with me, but most of us do share some baseline assumptions on important topics. These include:

      • Creative destruction is good news. Better products take market share from inferior ones, more nimble and innovative companies displace slow and sleepy older ones, and entire industries — like those for cameras, film, and standalone GPS devices — can be swept away by something as simple as a smartphone. This process should be encouraged, even though it’s not pleasant for all parties involved, and even though it leads to job loss and worker dislocation.
      • Markets allocate better than bureaucrats do. Economist Alan Blinder put it beautifully: “I believe every mainstream economist sees the invisible hand as one of the great thoughts of the human mind… Throughout recorded history, there has never been a serious practical alternative to free competitive markets as a mechanism for delivering the right goods and services to the right people at the lowest possible costs.”
      • There is such a thing as too much regulation. Almost all of my colleagues would agree that regulation and licensing are necessary for protecting public health and safety (as Eduardo Porter pointed out: “I’m reassured that if I ever need brain surgery, the doctor performing it will have been recognized by the profession to be up to the task.”). But it can go to far. Studies have found, for example, that requiring licenses for too many jobs can hurt employment. And I have absolutely no idea why courts in some countries second-guess the names parents give their children (plus, I kind of like “Fraise”).
      • Business is not the enemy. It’s certainly not the case that companies always and everywhere do only good, or that in looking after their interests they inevitably advance our own. But they are the source of the great majority of the goods and services we enjoy, and they provide most of the jobs and wages. As they compete with each other to satisfy our needs and whims, they make our lives better.
      • The state can’t provide jobs to everybody. The totalitarian promise of centralized full employment couldn’t stand in the real world. The government’s proper role is instead to set up an economic environment that’s conducive to private sector job and wage growth. The vast majority of people I interact with would also agree that the government should provide a safety net for those who fall too far behind, and to take care of orphans, the mentally ill, and other vulnerable groups.
      • We’re right about these things. Virtually all my colleagues believe that the statements above are no longer open for debate among serious people. Theory, experiment, and especially experience have shown that they’re correct.

      Davos was a revelation for me because I came across serious, smart, and influential people who didn’t appear to accept these statements nearly as wholeheartedly as I do. And these people were not from strange or faraway lands (if there were delegations from North Korea or Cuba at the meeting, I didn’t come across them). Instead, they were from Europeans, my first cousins in the global family.

       

      In Switzerland, I moderated an open forum session titled “Employment: Mind the Gap?” I was the only American on stage, and there was only one representative from the private sector on the panel. Two European trade unionists, a French economist, and the prime minister of Sweden (himself a former trade unionist) made up the rest of the speakers.

       

      I found the discussion fascinating because once we got past the initial uncontroversial remarks (yes, education is important; yes, we must all work together…) we got into a conversation about the right way to mind the gap. As it unfolded,

      I came to the conclusion that the majority of people on stage did not share my economic worldview as expressed in the statements above. Instead, they seemed to believe much more strongly in government planning, programs, and protections as the best way to ensure good jobs and wages. And they seemed willing to sacrifice some flexibility, decentralization, and innovation — perhaps a lot — in the pursuit of stability and prosperity for workers.

       

      I pointed out that economic data from the European continent in recent years was not encouraging for this economic worldview, and my onstage popularity as a moderator dipped sharply. Panelists responded, correctly, that this was in part because of differing responses to the Great Recession. They seemed less willing to engage with the idea that it might also be because several European countries were trying to fight the uncomfortable dynamism of today by making sure those who had jobs yesterday would not lose them.

       

      In case I wasn’t clear enough in Davos, let me be clear here: I don’t think this will work. To paraphrase Churchill, countries today have a choice between turbulence and anaemia. If they choose anaemia, they will still have turbulence.

       

       

      This blog first appeared on FT.com Jan. 29, 2016 here.

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