To the uninitiated, many popular games, such as poker, appear to be simply chance and the avoidance of unforced errors, assuming the game – the rules, probabilities and ways of winning – is understood.
To the skilful, it’s about anticipation, where patterns of play are discerned and weak signals exploited. It is this ability to decipher and exploit that separates out the winners from the losers.
Understanding the rules of play, the avoidance of unforced errors and ways of winning in the competitive landscape of business – known as "situational awareness" – has led to the development of the mapping technique. However, as with other games, once the landscape can be observed then the observer can decipher and exploit patterns of change.
There are numerous economic patterns that can be exploited to one's favour, but one of the more interesting is a cycle known as "peace, war and wonder". It is caused by the interplay of competition with inertia to change and it has three discrete stages.
Peace: The time of products
The development and maturating of an activity as a product – for example, computing infrastructure – through relatively peaceful competition between large suppliers. Most change is sustaining though infrequently unpredictable disruptive change – typically product-to-product substitution. Suppliers tend to form large successful businesses with significant inertia to change.
War: Transition from products to commodity
The activity becomes widespread and well-defined enough to be suitable for industrialisation through commodity and utility services. Existing suppliers tend to react slowly due to inertia and unencumbered new entrants dominate the change. The pace is rapid – known as a punctuated equilibrium – and many companies, that have been successful in the past, are disrupted. This change is associated with new forms of practice, data and organisation.
Wonder: Genesis of higher orders
The newly industrialised activities enable unforeseen, unpredictable and wondrous activities to emerge. Electricity begets radio, for example; engineering components beget complex machinery. Those activities that survive evolve again to more peaceful competition.
Looking at some current trends, infrastructure as a service (IaaS) for example is simply a shift from product to utility and represents a “war” in IT with new entrants dominating and past suppliers suffering disruption due to inertia. As a consequence, new activities are being forged on top of these more industrialised computing components creating a new state of wonder. Though this change will impact many industries that use IT – they will be forced to adapt – other activities in other industries are at different stages of the cycle. The war in manufacturing, for example – due to 3D, electronic and more importantly hybrid printers – is not even close.
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Unfortunately most parts of the cycle are unpredictable. We cannot determine what new things will be created in the stage of wonder as this depends on individual actors’ actions (see Hayek’s The pretence of knowledge).
Equally, during the peace stage, while we know that competition in both supply and demand will cause the activity to evolve to a more industrialised form, we cannot determine the exact path – for example, mainframe to micro to client/server was one of many possible paths. Even disruption by product-to-product substitution is highly unpredictable – look at Apple versus BlackBerry.
We can determine the overall cycle but we cannot determine the details and in this sense both Keynes (macro effects) and Hayek are simultaneously correct. The one exception is the war phase.
While we don’t know who will start it, we can state what the impact of war will be – new entrants, disruption of past suppliers, formation of new practices, initiation of a state of wonder. And there are weak signals that enable us to anticipate when it is likely to occur. This has all sorts of useful implications.
First, there are two types of disruption – the unpredictable product-to-product substitution and the more predictable product-to-utility substitution. The Lapore vs Christensen argument, around the so-called “innovators’ dilemma”, is predicated on the existence of only one type of disruption. But both arguments appear valid and non-contradictory if you accept two different forms.
Second, the war stage is also exploitable and, if you can anticipate it, then you can use it capture future markets – for example, the rise of Ubuntu to become the dominant operating system in cloud.
Last, while the techniques are complex, my recent research, Of Wonders and Disruption, has shown that, by examining value chains in many industries and the weak signals involved, then we can state that there are many more “wars” heading towards us (see Figure 1). Today is not the zenith of disruption.
Techniques such as mapping and weak signals in business will themselves evolve, becoming industrialised and automated. In much the same way, competitive games like chess and poker have evolved, and the pinnacle is now to use a combination of human player, computer and algorithms, such as centaur chess.
However we’re only just starting that journey in the commercial games we play. We have a lot to learn on deciphering and exploiting the patterns.