When it comes to digital business, Andrew McAfee knows a thing or two. A principal research scientist at MIT, prolific writer, and management expert, McAfee is a leader in understanding and explaining how digital technologies are changing business, the economy, and society.<\/p>\n
At the recent SAP Leonardo Live event in Chicago that focused on digital transformation, McAfee urged his audience to throw out the business playbook they\u2019ve been using for the past 30 years.<\/p>\n
\u201cThe right way to run a factory in the steam era became a really, really bad way to run it in the era of electrical power,\u201d he said. \u201cSimilarly, during a technology transition \u2014 and afterwards \u2014 the advice you used to follow becomes bad advice.\u201d<\/p>\n
McAfee explained that fast, profound shifts are occurring in three key areas: process, company, and industry. And he provided a new playbook to help companies navigate those changes and succeed.<\/p>\n
Process: From People to Machines<\/strong><\/p>\n The traditional wisdom about process, which McAfee defines as \u201cgetting stuff done,\u201d is to let machines handle the routine work like accounting or record keeping, and have people use their accumulated wisdom to make the judgements calls. This is the playbook of yesterday.<\/p>\n \u201cProfound shifts are occurring in three key areas: process, company, industry\u201d<\/p><\/blockquote>\n McAfee explains that in most companies, decisions have typically been based on the highest-paid person\u2019s opinion, or \u201cHiPPOs.\u201d They follow their gut, past experiences, and education, but they are being threatened by what McAfee calls \u201cthe Geek\u201d \u2014 people who use data to make decisions.<\/p>\n \u201cWhen the Geek needs to make a tough call, they gather evidence, do the best analysis they can, then they follow the evidence \u2014 even if it doesn\u2019t go along with their gut or their experience,\u201d McAfee explains.<\/p>\n \u201cBut here is where things get interesting,\u201d he says. \u201cIn 136 studies of decision making by HiPPOs versus Geeks, 48 percent of the time HiPPOs added nothing over Geeks\u2019 approach. Furthermore, 46 percent of the time HiPPOs provided an inferior decision. HiPPOs were only clearly better in eight percent of the cases. We need to make HiPPOs an endangered species.\u201d<\/p>\n McAfee believes that with artificial intelligence (AI) and machine learning, \u201cNow we have a new toolkit to help us sift through these crazy amounts data, see patterns, and make very sophisticated, accurate judgements in extremely complicated situations.\u201d<\/p>\n He explained that AI and machine learning technologies have leapfrogged much further ahead today than anyone could have anticipated, and are ready to take over making judgement calls.<\/p>\n \u201cGo is 3,000 year old Asian strategy game. Computers have been laughably bad at Go. Until last year, when the world\u2019s best Go player became a computer,\u201d said McAfee.<\/p>\n Analyzing the game played by AlphGo, a Google AI company, experts focused on one particular move \u2014 move 37 \u2014 that made no sense to human players but ultimately helped the machine win. The lesson learned? AlphGo doesn\u2019t just play the game better than we do, it plays differently than we do.<\/p>\n McAfee is optimistic: \u201cTogether with machines, we\u2019re going to make progress in some very difficult areas. And when we rewrite the business playbook, remember: machines are demonstrating excellent judgement.\u201d<\/p>\n Company: From Core to Crowd<\/strong><\/p>\n \u201cFor about 25 years we\u2019ve been telling business that to succeed they need to strengthen their core \u2014 \u2018core competency, core strength, core capabilities,\u2019\u201d said McAfee. \u201cThe idea of the core is a small number of things that differentiate you from competitors, realize value for customer, help you succeed in your markets.\u201d<\/p>\n But, he explains, now there are millions of interconnected adults on the internet and if you can activate the energy of the crowd, amazing things can happen.<\/p>\n McAfee provided an example where a Harvard Business School expert on crowd sourcing and innovation Karim Lakhani worked with the National Institute of Health (NIH) and Harvard Medical School to try and improve the ability to sequence human white-blood cell genomes. They got good results.<\/p>\n But when Lakhani opened up an online competition to the crowd as an algorithmic challenge they got amazing results in both accuracy and speed. McAfee says the top results, \u201cshowed an improvement that was three orders of magnitude faster, without sacrificing accuracy,\u201d compared to the NIH and Harvard Medical School results.<\/p>\n \u201cWe\u2019re seeing companies that don\u2019t focus on growing their core. They embrace the crowd from the start,\u201d said McAfee. \u201cWe will see how this plays out. But when we rewrite the business playbook, we need to remind ourselves: the crowd is surprisingly wise.\u201d<\/p>\n Industries: From Industry to Platform<\/strong><\/p>\n \u201cI grew up in McKinsey understanding the playbook rule: There is no substitute for knowing an industry inside and out. For the past 30 years, the business playbook has said industry structure determines successful business models,\u201d said McAfee.<\/p>\n But in three very different industries McAfee argues that platform is making the difference when it comes to disruptive innovation.<\/p>\n Take the smart phone industry: The defining moment was when Apple opened up the App Store as a platform for outside developers. For urban transportation, it was Uber and now group fitness is being transformed with ClassPass, a platform that allows people to take classes at gyms by subscribing as members to ClassPass, not the gym.<\/p>\n McAfee explains: \u201cClassPass says, \u2018Don\u2019t join a gym. Sign up with us. You can pick whatever classes you want and get variety.\u2019 To gyms they sayY \u2018you have some empty spaces. We can fill them. You won\u2019t get the full price but some revenue is better than none.\u2019\u201d<\/p>\n Like with Apple and Uber, the platform for ClassPass brings together products, services, sellers, and consumers.<\/p>\n If platforms work, McAfee believes there are many advantages: You get the network effects of increased demand, companies can control the rules of engagement. With an open platform, you can crowd-source innovation and get additional information, which is used to create better pricing and matching of services.<\/p>\n This blows apart the distinct industry-sector differences people used to assume fueled growth and replaces it with the mandate to find the right platform for your business.<\/p>\n McAfee concludes, \u201cI am pretty<\/em> confident that the successful businesses of tomorrow are going to have a lot more machines, platforms, and crowds in them than today. I am really<\/em> confident that following the industrial-age business playbook is a really good recipe for failure.\u201d<\/p>\n <\/p>\n