Leading in the Network Age: The first in a series on Economic Complexity and Network Quotient (NQ)
“It is more useful to notice what has already happened and gone unnoticed than it is to try and predict the future.”
— Peter Drucker
Predicting the future is a fool’s errand. And none of us have the time to waste. In fact, we have less and less time to waste and certainly no one wants to be the fool. And yet we must lead, guide organizations and make decisions. In the network age, we don’t have the option of standing still. Business and life are accelerating. Organizations must adapt or die. Can I? Can my organization? Or am I a ‘dead man walking’?
The greatest tectonic shift for business in the last 30 years is the rise of the network-based economy. Most of us didn’t fully appreciate the shift as it happened around us and in our lives.
For examples, look at the Blackberry vs. the iPhone. One was a piece of technology. One was an ecosystem of network innovation in which the creation of positive feedback loops among developers and consumers catalyzed an exponential explosion in growth and functionality.
We increasingly see value being created in networks and ecosystems that extend far beyond traditional organizational and personal boundaries. Definitions of competition are morphing and blurring. We’re no longer competing against individual companies, we’re competing against ecosystems. Think Apple vs. Android. And firms that think they are competing based on owned assets vs. extended ecosystems are getting crushed. Think Taxicabs vs. Uber.
Ecosystems are created by linking networks that cross industries as well as functions. Thus, an ecosystem’s networks — their spread, strength, cross-domain linkages and diversity — are pitted against another. We’re not the only ones who think so. In meeting recently with IBM’s VP of Strategy, Shiva Kumar who told us “We used to have a channel. Today we have an ecosystem. The difference is co-creation.”
Designing, sensing, diversifying and tending to your networks is crucial to success. BCG’s Roselinde Torres says today’s great leaders spend their time in diverse networks spotting and synthesizing trends. MIT’s Human Dynamics Lab advises us to design our networks to catch ideas. Networks naturally generate innovation. Santa Fe Institute’s Brian Arthur recommends we don’t stay too close to home when seeking innovation. And time and again, it’s proven that those furthest from the core discipline of a problem are most likely to solve an innovation challenge. (See Why ‘Begin With the End In Mind’ Is a Bad Idea for Innovation in d4e issue 1.)
The lesson is clear: Today’s leaders must sense, think, see, and act in networks.
So, where to start?
Economic Complexity and Network Quotient
Let’s look at the network from two levels: zooming out first and then zooming in.
Starting from a ‘zoomed out’ or ‘macro’ perspective, we must understand the fundamental characteristics of the environment we operate within. It is rapidly becoming clear that the underlying strength of an economy’s robustness, resilience and growth is its economic complexity. Complexity, and its usually inherent diversity, engenders innovation, creativity and the adaptability needed to weather and thrive in our constantly changing world. So, whether we are talking about an industry, a country, a region or community, it’s the level of diversity of that we must gauge and understand.
On a more ‘zoomed-in’ or ‘micro’ perspective, we start to examine to what degree a person or organization senses, sees, thinks and acts in a manner that takes the network dynamics into account. We have started referring to this as a person’s or organization’s Network Quotient (NQ).
Network Quotient (NQ) as guiding indicator
What is a Network Quotient and more importantly, what is yours or mine? By Network Quotient we mean how well you think and act in networks. How good are you, or your organization, at recognizing them? Do you foster cross-domain linkages? Can you zoom in or zoom out to the appropriate level to understand, solve problems and make the most of opportunities around you?
The benefits of a high NQ are real: In a recent study, Wharton professor Jerry Wind and his colleagues found that firms they classified as network orchestrators such as Visa, Apple, Facebook have higher valuations: 8 times revenue vs. 5.3 for software-based business models, 2.7 for services and 1.8 for product-based companies.
Stay tuned for more pieces in our series on Economic Complexity and the Network Quotient. We will continue to expand upon and explore these intertwined concepts, and how they can help your career and your organization.