Saturday, December 18, 2021

g-f(2)741 THE BIG PICTURE OF THE DIGITAL AGE (12/18/2021), HBR, Digital Transformation Changes How Companies Create Value




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"g-f" fishing of golden knowledge (GK) of the fabulous treasure of the digital age, Digital Transformation, How Companies Create Value (12/18/2021) 


OPPORTUNITY, HBR

EXCEPTIONAL “Full Pack Golden Knowledge Container”

Digital Transformation Changes How Companies Create Value


  • Where and how companies create value has shifted. More and more, value creation comes from outside the firm not inside, and from external partners rather than internal employees. We call this new production model an “inverted firm,” a change in organizational structure that affects not only the technology but also the managerial governance that attends it.
  • The most obvious examples of this trend are the platform firms Google, Apple, Facebook, Amazon, and Microsoft. They have managed to achieve scale economies in revenues per employee that would put the hyperscalers of the 19th and early 20th centuries to shame.
  • The most compelling evidence in favor of digital transformation as firm inversion comes from a recent study of 179 firms that adopted application programming interfaces (APIs).
  • Sampling from the Forbes Global 2000, platform firms compared to industry controls had much higher market values ($21,726 M vs. $8,243 M), much higher margins (21% vs. 12%), but only half the employees (9,872 vs. 19,000).


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        References




        ABOUT THE AUTHOR(S)


        Marshall W. Van Alstyne


        Marshall W. Van Alstyne (mva@bu.edu) is the Questrom Chaired Professor at Boston University School of Business. His work has more than 10,000 citations.  He co-authored Platform Revolution (W.W. Norton & Company, 2016), the April 2016 HBR article “Pipelines, Platforms, and the New Rules of Strategy” and the October 2006 HBR article “Strategies for Two-Sided Markets,” an HBR all time top 50.  Follow him on Twitter @InfoEcon.  


        Geoffrey G. Parker


        Geoffrey G. Parker (gparker@dartmouth.edu) is a professor of engineering at Dartmouth College and a research fellow at MIT’s Initiative on the Digital Economy. He co-authored Platform Revolution (W.W. Norton & Company, 2016), the April 2016 HBR article “Pipelines, Platforms, and the New Rules of Strategy” and the October 2006 HBR article “Strategies for Two-Sided Markets,” an HBR all time top 50.  Follow him on Twitter @g2parker.



        Extra-condensed knowledge



        Lessons learned, HBR


        • Facebook and Google do not author the posts or web pages they deliver. Apple, Microsoft, and Google do not write the vast majority of apps in their ecosystems. Alibaba and Amazon never purchase or make an even vaster number of the items they sell. Smaller firms, modeled on platforms, show this same pattern.
        • Inverted firms are achieving far higher market capitalization per employee not by automating or by shifting labor to capital but by coordinating external value creation.
        • The highest value digital transformation comes from firm inversion, that is, moving from value the firm alone creates to value it helps orchestrate. Cultivating a successful platform means providing the tools and the market to help partners grow. By contrast, incumbents typically use digital transformation to improve the efficiency of their current operations. New revenue projections typically focus on value capture. 


        Condensed knowledge




        Lessons learned, HBR 

        How Inverted Firms Create Value


        • Researchers (including one of the authors) classified firms based on whether API adopters used them for internal capital adjustment, the upgrades and opportunities the firm pursued itself, or used APIs for externally facing platform business models that allow developers and other partners to create their own upgrades and opportunities.
        • The difference in results between these two approaches is striking. Measured in terms of increased market capitalization, gains for firms that took the internal efficiency route were inconclusive. By contrast, firms that took the external platform route, becoming inverted firms, grew an average of 38% over sixteen years. Digital transformation of the latter type drove huge increases in value.


        Lessons learned, HBR 

        The New Rules of Creating Value


        • Firm value used to be tied to tangible assets but that is no longer the case. IP valuation firm Oceantomo has documented a 30 year trend of shifting firm values from tangible to intangible assets. As of their 2020 accounting, intangible assets made up 90% of the valuation of S&P 500 firms. Of course, intangible assets cover a broad range of things including the value of brand, intellectual property, and goodwill. Those assets, however, have been known long before the 1980s.
        • Among inverted firms, the network effects that arise when partners create value for one another are a major source of growth in intangible assets. 
        • To be sure, firm inversion entails risks of outside interference and partner negligence. If partners are part of the value proposition, then a brand can suffer when that proposition fails.
        • Creating the inverted firm has a number of important implications. Most important is that there are likely multiple holes in an organization’s skill set regarding orchestration of third party value. Adopting digital technology alone will not transform an internal organizational structure to one that functions externally. 


        Some relevant characteristics of this "genioux fact"

        • Category 2: The Big Picture of the Digital Age
        • [genioux fact deduced or extracted from HBR]
        • This is a “genioux fact fast solution.”
        • Tag Opportunities those travelling at high speed on GKPath
        • Type of essential knowledge of this “genioux fact”: Essential Analyzed Knowledge (EAK).
        • Type of validity of the "genioux fact". 

          • Inherited from sources + Supported by the knowledge of one or more experts.


        References


        “genioux facts”: The online programme on MASTERING “THE BIG PICTURE OF THE DIGITAL AGE”, g-f(2)741, Fernando Machuca, December 18, 2021, blog.geniouxfacts.comgeniouxfacts.comGenioux.com Corporation.


        ABOUT THE AUTHORS


        PhD with awarded honors in computer science in France

        Fernando is the director of "genioux facts". He is the entrepreneur, researcher and professor who has a disruptive proposal in The Digital Age to improve the world and reduce poverty + ignorance + violence. A critical piece of the solution puzzle is "genioux facts"The Innovation Value of "genioux facts" is exceptional for individuals, companies and any kind of organization.



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