Who’s Managing Your Company’s Network Effects?

Who’s Managing Your Company’s Network Effects?

by Michael Schrage  |   9:00 AM December 4, 2013

Much as war is too important to be left to the generals, the business of network effects is too valuable to be entrusted to the CMOs and CIOs. Network effects make Google Google, Facebook Facebook, Twitter Twitter, Netflix Netflix and  Pinterest Pinterest. Network effects are the not-so-secret sauce profitably flavoring Amazon’s recommendation engines and Apple’s App Store. They’re destined to transform the “Internet of Things” from a post-industrial aspiration to a trillion-dollar sector.But who “owns” them in the C-suite?  Who should be accountable for identifying, cultivating and coordinating network effects inside the enterprise and out? The opportunities are clear; the responsibilities are not. Your organization needs a CNEO—a Chief Network Effects Officer—to integrate and align how your enterprise gets value from “harvesting collective intelligence.”

IT may understand the underlying software, algorithms and digital media. But managing network effects as technology byproducts is a bit like treating cars as extensions of internal combustion engines; technically accurate, yes, but missing the larger purposes and points. Similarly, marketing loves the virality that social media and network effects facilitate. But the potential impact and influence of network effects goes far beyond unique selling propositions and user experience. Comparable challenges exist for supply chain management and external partnerships: their collective intelligence may be ripe for algorithmic harvesting, but how well will it link to the rest of the enterprise?

Network effects are media and mechanism for making colleagues, customers, clients, channels, partners and suppliers more valuable. Network effects, not unlike risk management, transcend traditional enterprise functions and silos. Essentially, that design sensibility assures that the more people use these services, the more valuable they become. (The first use of the word “more” in the previous sentence does double duty—representing both the number of users and the quantity of use).  Seeing that sensibility as a series of tactical opportunities rather than a profoundly strategic organizing principle is a huge mistake.

In other words, opportunistically managing collective intelligence is not enough; smart leaderships need to rethink how to collectively manage collective intelligence.  How should organizations design and manage their networks of network effects? These are, arguably, the dominant design and business model issues for the Googles, Amazons, Apples, IBMs, Samsungs and General Electrics of the world. Reaping the network effects benefits of customers and clients is no longer good enough for sustainable value-added differentiation; tomorrow’s organizations need to better capture network effects-enabled value from their channels, partners and suppliers, as well. Monetizing network effects demonstrably makes for a helluva business model. That requires top management commitment and oversight.

The sweet spots will emerge not just from better identifying and addressing network effects opportunities with customers, colleagues and channels, but the intersections between them. For example, what kinds of recommendation engines would be of greatest interest and use for both customers and key suppliers? How might Kickstarter-like innovation initiatives facilitate new conversations and collaborations between clients and employees? Can the challenge of maintenance and upgrades be crowdsourced in ways that create communities of channels and customers who willingly share best practice?

Marshall W. Van Alstyne, a Boston University colleague and collaborator who’s pioneered breakthrough research in the economics of two-sided networks, argues that these are exactly the kinds of questions that organizations need to be asking as their own operating processes become digitized, virtualized and networked. Tomorrow’s organizations are going to give as much thought and care about investing in network effects as they do to new products and services.

Indeed, network effects investment will enable new product and service innovations, as well as new interpersonal capabilities and insights. Effectively managing the network effects portfolio will become one of the most important challenges tomorrow’s management will confront. Training and educating technologists, marketers and innovators alike to both design for and exploit network effects will become an essential core competence.   Can your organization do that without a Chief Network Effects Officer?  Start by asking: Who owns the challenge of network effects management today?

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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