Stockholm (Ekonamik) – Ekonamik was fortunate to attend a lecture at the Danish Business Forum in Vienna, Austria (organised by Danish Club Austria) on June 13 with Niels Bjørn-Andersen, Professor Emeritus at the Copenhagen Business School. Professor Bjørn-Andersen conducts research related to the future of ERP systems, IT in mergers and acquisitions, inter-organizational systems, IT management, and the role of IT in shaping future organizations. It was on this latter topic that Professor Bjørn-Andersen spoke, addressing the impact of digitalisation on organisations.
Digitalisation and the disruption it brings calls for new organisational strategies, and indeed companies are adopting such strategies at a rate that may not always be perceptible to the naked eye. Radical digital innovation, or the “survival of the fastest”, thus compels an evaluation of the organisational structure of today’s enterprises, which Professor Bjørn-Andersen terms “ambient organisations”.
Organisational Outsourcing
Ambient organisations use market mechanisms rather than traditional production. The Internet, smartphones, social media et al. reduce transaction costs, inducing people to prefer buying into the marketplace than being responsible for production themselves – thereby dismantling the hierarchy of traditional organisations. The framework for today’s organisations to gain competitive advantage is thus no longer the Porter Value Chain – because innovation is missing as a factor in that chain. Instead, operations, inbound logistics, outbound logistics, marketing and sales can all be done by anyone, anywhere, and are thus increasingly outsourced by companies.
There are different types of outsourcing, professor Bjørn-Andersen explained. For example, the many organisations within the Procter & Gamble have outsourced their finance, accounting, human resources and IT to an independent center within the P&G group. This means lower costs for the company itself (as opposed to hiring personnel for all these branches internally), and creates a competitive advantage vis-à-vis other companies.
At the level of production/sale/service, Amazon, for its part, uses a different model. The retail giant, which now accounts for 52% of e-commerce in Germany and 37% in the U.S., offers customers the opportunity to sell their own wares, of which it takes approximately a 15%-20% cut on most goods. It also offers to become a wholesale vendor of users’ products, where it assumes responsibility for the wholesale, decides the price, handles all outgoing logistics to customers, and so forth, for which it takes approximately a 40% cut, although the cut varies substantially depending on the competitive position of the product.
But what Amazon then does simultaneously, where a product is successful, professor Bjørn-Andersen explained, is to emulate the product: it cuts a deal with the original producer used by the seller, creates a similar or identical product using the Amazon name. In this way Amazon becomes a direct competitor to the seller (on its own platform), thus crowding them out. Amazon also has a variety of other methods, such as Amazon Video Prime, which for US$8.99 per month offers a similar product as Netflix/HBO. However, Amazon can then create a database of customer logins, allowing it to determine the popularity of products and locking in customers by offering them 10% discount on products. This is an extremely powerful business model locking in customers to continue utilising the Amazon eco-system.
Instead of outsourcing to Amazon, one might opt for the Chinese competitor. Alibaba, which started as a B2B and now accounts for 6 million concurrent transactions at any given time. It provides services like Alisoft, which provides accounting solutions and business management software to SME e-producers. Alibaba is now also a B2C with over 450 million users and accounts for over 50% of e-commerce in China and pulled in $30 billion in revenue per day in 2018 – the equivalent to Denmark’s yearly GDP.
Logistical outsourcing is also evolving. Prime Cargo is an international freight forwarder that not only transports goods from point A to point B, but also offers tailored sea and air freight, warehousing and logistics solutions to companies of all sizes, where the manufacturer isn’t required to do even half the work. Another interesting case is the VW outsourcing of its internal logistics: DHL has provided a “world class supply side solutions” tailored exactly to what VW needs, while Unilever went as far as to outsource its Human Resources functions to Accenture, a consulting firm, which delivers “Business Process Outsourcing” services. Bang & Olufsen, Denmark’s traditional high-end sound and vision electronics manufacturer whose main product is actually its “Danish” design, now sources its designs from independent designers around the world (its high prices still suggest its business model will be obsolete within the next decade).
Covered by the Cloud
The next major organisational revolution is in cloud sourcing, professor Bjørn-Andersen explained. The eminently practical Dropbox, for example, actually used to store its data on Amazon’s servers until it recently decided to build its own infrastructure. Its sourcing sharing is generally considered to be ultra-safe because the product in this instance is the safety of the storage, which is achieved with the additional step of storing one country’s data in a completely different country.
How does Lego, Denmark’s globally loved toy manufacturer, keep innovating and stay competitive? It solicits customer feedback on the next Lego sets their children (or they) would like to see by organising an online competition for the submission of ideas. 10,000 votes for an idea results in a decision to go ahead with a new Lego set design. And how are these votes obtained? On social media, in which millions of people participate, automatically doing advertising for the Lego brand without the company having to pay a cent for it.
Or, professor Bjørn-Andersen suggested, consider the Goldcorp artificial intelligence crowdsourcing solution. Goldcorp, a Canadian global mining company, was aware of vast reserves of gold in Ontario’s Red Lake territory and devised an ingenious way to find it. It offered 400 megabytes of geological data and a $595,000 reward to 1,000 geologists globally to compete to find the gold based on the information available to them. Of the 110 targets, gold was found in 80% of them, 50 new sites were targeted, eventually yielding $3 billion in gold, reducing exploration time by 2-3 years and increasing the stock value of the company from $100 million to $9,000 million.
Not so Fast
But what of the risks, Ekonamik asked Bjørn-Andersen, e.g. considering the rise of the “gig economy”? One major result of ambient organisations outsourcing a lot of their processes to different types of part time employees, often for minimal (or no) pay, and certainly no job security, is that they are threatening to make livelihoods increasingly difficult to secure.
“There’s no question that the technology is extremely powerful,” Bjørn-Andersen said. “It’s an extremely powerful tool, and who is going to use that tool? Is it the underprivileged, the ones who have no education? No. So the rich and the powerful will utilise this, and they use it to become richer. That’s why we see this difference between rich and poor getting bigger and bigger. We see it in extreme cases in China, we see it in the U.S. That is a big risk, because it is a much bigger hammer than we used to have. And the hammer will be used by the people with the biggest muscles, who will hammer everything that can be hammered. And that is our biggest challenge. It’s not Putin, or even Trump.”
It’s a sobering thought. The immense wealth accumulated by the very few who happen to be in the position to institute the changes and new “ambient” modes of doing business in organisations is without doubt a central economic element in the rise of populist and nationalist movements in the West and across the world, which constitute a threat to the democratic order itself. Meanwhile, the “ambience” of organisational management will continue. It remains to be seen whether, for all its dazzling innovation, it can also provide solutions to the socio-economic problems accompanying it.
Image: (author)
