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on 6 July 2007
I recently heard John Hagel present on this book. In the book John and his co-author John Seely Brown discuss how recent changes in the world will force, indeed are forcing, companies to change how they think about offshoring and outsourcing, innovation and even their core business processes. They describe how a combination of "Converging forces generate margin squeeze" where those forces are digital technology (driving down interaction costs) and public policy (deregulation, trade and market liberalization and globalization). These trends are certainly real and visibly changing our world as we watch. Not only can "Customers can access more information about more vendors, negotiate more effectively with still more vendors, and switch from one vendor to another whenever they find greater value" but companies have more options for how to piece together the resources they need to do business. These new conditions and options, though, require companies to change the way they plan, operate and turn a profit and it is these changes that the book mostly discusses. The authors argue that these trends and opportunities are actually changing what it means to be a company. Redefining the role of the firm from economizing on market transactions, the original raison d'etre of most companies, to one of accelerating knowledge and capability growth.

The book does a good job of showing how some companies are competing in ways that would be unimaginable just a few years ago and the authors lay out a compelling case that companies who do not respond to these new threats and opportunities are taking an enormous risk. Whether or not you believe the change will be as widespread as the book implies, the changes are real and will impact your business to at least some degree and this makes the book worth reading.
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Around 1990, business reached one of those tipping points that change everything: You could now add knowledge, expertise, and capability better and more cheaply by involving those outside your organization than you could by building up your organization internally.

Authors John Hagel III and John Seely Brown focus on a few elements of this change as it had developed into management practices by 1995, outline the benefits of going in this direction, and describe what to do in broad outlines.

They build the book around five big themes:

1. Process outsourcing and offshoring provide access to specialization that you cannot otherwise match.

2. Flexible connections with suppliers, customers, and distributors allow you to make the most of these relationships.

3. Letting outsiders help establish the plan and agenda allows you to go in more productive directions than if your organization calls all of the shots.

4. Strategy development has to shift towards building capabilities from these dimensions. Prior approaches to strategy development are largely obsolete.

5. Shifting IT architecture and software to permit rapid flexibility in adding connections to other organizations.

The book will remind you of a shorter version of Michael Porter's books on competitive advantage and competitive strategy, except with a changed focus on developing capabilities. The book also shares Porter's affinity for using abstractions and general language that makes it hard to follow the arguments in the book. Also like Porter, you won't find very many examples.

What I found most inexplicable about the book is the authors that ignored the broader topic of continuing business model innovation (the issues presented here are just a subset of those opportunities) and the newer ways that companies are accessing new knowledge and capabilities (such as through the worldwide contests conducted by Goldcorp and Procter & Gamble). Indeed, I was shocked to see none of the most successful business model innovators cited in the book. Instead, there are lots of references to narrow studies that describe obsolete practices for strategy and implementation.

But if you want to learn how to rapidly throw together a global sourcing and distribution network for a large company that can be flexibly changed as the needs arise, this book is an excellent resource.
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