What makes a company a company when markets are superfluid?

Andrea Potter

Andrea Potter,

Insights Director, EYQ

www.linkedin.com

The world is now at an inflection point. New technologies are creating superfluid markets and disrupting companies as we know them, says Andrea Potter, Insights Director, EYQ

Swimmer

In physics, certain fluids have the unique property of zero viscosity. In other words, they flow without friction. These liquids are called superfluids. Similarly, a new generation of technologies and innovators is bringing us closer to a state of superfluid markets, where traditional market frictions are reduced or even eliminated. 

Viscous markets: slow, opaque and expensive

In the pre-internet world, which encompassed most of the 20th century, the company’s principal purpose was to access and participate in markets. By bringing groups of individual specialists together under one roof, companies were efficient, multidisciplinary organizing structures designed to help reduce the frictions inherent in conducting business in a viscous market era.

Mud runners

It was a world of paper, ringing telephones and manual processes. Companies maintained large workforces and spent considerable time, energy and resources on procuring equipment, advertising, contracting, facilitating payment and transporting products to buyers, among many other activities. Industries of all types were surrounded by a web of intermediaries helping companies in that industry perform the activities necessary for market participation at a lower cost.

Fluid markets: fast, transparent and inexpensive

The arrival of the internet and digital commerce changed everything. The internet democratized access to information, reducing the information asymmetry that once existed between buyers and sellers. The old constellations of middlemen were eliminated, replaced by a new class of digital intermediaries.

New virtual markets arose — from online stores to auction sites to content aggregators to crowdfunding platforms — connecting buyers and sellers in a more frictionless way. Markets became handheld. Mobile devices and apps put markets and market participation in the hands of buyers and sellers alike. Transacting became quick and easy, and entire industries were disrupted.

As participating in markets became easier, traditional companies began to unbundle in response. The once hard and fast boundaries began to erode through outsourcing, crowdsourcing and other methods of bringing the outside in.

Superfluid markets: frictionless and decentralized

The world is now at another inflection point. We have entered the age of superfluid markets. New technologies are converging to eliminate even more inefficiencies and frictions from markets.

The decreasing price and increasing performance of computing continue to be on an exponential curve. Data storage capacity in the cloud is infinite. The physical world is being sensed, tagged and linked to the internet. Massive amounts of new data are being generated, and artificial intelligence (AI) using deep learning techniques now powers machines and devices. Bots are observing our behaviors, increasingly acting like and for us, and blockchain technology establishes trust between market participants in a decentralized, encrypted and secure manner.

These changes will have profound implications for the way markets work. Everything will be connected to everyone. Machines will transact autonomously with other machines, as well as directly with people — automatically requesting service, triggering inventory replenishment or bidding for power. Supply will better meet demand. Everything will be rentable as a service, including manufacturing equipment and robotics, and excess capacity will fade away. Blockchain-enabled platforms will enable decentralized, peer-to-peer commerce. And a superfluid technology infrastructure will arise in low-income, rapid-growth economies without legacy installations, helping these countries vault ahead.

Does the company have a future in a superfluid age?

Companies arose to coordinate the activities and reduce the costs of participating in markets. But in a near-frictionless world, will companies as an organizing force even be necessary?

&Co sign

Companies provide value beyond lowering transaction costs

A factor in this calculation is the fact that companies do far more than reduce transaction costs. Companies muster resources, including intangible resources such as corporate culture and shared knowledge, which contribute positively to society and the economy beyond simple cost reduction. Companies today compete more on the basis of value creation than on the basis of generating internal efficiencies. Markets aren’t static either, as companies place bets on innovation that redefine markets and create new ones.

There’s also the human dimension. Companies are their brands and brands matter. The emotional connection between consumers and company brands remains a powerful bond. For people as employees, there are clear perks to being part of a formal organization, including benefits, access to resources, and the opportunity to collaborate and create with a diverse set of peers.

Further disaggregation of the traditional company is likely

But as markets continue to transform, companies — their purposes, structures and activities — will undoubtedly change, too. As transaction costs plummet, value creation will continue to shift from behind the walls of the company out into the network space. Companies will become hyper-lean and will procure everything as a service — from robotics capabilities to manufacturing equipment.

The future unit of funding might become specific projects and ideas — or even virtual networks of connected entrepreneurs — and not companies. Ad hoc assemblages of atomized contributors might organize themselves around a particular service or market. The act of value creation will create companies, rather than the other way around.

The future could see decentralized autonomous organizations that run on blockchains enter into contractual relationships with people or machines, build networks of autonomous agents that interact with one another, and perform specific objectives by software code. These ownerless entities would own, buy, sell and trade assets of all sorts without ongoing human guidance. From a functional perspective, these autonomous markets could look and behave like human-staffed companies from the outside.

What should companies do today to get ready?

Companies should position themselves now to succeed in the age of superfluid markets. Strategic thinking must feature continual reassessment of which activities should remain within company walls and which should be done by external partners. In addition, companies should:

  • Prioritize innovation and creativity. Relentless focus on innovation — building unique services into products and bespoke experiences into services — will be the differentiator. Efficiency will become expected; creativity and the ability to generate value will be the only thing that matters.
  • Focus leadership on strategy and navigating uncertainty. A superfluid world requires a different type of management. As everything that can be automated is automated, managers must be liberated from operations to become the strategic programmers of the business machine. Leadership must refocus and enmesh themselves into a continuous “wiki-fied” discussion of the momentous changes and uncertainties taking place. Only by doing this can the organization be prepared to react to unanticipated developments nearly instantaneously rather than having to adapt to the news.
  • Become a dynamic learning community to attract and keep the best talent. As labor itself becomes superfluid, every company should also reposition itself as a dynamic learning community, made up of people who are committed to it despite having the option to contribute anywhere and everywhere. At the end of the day, the best and brightest people will build their affiliations with enterprises that can make them smarter and more capable by a prolonged association.

The topic of superfluid markets and their impact on companies is one that we will be exploring at EYQ over the next year. It will also be one of the key subjects at Innovation Realized 2017 – the two-day retreat presenting a uniquely creative, dynamic and interactive environment in which participants will examine innovation, collaboration and growth in a digital world.