Networked technologies lower the threshold of participation, create more modularity and granularity in products and services, relocalize physical production, and create new production models that scale fast and more efficiently than traditional models. This raises serious questions for executives about how to help their companies capitalize on the transformation underway.
Yesterday, the majority of competition was symmetrical: between players with relatively evenly matched resources and capabilities. Think Ford v. GM, P&G v. Unilever, or K-Mart v. Sears. While new entrants have always challenged these incumbents, it’s different now:
- Rarely before have new entrants upset incumbents so decisively — to actually put them out of commission. (i.e. 244–yr old Britannica v. 11–yr old Wikipedia).
- Never have entrants dominated entire industries with such speed (i.e. Facebook’s domination of not just the social media industry but the entire Internet).
- Never before have so little resources been needed to compete (i.e. Airbnb v. hotels)
- Never before have so many revolutionaries threatened so many incumbents across a broad sweep of industries.
In short, the Law of Asymmetrical Competition states that closed, hierarchical organizations will lose to those entrants who collaborate with their user communities via networked technologies. The work of physicist Geoffrey West, of the Santa Fe institute, proves why. He shows that companies scale SUB–LINEARLY. Their slope is .75, which means that, at each point of growth, a company has 25% less innovation (among other things) than they previously did. However, social networks scale SUPER–LINEARLY. Their slope is 1.15 meaning that, at each point of growth, networks have 15% more innovation (among other things) than they previously did.
The broad message of P2P design is that organizations need to respond. They must incorporate an understanding of networks into their strategic thinking and hire leaders to design and integrate these new means of business. In the long run, a deliberately designed loss of control grants companies the only remaining and arguably most critical competitive advantage: access. As long as they enable and facilitate knowledge flows, ideas, passions, skills, and innovations among social networks, they have access to them. The truth is this: the company with the smartest consumer community wins. In fact, McKinsey discovered this to be true. Surveying global executives, the firm found that deploying networked technologies to foster mass collaboration is highly correlated with market share gains.