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Machine, Platform, Crowd

Larry Schmitt

Innovation Partner

by Andrew McAfee and Erik Brynjolfsson

One of the issues with the vast amount being written about digital transformation that there has not yet emerged a compelling and comprehensive framework that can be used to organize and understand the many and varied technological, social, economic and organizational forces, trends and transformations that are taking place. This is what the authors attempt to do in this book and they are more successful at it than most but still fall short in several respects.

The framework they put forth has three foundational components that define and organize the transformations taking place, what is causing them, and what the implications of the transformations will be for businesses and individuals.

Mind to Machine: The first transformation is the augmentation (and replacement) of minds with machines. The advent of machine learning and artificial intelligence is creating an inevitable shift to relying on machines for a lot of the mental work previously done by people. This includes work done by highly trained, intelligent experts. Machines will learn how to train themselves and become creative, inventive, aesthetic and emotional – all things that it was once thought were strictly human capabilities. As the authors state:

Getting rid of human judgments altogether—even those from highly experienced and credentialed people — …, often yields better results. … Too often, we continue to rely on human judgment when machines can do better.

Since most of the work that is done within companies is ‘mental work’, the implications of this on the future of the firm are profound.

Product to Platform: The second transformation is the emergence of platforms as the organizing drivers of value creation, supplanting the dominance that products (and services) have long played.  A platform is defined as a digital environment characterized by near-zero marginal cost of access, reproduction, and distribution. Entire ecosystems that include physical products and real-world experiences can be constructed on these platforms.

We predict that O2O (online-to-offline) platforms will spread quickly throughout the world of atoms, whether or not they include or involve consumers. In fact we’re already seeing examples of intriguing business-to-business platforms bridging the online and offline worlds—B2B O2O:

While the effects of platforms are clearly seen in examples such as Apple Apps, Uber or Airbnb, the authors predict that even companies that are firmly embedded in the world of atoms will see massive disruptions (and massive opportunities) in future platforms that emerge.

Core to Crowd: The third transformation is the emergence of the crowd, the startlingly large amount of human knowledge, expertise, and enthusiasm distributed all over the world and now available, and able to be focused, online. Many companies have already realized that the collective knowledge that exists outside their core (i.e. their proprietary boundary) is vastly greater, and increasingly more relevant, than that within the core.

The crowd is, in many ways, the opposite of the core: it’s huge, diverse, largely uncontrollable, and often messy.   The core remains relevant and useful, but in an era of global networks and robust platforms the crowd has become an increasingly powerful force.   The crowd is not unstructured, however. Its structure is emergent, appearing over time as a result of the interactions of members.

Organizations need to find out who ‘their crowd’ should consist of and the ways in which they can effectively interact with their crowd. Moreover, companies need to be able to open up their boundaries and accept that which comes from outside, something that is often difficult to do.

Because of these three transformations the authors state conclude that “companies need to rethink the balance between minds and machines, between products and platforms, and between the core and the crowd” and start transforming all of their business activities – from R&D to marketing, operations to sales and management to innovation.

Because these transformations are fundamentally digital in nature, it is sometimes difficult to see how they can affect the world of physical products and B2B transactions but don’t be fooled, the transformation of these worlds is only a matter of time and those who ignore this and think that machines, platforms or crowds have nothing to do with their business will be greatly surprised. As the authors state:

Why are technology progressions that are so obvious in retrospect so hard to see accurately while they’re unfolding? And why are so many of the smartest and most experienced people and companies, and the ones most affected by the change, the least able to see it?

it’s exactly because incumbents are so proficient, knowledgeable, and caught up in the status quo that they are unable to see what’s coming, and the unrealized potential and likely evolution of the new technology.

As an overarching framework, the Machine-Platform-Crowd construction is an attractive model for making sense out of the massive number of perspectives, opinions, information and commentary that is taking place. But is it MECE (Mutually Exclusive and Collectively Exhaustive)? The answer is no. Two areas that can use more thought and development are the world of atoms (those product companies that need millions and billions of dollars of capital equipment) and the world of organizations as they utterly transform their internal operations and functions. In other word, what should a company’s minds-products-core look like in the world of machine-platform-crowd.

As the beginning of a MECE framework that doesn’t get bogged down in technological wonderment or  self-service advocacy, it provides an excellent starting point.

This is a thought-provoking book and is well worth reading and considering, especially for those whose job it is to transform the company for the future.

This is the third book that Brynjolfsson and McAfee have co-authored chronicling the on-going digital transformation. The first two, Race Against The Machine and The Second Machine Age are also worth reading.