In his brilliant book, Notes on the Synthesis of Form, Christopher Alexander asks, why can an illiterate builder create a dwelling that is cool in the summer, warm in the winter, and withstands hurricanes, but most modern designers create buildings that are too hot, or too cold, too difficult to maintain, or just don't work? Even Frank Gehry, whose work I find spectacular, is less than optimal. If you don't believe me, just ask a janitor at the new Stada Center at MIT (a $100,000,000 plus building by Frank Gehry) "how's it goin" and the janitor will rant on how un-maintainable the building is. (Ironically, the Stada Center replaced the famous Building 20, which was the most utilitarian building on the MIT campus, which would have put it in the running for the most utilitarian building on the planet.) Between budget and building materials, Gehry had virtually no constraints in his design choices, and he misses the mark along important dimensions.
Alexander says that the primitive architect is engaged in "unselfconscious design" -- where the design forms have been passed from builder to builder and whittled into place with the passing of time yielding an artifact that works in ways far beyond the conscious intent of person "designing" it. Contrariwise, the modern architect has structural steel, heating and ventilation systems which can move tons of air, plate glass, elevators, and thousands of other solutions that remove traditional limitations of building. Yet, how often have you or I been sweltering inside a "modern" building whose windows should have been designed to open, but weren't? Alexander argues it is the very plethora of choices and capabilities in the realm of self-conscious design which overwhelms the modern designer. It is only the genius of geniuses like Louie Kahn, whose buildings are new, beautiful, functional, and delightful to experience, who can navigate the unconstrained waters of modern building design process. (If want to experience a Kahn building and you live in the Boston area drive up to Phillips Exeter Academy, in Exeter, NH. Kahn designed the library there, and it is spectacular to behold, to be in, and is a functional gem to boot.) Put another way, lack of constraints creates a problem.
Why, you might ask, am I ranting about architecture? Well, I believe businesses face a dilemma similar to the modern architect, because the digital description of reality is to CEO what structural steel is to the architect -- it allows for the reinvention of every core assumption. If you believe as I do that we are living in an ever expanding reality bubble begun with a big bang at the "beginning", and the universe is delimited by an event horizon skin, you might also embrace the idea that our "digital reality" had its own big bang when Alan Turing showed that it was possible to create a logical machine which could mimic every other logical machine every conceived. Every computer is a Turing Machine, and this Turing Reality is expanding faster and more expansively than any virus the world has ever known. The implications of this change are multifaceted, and multifarious, for they are hard to figure out. Let me lay out just a few implications...
Digital reality means that the understanding of interaction with customers can be designed differently. The analysis of customer data can be radically improved as I wrote about in my blog the day before yesterday. The improvement to business through better models of the business in a digital form is well documented, and 7-Eleven Japan and Harrah's Entertainment both lead their markets through superior scientific understanding of their world -- where they can take data about what happened, analyze it, and create new insights, that then turn into actions, that they then drive through their organizations to extract the value. 7-Eleven Japan trades at a multiple to sales of six to eight, whereas Wal-Mart trades at one times sales. Again, design matters.
Digital reality means that new business models are now possible that were previously unthinkable, and great new designs harvest extraordinary value because financial returns are not normally distributed; they are hugely skewed, both at the individual and the organizational level. For example, Google has a market capitalization that is eight times that of the WPP Group, or Omnicom, two huge advertising conglomerates. Better business design enables radically different returns for businesses that are providing similar services to the end customer. I have argued in an earlier blog that iTunes is a new animal -- with a better design. So too with the Corporate Executive Board, which is a research company that has created a core of "best practice" sharing, where their customer base is both a subscriber to content, and part of the network of content creation. They are trading at a price to sales ratio of ten versus Gartner which has a price to sales ration of 1.7. The Corporate Executive Board has a superior business design.
It has often been said that the pioneers do not win the lion's share of the profits, but the fast followers do. This type of analysis has been done many times over the years, with a recent example being the fact that Amazon was not the first on line book seller. However, I think that if we were to look at those firms who created a new business model, they often do dominate their markets and for a long time. Historically, one of the ways GE pulled ahead of Westinghouse in the fight to electrify the towns and cities of the USA, was that GE allowed the towns to lease the lighting equipment, whereas Westinghouse made them buy it. This meant that the towns could easily add GE to their operating budget, but in order to get Westinghouse, the town or city needed to launch a referendum to raise debt, to pay for the new equipment. Needless to say, GE pulled ahead due to their business design. Arthur Andersen created the systems integration business when they realized that someone needed to install and integrate all those computers that IBM was selling. They piggybacked on the existing accounting relationship, and created a training method and system to drive large pyramids of talent into the buyer's organization -- creating an entirely new model of consulting which now survives as Accenture -- still the market leader in system integration. Amazon too had a different and more comprehensive business design than the online bookseller they blew away.
Most organizations have no ability or interest in creating a new business model -- they are too busy executing. But, I'm reminded of something my friend Alan Kay often says at our board meetings. "If you are really interested in making money, then you need to think about inventing something completely new." It is important to remember that this advice comes from a guy who pioneered the largest and fastest growing industry in the past two generations, the personal computer business.
Given the obvious returns of better business design, why do so few people attempt it? Well, first there is risk. Second, it makes most people's heads hurt -- because there are too many design choices. Third, it take an enormous amount of leadership and managerial courage to convince an organization to attempt something that has not been done before. Fourth, it is just plain hard to do. As I noted in Architecture, there are only a few geniuses who can pull off building a "modern" building. I bet there are even fewer who can do it for business because with a building, at least you have some parts that are "static". In business all constituencies -- from the investors, to the customers, to the employees are a dynamic, organic systems -- ever changing and interacting.