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04 Feb 09

Hal Varian on how the Web challenges managers - The McKinsey Quarterly - Hal Varian web challenge managers - Strategy - Innovation

www.mckinseyquarterly.com/...e_Web_challenges_managers_2286 - Preview

innovation google mckinsey management knowledgeworker

We’re in the middle of a period that I refer to as a period of “combinatorial innovation.” So if you look historically, you’ll find periods in history where there would be the availability of a different component parts that innovators could combine or recombine to create new inventions. In the 1800s, it was interchangeable parts. In 1920, it was electronics. In the 1970s, it was integrated circuits.

Now what we see is a period where you have Internet components, where you have software, protocols, languages, and capabilities to combine these component parts in ways that create totally new innovations. The great thing about the current period is that component parts are all bits. That means you never run out of them. You can reproduce them, you can duplicate them, you can spread them around the world, and you can have thousands and tens of thousands of innovators combining or recombining the same component parts to create new innovation. So there’s no shortage. There are no inventory delays. It’s a situation where the components are available for everyone, and so we get this tremendous burst of innovation that we’re seeing.
So I think now, with what we’re seeing with mobility, we’re going to have a totally different concept of what it means to go to work. The work goes to you, and you’re able to deal with your work at any time and any place, using the infrastructure that’s now become available.
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- At the base, there’s the innovation infrastructure making better, faster, cheaper networks. There’s the improvement in the human–computer interface because the big challenge in mobile communication has always been dealing with this—quite limited—interface. But then, the kinds of innovations I think will arise on top of that will be innovations in how work is done. And that’s going to be one of the most exciting aspects, in my opinion.
- If you look at the beginning of the 20th century, we saw the rise of mass production. Henry Ford and the entire team were down on the factory floor raising this, lowering that, speeding up the assembly line, changing the way things were built, and were able to extract far more efficiencies than were available before. I think the same thing is happening now with digital technology. When we’re all networked, we all have access to the same documents, to the same capabilities, to this common infrastructure, and we can improve the way work—intellectual work, knowledge work—flows through the organization. And again, in my opinion, that will lead to a substantial advantage in terms of productivity.
- Back in the early days of the Web, every document had at the bottom, “Copyright 1997. Do not redistribute.” Now every document has at the bottom, “Copyright 2008. Click here to send to your friends.”
- So there’s already been a big revolution in how we view intellectual property. So it’s not so much the question of what’s owned or what’s not owned. It’s a question of how can you leverage the assets you have to realize the most value.
- I think that the availability of these very inexpensive platforms you’re creating, in disseminating content, means that it’s become intensely competitive. The content is as valuable as it ever was, it’s just the competition that’s pushed the prices down to something that approximates zero. So it’s not something that the content producers necessarily embrace, but it’s something they’re forced into by the nature of the technological change.
- In these models, there is typically a revenue-generating component somewhere in the value chain. And most commonly today we’re seeing it on the advertising side. To look at this from a historical perspective, it’s really not so new. If you look at the 1920s, the technological question in the ’20s was, “How can we build a business model around broadcast radio?” And nobody really had a good idea. And back in the mid-1990s we asked, “How can we build a business model around the Internet?” And the preferred model at the time was a micropayments system. That never happened, for some reasons, but what did happen instead is we moved into the advertising model, and the advertising’s model been phenomenally successful.
- We have to look at today’s economy and say, “What is it that’s really scarce in the Internet economy?” And the answer is attention. [Psychologist] Herb Simon recognized this many years ago. He said, “A wealth of information creates a poverty of attention.” So being able to capture someone’s attention at the right time is a very valuable asset. And Google really has built an entire business around this, because we’re capturing your attention when you’re doing a search for something you’re interested in. That’s the ideal time to show you an advertisement for a product that may be related or complimentary to what your search is all about.
- I keep saying the sexy job in the next ten years will be statisticians. People think I’m joking, but who would’ve guessed that computer engineers would’ve been the sexy job of the 1990s?
- I think statisticians are part of it, but it’s just a part. You also want to be able to visualize the data, communicate the data, and utilize it effectively. But I do think those skills—of being able to access, understand, and communicate the insights you get from data analysis—are going to be extremely important. Managers need to be able to access and understand the data themselves.