The Reciprocity Advantage

A New Way to Partner for Innovation and Growth

Bob Johansen, Karl Ronn

• Publisher: Berrett-Koehler Publishers
• Year: 2014
• ISBN:
  9781626561083
• Edition: 1
• Topic: Business
• Subtopic: Leadership
• Index: Business

A powerful new kind of competitive advantage is now possible thanks to technological and social disruptions that are already occurring. These disruptions revolutionize how companies can partner to create new growth. The Reciprocity Advantage shares a model for creating that growth: define your right-of-way (the underutilized resources you already own that you can share with others), partner to do what you can't do alone, experiment to learn, and scale the new business at low risk. Reciprocity and advantage are words that are not normally seen together, but reciprocity—giving now to get later—will become a normal part of winning in the future. The Reciprocity Advantage shows you how to leverage new forces like digital natives and cloud-served supercomputing now into massively scalable, profitable, incremental growth for your business.Provocative and pragmatic, leading ten-year forecaster Bob Johansen and experienced business developer Karl Ronn describe how to lean in to disruptions to create new growth for your business. They include actual cases showing early successes for a range of companies and nonprofits like IBM, Microsoft, Google, Apple, and TED. They then provide key exercises to define your promising new ideas and nurture them into healthy new businesses. Their recommendations are based on practical experience in managing the problems of new business creation and many years of helping others see the future more clearly. Distilled from hands-on work, this book gets you started today on creating your own reciprocity advantage.

PART ONE

Reciprocity on a Massive Scale

The four chapters in Part One introduce the four steps to reciprocity advantage. This four-step cycle will give you a new way to think about innovation and growth.

Chapter 1. Uncover your right-of-way—an existing platform where you already have permission to innovate with authenticity. Which of your assets have value for others and could also help you create complementary business growth? Essentially, what underutilized assets could you give away now that would yield greater value later?

Chapter 2. Find the best partners, ones who will allow you to accomplish what you could not do alone. Which partners will lower your risk, increase your innovation potential, and look out for you?

Chapter 3. Learn by experimenting. Give away assets intelligently in order to learn how to create value in new ways. The goal is to learn in an open, low-cost, and iterative way that allows for time to discover which questions to ask. How can you and your partners learn how to make money in new ways within your right-of-way?

Chapter 4. Scale it once you figure out what works, but keep it small until you are ready. The focus here is on how to make your new business big. Cloud-served supercomputing will be an amplifier for almost everything. When you are convinced that your business is desirable, viable, and ownable, you are ready to scale.

Following these four steps will help you uncover your right-of-way and create your reciprocity advantage, which will make extremely good business sense—given the external future forces of the next decade.

Creating new businesses is risky. Using your existing but underutilized right-of-way to create a new business will lower your risk dramatically. You already own the assets you are sharing or giving away, and in most cases, you are not getting any value at present from these underutilized assets. If these assets can be unleashed to create new growth and capitalize on the disruptions that will occur in the near future, you can create a reciprocity advantage.

Reciprocity advantage will scale much faster if it is grounded in trust. James Fallows, in his book More Like Us, introduced the intriguing notion of a radius of trust:

Except for psychopaths, everyone treats someone else decently. The question is how many people are classified as “us,” deserving decent treatment, and how many are “them,” who can be abused. When the radius of trust is small, the society is carved into tribes, castes, and clans. People are loyal to the handful of brothers inside the circle and may as well be at war with everyone else. The obligation to behave decently—and the expectation of decency in return—ends with family or friends. (More Like Us, p. 25)

Fallows was writing about trust in 1989. Building strong brands and strong businesses has always been an effort to build trust. What’s changing is transparency.

In the past, companies could exert considerable control over their brand story through one-way broadcast media. In the future, control of corporate stories will be very difficult and transparency will be mandated. What people say about your brand will be much more important than what you say about your brand.

In a world of increasing global connectivity, the importance of trust will increase. Transparency will be required, while control of your own brand story will be increasingly difficult. If companies are not transparent, transparency will be forced upon them and forced transparency may well be unfair. Companies will need to embrace this loss of control but figure out ways to grow even when they do not have control. If you are not trustworthy, you will not grow in this world—at least not for long.

Figure 3: Step One toward Reciprocity Advantage.

CHAPTER 1

Reciprocity Right-of-Way

In which the complex notion of right-of-way is unpacked and put into play in search of growth and scale.

Right-of-way has multiple meanings. In law, it means a basic exclusivity where one person has permission to do something others cannot do. In California, Oregon, and some other states, pedestrians have the right-of-way over cars. According to Dictionary.com, right-of-way is defined as

1. a common law or statutory right granted to a vehicle, as an airplane or boat, to proceed ahead of another;

2. a path or route that may lawfully be used;

3. a right of passage, as over another’s land;

4. the strip of land over which a power line, railway line, road, etc., extends.

Right-of-way is an unrealized opportunity space where you can create a new large-scale practice of exchanging with others for mutual benefit. Right-of-way is the space within which you can create your reciprocity advantage. Indeed, a reciprocity advantage becomes possible only within your right-of-way. For example, consider the evolution of IBM over the last 30 years.

IBM’s Right-of-Way Reimagined

When Bob began his career in the 1970s, IBM (or Big Blue, as it was then called) had a very strong right-of-way selling big computers. Actually, big computers were the only computers then.

Institute for the Future, in those days, had Silicon Valley offices on Sand Hill Road (now referred to as the Wall Street of Silicon Valley) in Menlo Park, California, and IBM was IFTF’s neighbor.

In the 1970s, IBM was a conservative company that was doing very well. IBM people were known for their conservative dress: usually dark blue suits. IBM’s founder, Thomas J. Watson, purportedly said the reason IBM salesmen (they were almost all men at the time) wore blue suits, white shirts, and a red tie was because computers were so unreliable that the people who supported them had to look very reliable. Business casual came slowly to IBM, as did most everything else. Everything about IBM looked conservative. IBM offices looked conservative too.

One of the buildings IBM rented on Sand Hill Road, for example, was an especially fancy one that had been designed by an aggressively ostentatious company that eventually went bankrupt. IBM rented that fancy space anyway, but it just didn’t fit the IBM image. Some of the individual executive offices had private patios, for example. When IBM moved in, they put filing cabinets in front of the patio doors in a futile attempt to make this overly fancy space feel like an IBM office. Those of us on Sand Hill Road at the time kidded that IBM’s motto was “austerity … at any price.”

Then the world changed, and IBM started on a path to uncover its unrealized right-of-way. This change also came slowly, but it has been dramatic and successful.

In an iconic Super Bowl commercial in 1984, Apple Computer introduced the Macintosh that was about to hit the market on January 24, 1984. In an only slightly veiled comparison of Big Blue to Big Brother from the George Orwell novel 1984, the Apple commercial showed a female runner escaping gray guards and running up the aisle in a gray theatre with gray people sitting passively in rows watching a gray Big Brother lecture on a giant gray screen. The runner raced toward the front of the theatre and hurled a hammer through the screen. The shocked watchers gasped as they saw a flash just before a colorful message appeared on the screen announcing the new Apple Macintosh with this promise:

You’ll see why 1984 won’t be like 1984.

As computers got smaller and more ubiquitous, IBM found it increasingly difficult to make money selling big computers—or even small computers, although they gave that a good try. IBM’s right-of-way was disrupted by the very technology it was developing. The IBM story became a happy one, however, even though it had gloomy days. While IBM continued to sell to corporate clients, their hardware business became unprofitable. IBM smartly added a new source of growth: services. This was the first step in business reinvention done by CEO Lou Gerstner and followed up by Sam Palmisano with a move from an emphasis on products to an emphasis on services in support of products.

Services had always been part of IBM’s business, but not as big a part and not as profitable a part as they were to become. IBM’s services became a competitive advantage. The first reinvention of IBM was to understand service as a business in and of itself. This allowed the later decision to sell the computer hardware business and focus on other sources of growth. As business dress became more diversified, so did IBM’s business offerings. Now they even study “Service Science” (short for Service Science, Management, and Engineering)⁵ at their Almaden Research Center and other parts of the company. Just as IBM helped to seed and nurture the academic discipline of Computer Science, it is now seeding and nurturing Service Science.

IBM has become a vivid example of reciprocity at work. They call it “value co-creation.” IBM uncovered an underutilized right-of-way that was linked to both its internal past and the external future. IBM created what we would call a reciprocity advantage.

IBM gradually realized that its core right-of-way is big data analytics and big data know-how. IBM is successfully engaged in big data management for customers around the world. IBM is now focused on custom software to manage and make sense out of your data. IBM has extensive big data analytic skills but needs very large data sets to apply those skills and draw business value from them. Since each challenge is different, IBM brings together a team that can add value for that particular situation.

IBM is creating a big data market with other people’s data and then analyzing that data to achieve goals that neither IBM nor its clients could have done alone. IBM’s three businesses are products, services, and software—but what it calls “software” looks like software solutions and software services to us. Through its study of services sciences, IBM is learning how to provide services in new ways through software and solutions. It is moving from what have become low-margin services to high-margin software services, some of which include IP licenses.

The Birth of Smarter Planet

Big Blue has reimagined itself as Smarter Planet, and it is grounded in the underutilized right-of-way that IBM uncovered. Grounded in its big data right-of-way, IBM is creating a new reciprocity advantage that capitalizes on the disruptions we discuss in Part Two of this book. IBM’s big data expertise plus a customer’s big data problem equals new businesses and new growth for IBM—plus new value for more players. IBM still has service businesses, but now they are creating new Smarter Planet businesses around the world. This is what Harvard Business School Professor Clayton Christenson recognizes as competing against nonconsumption—creating a business that had not been there before and therefore had no competitors. These new businesses are focused on big data problems that would not have been addressed if IBM didn’t create new partnerships to solve them. IBM stakes out its right-of-way with these statements in its annual report:

Big data is the planet’s new natural resource.

Advanced analytics enable us to mine it.

Cloud computing is coming of age.

Social and mobile create a new platform for work.⁶

And we would add: there will be new opportunities for new businesses, based on reciprocity advantage.

IBM is now reaching out to a wide range of big data problems, such as wind energy, customer retention, cancer treatment, and city operations. Essentially IBM is going out into the world and working with a wide range of difficult problems in search of opportunities to make sense out of complex data sets. It is going into spaces where nobody else has gone. As opportunities are discovered and prototyped, the Smart Planet branding gets applied with vigor.

Nobody, not even IBM, can make a smarter planet alone. Partners are needed, and IBM now has partners everywhere, of all sizes and with all kinds of offerings. Often, customers are also partners, and sometimes even competitors are partners. In Istanbul, for example, IBM worked with local governments, agencies, and companies to study traffic patterns by doing big data analytics on mobile phone traffic patterns. Based on these results, the city re-routed public transit patterns to better distribute the traffic flow and reduce congestion. IBM is co-creating a smarter planet with customers, cities, and regional economic development groups—but it is also becoming a very successful business.

IBM’S partners are sometimes unusual. When IBM introduced Watson, the challenge was in demonstrating what was then the world’s most advanced computer with artificial intelligence that could understand free-form speech. How do you introduce a product that is so exotic and unusual? IBM chose to partner with the popular television show Jeopardy! At considerable risk, IBM entered Watson in a competition against two of the most successful human participants on Jeopardy! Fortunately for IBM, Watson won.

This limited partnership between IBM and Jeopardy! resulted in a mass understanding of what Watson could do, a mass understanding that played out over just two nights—but was rebroadcast in many forms afterward. Watson had a reputation overnight, which planted the seeds for the next big question: to whom could IBM give Watson so that it could have great value in creating a smarter planet and from whom IBM could make a considerable profit in providing services to support Watson? The answer is likely to be in health care, with a whole new set of partners—large and small.

As we were finishing this book, IBM announced that, about two years after its success on Jeopardy!, it is making Watson available as a development platform in the cloud to seed new software development applications on a worldwide scale.⁷ The IBM Watson Developers Cloud began on November 14, 2013.

In Louisville, Kentucky, IBM partnered with a small startup company called Asthmapolis (now called Propeller Health) to create a healthier environment for kids with asthma. Asthmapolis has a GPS sensor inhaler that broadcasts the locations where the spray is u...