The hero’s journey through

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The hero’s journey through
the landscape of the future
From the Deloitte Center for the Edge
John Hagel (co-chairman, Deloitte Center for the Edge) has nearly 30 years of experience as a
management consultant, author, speaker, and entrepreneur, and has helped companies improve performance
by applying IT to reshape business strategies. In addition to holding significant positions
at leading consulting firms and companies throughout his career, Hagel is the author of bestselling
business books such as Net Gain, Net Worth, Out of the Box, The Only Sustainable Edge, and The
Power of Pull.
John Seely Brown (JSB) (independent co-chairman, Deloitte Center for the Edge) is a prolific
writer, speaker, and educator. In addition to his work with the Center for the Edge, JSB is Adviser to
the Provost and a visiting scholar at the University of Southern California. This position followed a
lengthy tenure at Xerox Corporation, where JSB was chief scientist and director of the Xerox Palo
Alto Research Center. JSB has published more than 100 papers in scientific journals and authored
or co-authored seven books, including The Social Life of Information, The Only Sustainable Edge, The
Power of Pull, and A New Culture of Learning.
Tamara Samoylova (head of research, Deloitte Center for the Edge) leads the Center’s research
agenda and manages rotating teams of Edge Fellows. Prior to joining the Center, Samoylova served
as a senior manager in Deloitte Consulting LLP’s Growth and Innovation practice, helping mature
companies find new areas of growth by better understanding unmet customer needs, industry
dynamics, and competitive moves.
Duleesha Kulasooriya (head of strategy, Deloitte Center for the Edge) leads the development of the
Center’s ecosystem and contributes to core research exploring the edges of business and technology.
Over the past few years he has explored how the world is changing in very dramatic ways as a result
of ever-evolving digital infrastructure and liberalizing public policy, as well as the implications for
individuals and institutions. Kulasooriya led the team that developed and authored the inaugural
Shift Index report and has written and spoken extensively on the use of new technologies to drive
business performance, pathways for moving from static to dynamic ecosystems, rethinking the roles
of firms and individuals in institutional innovation, and the relevance of “edges” such as the maker
movement, the sharing economy, and burning man.
About the authors
Maggie Wooll (senior editor, Deloitte Center for the Edge) combines her experience advising large
organizations on strategy and operations with her love of storytelling to share the Center’s research.
At the Center, she explores the implications of rapidly changing technologies for individuals and
their institutions. In particular, she is interested in learning and fulfillment within the shifting
business environment.
This report would not have been possible without the hard work of our Edge fellows, who over the
past year tracked down case studies, interviewed industry insiders, and tirelessly answered the call
for “more data” in service of telling this story.
Mengmeng Chen (research fellow, Deloitte Center for the Edge) is a consultant in Deloitte
Consulting LLP’s Human Capital practice. While at Deloitte, she has worked with clients throughout
the health care ecosystem, ranging from federal and state government to providers and health
plans. At the Center for the Edge, she has been working on research and analysis for the Future of
the Business Landscape topic and is currently taking a deep dive into the future of manufacturing
fueled by advanced technologies and the maker movement.
Ankur Damani (research fellow, Deloitte Center for the Edge) is interested in the dynamics of new
business models and growth strategies enabled by technology in both mature and emerging sectors.
As a consultant in Deloitte Consulting LLP’s Strategy and Operations practice, he helped clients
across a range of industries, including health care, technology, and consumer products. At the
Center, Damani has focused on conducting analytics and primary and secondary financial research
to model the changing dynamics of firm performance.
Neha Goel (research fellow, Deloitte Center for the Edge) is passionate about financial services and
payments in particular. As a consultant in Deloitte Consulting LLP’s Strategy and Operations practice,
she has worked with banks, credit card companies, and insurance exchanges to develop and
implement new strategies that reflect the fast-changing landscape of the industry. She is especially
invested in harnessing mobile technology to improve customers’ experiences and relationships with
financial institutions.
Christian Grames (research fellow, Deloitte Center for the Edge) is passionate about driving change
and innovation within organizations. His interests include the maker movement and its potential
for changing the world. Prior to joining the Center, Grames worked in global supply chain management
for the semiconductor industry. His research focus was on mapping the potential for fragmentation
and concentration across US industries.
About the research team
Shanna Hoversten (research fellow, Deloitte Center for the Edge) is interested in discovering innovative,
technology-driven approaches to tackling our nation’s health care challenges. As a consultant
in Deloitte Consulting LLP’s Strategy and Operations practice, she has spent the last three years
working alongside clinicians and hospital administrators to design executable strategies for improving
quality of patient care in cost-effective ways.
Emily Selvin (research fellow, Deloitte Center for the Edge) focused on identifying business trends
through an analysis of Fortune 500 companies over time. In addition to her continued efforts related
to work environment redesign, she also focuses on analyzing trends around concentration and fragmentation
related to freelancers.
Ashley Sung (research fellow, Deloitte Center for the Edge) is a consultant in Deloitte Consulting
LLP’s global innovation and strategy group, working with various Deloitte entities to drive corporate
innovation and growth initiatives. While at the Center for the Edge, she conducted research,
analysis, and workshops for the “future of the business landscape” topic and led the case study on its
implications in the media sector.
Wendy Tsu (research fellow, Deloitte Center for the Edge) is passionate in exploring the edges
between learning, social impact, and innovation. As part of Deloitte Consulting LLP’s Strategy &
Operations practice, her focus has been in technology and education. Most recently, she has been
helping higher education institutions reimagine their operating models. As part of the Center for
the Edge, she has conducted research and analysis related to new forms and institutions of education
and how they impact the educational journey for the lifelong learner.
Executive summary | 2
The journey begins | 3
Pressures on companies | 8
Pressures on individuals | 12
Eroding barriers: Lowered barriers to entry, commercialization, and
learning | 14
Fragmentation: Staying niche, nimble, and small is the new goal for
many | 24
Concentration: Emerging scale-and-scope operators will fuel and
benefit framentation | 35
Mobilizers: Connecting and mobilizing the ecosystem | 39
What do you do? Figure out where to play and play it well | 44
Conclusion | 53
Endnotes | 55
Acknowledgements | 60
Contacts | 61
Contents
Executive summary
Rapid advances in technology and the liberalization
of public policy have shaped a
world in which large companies face increasing
performance pressure amidst sinking return
on assets, intense competition, and changing
workforce dynamics. Individuals are taking
advantage of lowered barriers to market entry
and commercialization to become creators in
their own right. As a result, a new economic
landscape is beginning to emerge in which a
relatively few large, concentrated players will
provide infrastructure, platforms, and services
that support many fragmented, niche players.
In this way, both large players and small will
coexist and reinforce each other. Some parts of
the economy will be more affected by fragmentation
than others, and more quickly, but the
fragmentation will be enduring rather than
transitory. In this new landscape, much of the
world’s economic value will be created by the
relationships among participants. Therefore, it
is less useful to look at any one company than
to consider the dynamics that will develop
among the large and small players. This
changing landscape will have implications for
companies and individuals. Large companies
will likely play one of three roles in this new
landscape: infrastructure providers, aggregation
platforms, or agent businesses. Today’s
large companies will need to assess whether
the market for their core products or services is
susceptible to fragmentation and choose where
to focus in the future. The actions they take
today can help to position themselves for the
role they choose to play in the future. For individuals
and small entities, the new landscape
offers opportunities to transform the pressures
of today into profitable new ventures.
The hero’s journey through the landscape of the future
2
The journey begins
Many large companies are on shaky
ground. Seismic waves are already shaping
the landscape. The winners among large
companies in coming decades will be those
that position themselves on more solid ground
in areas of the economy that will continue to
support scale and scope economics. The evolving
landscape, reshaped and reformed, is opening
up large areas that will favor smaller, more
focused, enterprises—creating
opportunities for all
of us to build viable small
businesses that tap into our
creative potential, but only
if we know how to focus.
Companies large and small
have to be thoughtful
about where they position
themselves to be sustainable.
Strategies of position
are back with a vengeance.
The time to act is now,
before the ground shifts
any further.
If, in 2005, someone
had said that a marketplace
that didn’t even exist yet
would grow to over a million discrete sellers
with $1.35 billion in sales in only eight years,
he or she likely would have faced skepticism.2
Similarly, the emergence of a platform that
would enable 5.7 million individuals—most
of them not professional investors—to fund
over $1 billion worth of individual- and small
business-led projects might also have sounded
unlikely. Yet, today, both the Etsy marketplace
and the Kickstarter crowdfunding platform
not only exist but are thriving and continue
to grow rapidly. Such success is emblematic
of a dramatic shift in the business landscape.
The simultaneous fragmentation and concentration
that they exemplify will change how
we do business and go about our daily lives.
Companies of all sizes need to understand the
forces that led to their rise, as the marketplace’s
simultaneous fragmentation
into many smaller
entities and its concentration
in certain key
roles represents a crucial
redefinition of who is able
to start a business, what a
successful business looks
like, how big it can get,
and what is required to
sustain it.
Though it manifests
differently in different
parts of the economy,
fragmentation refers to an
increase in the number of
smaller entities addressing
a diverse range of
business and consumer needs. In fragmenting
parts of the economy, each entity has a small
addressable market, often focused on a niche;
minimal investment or backing is needed to
enter the market. These small entities proliferate
rapidly, and no one controls enough market
share to influence the industry. Crucially,
this fragmentation is not cyclical or transitory;
in these parts of the economy, where
“The future is
already here—
it’s just not
very evenly
distributed.”
—William Gibson1
3
businesses compete on specialization, personalization,
and customization, “diseconomies
of scale” mean that growing larger creates a
performance disadvantage. At the same time,
certain roles in the economy are increasingly
dominated by fewer, but larger, entities. In
concentrating parts of the economy, an entity
cannot profitably compete without having
scale or scope, and their value to fragmented
players is predicated on their being leaders in
the market.
We are still in the early stages of this
transformation, but signals are emerging from
a number of sectors that go well beyond Etsy
and Kickstarter:
• Pomplamoose, an American musical duo
featuring Jack Conte and Nataly Dawn, first
gained fame in 2008 with their YouTube hit
Single Ladies, which now has over 10 million
views. They recorded the song in Jack’s
bedroom using relatively basic software and
equipment. Having built a large fan base on
YouTube, the band remained independent,
generating income from ad revenues (via
YouTube’s Musicians Wanted, a program
for sharing ad revenue), iTunes online
marketplace sales, a Kickstarter campaign,
and commercial work and tours.3
In 2013,
Conte started Patreon, an online marketplace
that allows digital media creators to
monetize their web presence through recurring
funding from fans.4
As Conte summed
up in a 2012 TEDx talk, the traditional
music industry did not recognize the smallbusiness
version of a band, even as online
distribution and marketing were changing
the economics of production and distribution
and disrupting the traditional definition
of a “successful musician” as someone
backed by a major record label with record
sales in the millions.5
• Spencer Walle, a polyglot with a love of
languages who earns a living as a freelancing
intellectual property translator, represents
the changing face of the increasingly
empowered independent worker space.
After graduating college and joining a small
translation firm, Walle realized that he
loved the industry but wanted more flexibility
and autonomy. Using a combination
of online freelancer platforms, direct email
solicitation, and Google Groups, Walle has
cultivated a strong and consistent network
of customers. Earning a yearly income
that averages upwards of five times his
previous salary at the translation company,
Walle simultaneously enjoys the flexibility
and autonomy of freelancing—traveling
frequently, working from wherever he
chooses, and considering starting his own
small company.6
• Online retailer Nasty Gal illustrates the
powerful market reach that concentrated
platforms provide to small, niche businesses.
A photography school dropout with
a unique sense of style, Sophia Amoruso
began her business by buying low-cost
vintage items and reselling them for a much
higher price on eBay. She promoted her
business on a popular social-networking
platform, which she also used to find models.
As demand soared, Amoruso purchased
a domain name and began selling from
her own site, forging partnerships with
independent labels, offering limited runs
designed to sell out quickly, and continuing
to use platforms such as Facebook and
Instagram to cultivate a loyal following.
Relying on reinvested profits, Amoruso did
not use external financing until 2012, when
she accepted a $50 million investment from
Index Ventures.7
Sales in 2012 were nearly
$130 million.8
Unfortunately, many large companies
today don’t yet recognize or understand the
impact of fragmentation in their industries.
Later in this report, we will discuss why the
typical large company’s responses, to compete
or acquire, are losing tactics. Instead, companies
should understand the evolution of their
industry and their role within it. Ultimately,
both concentrated and fragmented players
The hero’s journey through the landscape of the future
4
need and reinforce each other. In order to
survive and thrive, businesses should consider
the following:
1. Which parts of the economy
are fragmenting?
2. Which parts of the economy
are concentrating?
3. How will various ecosystem
players interact?
Some large companies have begun to
take steps toward embracing the new symbiotic
relationship with fragmented entities.
Companies such as GE and West Elm are
exploring ways to engage with independent
designers and tap into the design potential
resident in the crowd. In November 2013, GE
invested $30 million in Quirky, a start-up that
crowdsources ideas and uses a mix of crowd
and internal capabilities to develop a product
from idea to retail shelf.9
One recent product:
the Aros, an 8,000-BTU smart air conditioner.
In addition to looking good, it can cool a
350-square-foot room, has a washable filter,
and the air intake is designed to prevent Aros
from using already-cooled air. The air conditioner
can be turned on and off using Quirky’s
Wink mobile app and gives dynamic savings
recommendations based on energy usage and
prices.10 The partnership with Quirky allows
GE to extend its research and development
(R&D) capabilities by tapping into a much
broader ecosystem of product design talent.
West Elm is also responding to the increasing
demand for unique and local products or
products with a “story” by working with Etsy’s
wholesale program to feature products—ranging
from paperweights and sculptures11 to
t-shirts, artwork, and even bridal wear—made
by Etsy sellers in their own stores.12 Through
national retail platforms, independent designers
such as Lisa Jones of Tiny Terrains—with
over 12,000 admirers and 4,500 sales transactions
on Etsy since 2011—can reach new customers
in physical stores across the nation.13
In this report, we will explore:
1. Pressures on companies: Macro trends
impacting today’s businesses, performance
implications, and common
response strategies
2. Pressures on individuals: The decline
of the “safety nets” commonly associated
with full-time employment by an
established company
3. Eroding barriers: Forces reducing barriers
to entry, commercialization, and learning
4. Fragmentation: The emergence of many
fragmented players focused on product and
service development and commercialization
in the sectors of the economy where
barriers were reduced
5. Concentration: The emergence of infrastructure,
platforms, and agent roles which
provide scale and scope services to the
fragmented players
6. Mobilizers: The emergence of players
focused on orchestrating the ecosystem
facilitates collaboration and learning
7. What companies can do: Winning strategies
that companies can take today to position
themselves successfully for the future
In our analysis, we will evaluate the signals
that we already see emerging on the edges of
various industries and extrapolate from these
signals to build a broader perspective.
Figure 1 illustrates the key elements of our
perspective. It is a map that can be used as a
guide to the hero’s journey, highlighting the
path that a company or an individual in the
business landscape would take. Each milestone
on this map—from “Pressures on companies”
to “Eroding barriers” to “What do you do?”—
illustrates how the changing business landscape
will impact the way companies will look
and interact with the overall ecosystem.
5
Figure 1. The journey to the future of the business landscape
The hero’s journey through the landscape of the future
6
7
Over the past few decades, the cost performance
of core digital technologies—computing,
storage, and bandwidth—has improved
rapidly and shows no signs of slowing down
(see figure 3, foundational trends). This exponential
improvement in digital technologies
is, in turn, fueling exponential innovation
in other technologies and business practices
across industries and markets.14 In addition,
since World War II, barriers to the movement
of products, money, people, and ideas, both
within countries as well as internationally, have
decreased.15 Together, these technology and
public policy trends have had the economic
effect of significantly intensifying competition
and lowering barriers to entry. (For a more
in-depth exploration of these forces, please see
our Shift Index 2013 series of reports.16)
The flows of talent, information, and
knowledge unleashed by exponential technology
improvements and liberalizing public
policy are challenging traditional business and
operating models and fundamentally reshaping
the business landscape in a phenomenon we
have termed the “Big Shift.”
Pressures on companies
Figure 2. The journey to the future of the business landscape: Pressures on companies
The hero’s journey through the landscape of the future
8
The cost of computing power has decreased from $222 per million transistors in 1992 to $0.06 per
million transistors in 2012.
Foundational trends Impact trends
The cost of data storage has decreased from $569 per gigabyte of storage in 1992 to $0.03 per
gigabyte in 2012.
The cost of Internet bandwidth has decreased from $1,245 per 1,000 Mbps in 1999 to $23 per
1,000 Mbps in 2012.
The overall trend of index of economic freedom, a compilation of 10 indicators measured by the
Heritage Foundation, has been increasing since 1995.
Nearly 70 percent of customers agree that they have increased information and choice about brands.
The compensation gap between the creative class and the rest of the workforce has steadily widened
over the past 10 years.
The economy-wide return on assets (ROA) has declined over the last 47 years, to a quarter of its
1965 level in 2012.
Graphic: Deloitte University Press | DUPress.com
Source: John Hagel, John Seely Brown, Tamara Samoylova, and Matt Frost, 2013 Shift Index metrics: The burdens of the past, Deloitte University Press,
November 11, 2013, pp. 9-27, http://dupress.com/articles/the-burdens-of-the-past/.
Figure 3. The Big Shift’s trends
The Big Shift impacts both individuals
and organizations. Individuals able to quickly
adopt new technologies and participate in
knowledge flows are benefiting from the forces
of the Big Shift as consumers and creative talent
(see figure 3, impact trends). Consumers
can now easily compare options and prices
and have multiple ways to make a purchase
(for example, shopping both online and in
brick-and-mortar stores), and their loyalty to
product brands is decreasing. Separately, top
workforce talent is highly sought after as the
key to growth, innovation, and performance
improvement for companies. However, top-tier
talent can also now easily identify new opportunities
and compare employment options,
wherever they might be. As a result, creative
talent has much more bargaining power and
is able to command higher compensation
and pursue more desirable work opportunities,
putting even more performance pressure
on companies.
Meanwhile, companies are struggling.
The performance of US public companies, as
measured by return on assets (ROA), is now
just a quarter of its 1965 level (see figure 4).
Competition has increased, emerging from
new and unexpected areas, making it more difficult
for companies to maintain performance.
In the past 55 years, the average tenure of a
company on the S&P 500 has declined from 61
years to 18 years.18 During that same period,
the rate at which companies lose their leadership
position within an industry has risen
39 percent.19
In response, many companies are resorting
to short-term cost-reduction tactics such as
layoffs and outsourcing, or using mergers and
acquisitions (M&A) to increase scale (and buy
revenue). As illustrated in figure 5, headcount
reduction has been a growing response to
poor performance. Many companies also try
9
Graphic: Deloitte University Press | DUPress.com
Source: Compustat, Deloitte analysis.
Figure 4. Return on assets for the US economy (1965–2012)
0%
Economy ROA
4.1%
0.9%
Linear (economy ROA)
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
2%
1%
3%
4%
5%
6%
Graphic: Deloitte University Press | DUPress.com
Source: Deloitte analysis of data from Compustat and the US Bureau of Labor Statistics.
Figure 5. Economy-wide return on assets and US unemployment rate (1976–2012)
0%
Unemployment rate (%)
Unemployment rate (%)
ROA (%)
Economy ROA (%)
‘81–’82 Unemployment from
7.6%–9.7%
‘82–’83: ROA from 2.7%–2.8%
‘91–’92 Unemployment from
6.8%–7.5%
‘92–’96: ROA from 1.6%–2.3%
‘00–’03 Unemployment from
4.0%–6.0%
‘01–’06: ROA from 0.2%–2.2%
‘08–’10 Unemployment from
4.9%–9.6%
‘08–’12: ROA from 0.5%–1.8%
1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
4%
2%
0.5%
0.0%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
6%
8%
10%
12%
The hero’s journey through the landscape of the future
10
to insulate against volatility by shifting fixed
costs to variable costs through increased reliance
on contract labor and outsourcing key
business activities. In fact, both the number
of contracts and total revenues from business
process outsourcing (BPO) and IT outsourcing
(ITO) have increased significantly since
the 1990s.20 Contract manufacturing is also
increasing, based on a survey conducted by the
International Data Corporation (IDC) in 2010.
While trends vary across industries, 64 percent
of companies surveyed currently outsource
manufacturing to contract manufacturers. Of
those companies, 43 percent expect to increase
their current levels of outsourcing, and 45
percent expect to maintain current levels
over the next two years.21 Finally, third-party
logistics providers (3PL) recorded an estimated
$250.2 billion in revenues from Global Fortune
500 companies in 2012—a 67 percent increase
from 2005.22
These tactics, while effective in the short
term, offer diminishing returns. For example,
economy-wide ROA continues to decline
despite short periods of increased performance
following layoffs (see figure 5). When
companies focus only on reducing costs, they
risk cutting into core business operations and
threatening the viability of the company. At the
same time, done incorrectly, M&A activities
intended to build scale can instead increase
overhead and make a company less resilient
and less flexible to respond to an increasingly
volatile environment. Moreover, as companies
pursue efficiency improvements, so do
their competitors, and the benefits are quickly
competed away.
Bottom line, companies have launched
major performance improvement initiatives
but the evidence suggests that they are falling
farther and farther behind in terms of ROA, a
key performance metric. The old approaches
are not working but the response is to squeeze
harder. This is not a sustainable situation. In
the meantime, the pressure continues to mount
and shows no sign of abating.
11
The short-term efficiency measures companies
have taken to respond to mounting
performance pressures are having an important
impact on individuals. These measures
have eliminated many of the benefits of working
for a large organization and undermined
the financial and emotional security of many
workers. Individual workers, especially those
not in the top tier, have borne the brunt of
companies’ responses to performance pressures.
Workers no longer have the historical
safety nets they once did, such as life-long
employment and pension plans. While certain
types of in-demand employees (for example,
creative knowledge workers and senior executives)
are still able to command higher compensation,
the statistics on unemployment
and the widening compensation gap indicate
that most workers are struggling.23 Though
the official US unemployment rate continues
to hover at 6 percent as of May 2014, unofficial
estimates put it at 23 percent, and further
estimates suggest that 20 percent of American
households do not have a single employed
member.24 Higher compensation for top workforce
talent has translated into less investment
in the rest of the workforce. However, with the
average lifespan of many skills decreasing, even
Pressures on individuals
Figure 6. The journey to the future of the business landscape: Pressures on individuals
The hero’s journey through the landscape of the future
12
those individuals who are sought after today
may become irrelevant tomorrow. No one—
not even top talent—is safe.
Without the benefits of stability and security
once associated with employment by a
large, established company, many individuals
will find themselves pursuing alternative career
paths, not always by choice. Over 20 percent of
independent workers (not employed by a company)
report striking out on their own due to
job loss resulting from layoff, termination, or
business closure.25 Among independent Baby
Boomers, the percentage of workers saying
they were driven to independent work by job
loss was even higher, at 27 percent. In addition,
many Baby Boomers are working, or planning
to work, past traditional retirement age to
compensate for investment value lost during
the recession. Approximately 57 percent of
all US workers now plan to work past age 65,
and of these, 66 percent say it is for financial
reasons and health care benefits.26
On the other end of the age spectrum,
recent college graduates face both
unemployment and underemployment. In
2013, 11.5 percent of recent college graduates
with bachelor’s degrees were unemployed,
compared to only 7.7 percent in 2007.27
Additionally, 37 percent of college graduates
over 25 are in jobs requiring only a high
school diploma, while 11 percent are in jobs
that require more than a high school diploma
but not a bachelor’s degree.28 The workforce,
overall, has become more educated—less than
1 percent of taxi drivers and 2 percent of firefighters
had college degrees in 1970, while over
15 percent of each occupation does today.29
Clearly, the forces underlying the Big Shift
are putting increasing pressures on institutions
and individuals. However, the trends
unleashed by the Big Shift also offer new
opportunities to build profitable businesses
that were previously not possible. In the next
section, we will discuss how these forces are
eroding barriers to building businesses and
how companies and individuals can turn pressures
into opportunities.
13
The same forces that have led to mounting
performance pressures on companies
and individuals have also reduced barriers to
alternate ways to earn a living or find meaning.
The somewhat surprising effect has been to tap
into workers’ latent desire for autonomy. In the
past, workers sacrificed autonomy for the security
and compensation associated with working
for a large enterprise. The traditional trade-offs
between autonomy and security are shifting,
and other options beyond the umbrella of a
large employer are becoming more attractive,
even to top-performing workers.
Many are driven by a desire for autonomy,
flexibility, or alignment with personal values.
Talented, high-performing workers are
taking their increased negotiating power to
pursue independent ventures or to work at
companies where work is more tailored to
individual priorities, values, and interests.
A study by MBO Partners found that many
independent workers, in particular, bring
a desire for flexibility and meaning to their
choice of livelihood. For example, of the 64
percent of independent workers who report
being “highly satisfied,” 62 percent prioritized
Eroding barriers:
Lowered barriers to entry,
commercialization, and learning
Figure 7. The journey to the future of the business landscape: Eroding barriers
The hero’s journey through the landscape of the future
14
flexibility over compensation, with 73 percent
stating that doing work they “like” trumps high
compensation and 79 percent prioritizing a
job that “makes a difference for someone.” Of
course, being an “independent” worker does
not always mean autonomy. For the 36 percent
who do not report being “highly satisfied”—often
temporary, on-call, and fixed-term
contract workers who depend on a middleman—the
lack of control over scheduling,
career, and work assignments; the lack of benefits;
and the uncertainty of making sufficient
income all weigh heavily, particularly for those
who are on this path unwillingly.30
In parallel, individuals are also beginning to
move away from seeking status and meaning
through consumption—for example, having a
large house, a fancy car, and expensive clothes.
Instead, many are seeking status and meaning
through the ability to create or participate. This
trend is reflected in the growth in attendance at
events like Maker Faire, the growing popularity
of hackerspaces, and increasing revenues from
maker-driven businesses (see figure 8).31 Make
Media estimates that the market for products
and core components used by makers will
exceed $1 billion by 2015.32 Similarly, an average
of 1,600 new users sign up for online do-ityourself
(DIY) tutorial platform Craftsy every
day,33 bringing the site to 840,000 enrollments
by January 2013, just a year after it launched.34
Currently, Craftsy has approximately 4 million
registered members.35
Source: John Hagel, John Seely Brown, and Duleesha Kulasooriya, A movement in the making, Deloitte University Press, January 2014,
http://dupress.com/articles/a-movement-in-the-making/.
Figure 8. Maker movement overview and drivers
Graphic: Deloitte University Press | DUPress.com
ment in the making, Deloitte University Press, January 2014,
Number of attendees at Maker Faire
Kickstarter project hits
Revenue from maker-driven businesses
>1,000 hackerspaces around the world
2011 2012 2013 2011 2012 2013
$7M
$18M
$50M $525M
$895M
$>1B
Quirky Etsy
Find details at: http://hackerspaces.org/wiki/list_of_hacker_spaces
2009
2010
2011
2012
2013
San Francisco Bay Area New York
Did not exist!
120K
64K
110K
50K
97K
27K
83K
23K
74K
Project Goal Funded
# of
backers
Pebble $100K $10.3M 69,000
Oculus rift $250K $2.4M 9,522
Goldieblox $150K $286K 5,519
Safecast $4K $104K 290
projected projected
15
The maker movement: Overview and drivers
Nineteenth- and twentieth-century technological advances consolidated manufacturing and created a
mass consumption economy. As a result, many of us today are further away from the actual creation of
goods than any prior generation. However, recent technological leaps like 3D printing and customizable
features have actually brought the power of creation back to the consumer. “Making”—the next
generation of inventing and do-it-yourself—is creeping into everyday discourse. A plethora of physical
and virtual platforms have emerged to serve the maker community, from platforms that inspire and
teach to spaces that provide tools and collaborative opportunities.
While just what motivates consumers to create is yet to be quantified, a couple of themes resonate
through the stories of individuals in the maker movement. First, many express a desire to create as part
of permanently marking their own existence. In Shop Class as Soulcraft, author Matthew B. Crawford
cites the journalist Hannah Arendt’s observation that part of the appeal of creating material objects
stems from the belief that “the reality and reliability of the human world rest primarily on the fact that
we are surrounded by things more permanent than the activity by which they were produced, and
potentially even more permanent than the lives of their authors.” In other words, humans may seek to
create as part of a need to contribute to our surroundings and leave a tangible legacy; we may now be
seeing a shift in how we derive our self-worth. Crawford also speaks of the sense of visceral satisfaction
from creating or repairing an object and of the clarity of such success relative to success in other fields;
his creation either works, fulfilling its purpose, or it does not.36
Second, in today’s digital world and information economy, many makers express a sense of being
divorced from the process of creating actual goods, and hence want even more to be in a “hands-on”
profession. The maker movement values creation over consumption, as well as, crucially, sharing and
collaborating.37 For example, financial software consultant Ayah Bdeir, founder of littleBits, created
modular electronics that not only fulfilled her own desire to create but that enabled others to do so as
well—in contrast, in her previous career she felt separated from the products she “made” and didn’t
believe that her work was constructive.38
These individuals are benefiting from lowered barriers to access and scale. With technology-guided
tools that are less expensive and easier to use, the hurdles to making—either as a hobby or a business—
are disappearing. The same forces that are democratizing information are also lowering the cost of
producing physical objects. Never before has it been so easy to create or modify something with
minimal technical training or investment in tools. Open source hardware opens the door for newcomers
by undermining the proprietary foothold of larger competitors. Physical and virtual platforms reduce
barriers to learning, making it easier for a maker to connect with the greater community. Events like
Maker Faire accelerate the sharing and testing of ideas and techniques, allowing individuals to come out
from the garages, to inspire and be inspired, and, for some, to discover an audience.
Partly because of the reduction of barriers to making and learning, the number of small maker
businesses is growing. Meanwhile, the need for large-scale providers—for example, of logistics, design
tools, and marketplaces—to serve these fragmented businesses is increasing as well. Incubators and
other intermediaries have sprung up to assist makers in refining their inventions and finding efficient
ways to bring their products to market. For example, PCH International helps makers to make the
leap from having a successful product to developing a business by offering services such as contract
manufacturing, e-commerce, inventory management, packaging, and retail distribution.
The maker movement has the potential to have a significant impact across a broad spectrum of sectors
and regions. Besides the impact on manufacturing, we can also anticipate impacts in areas such as
education, retail, government and public policy, and citizen science. Read more in A movement in the
making and Impact of maker movement.
39
The hero’s journey through the landscape of the future
16
The good news is that the same technological
and political forces causing increased
pressures and challenging traditional structures
and practices have also created the tools
and opportunities for participation, commercialization,
and learning. As Chris Anderson
describes, the inventors of yesterday could
tinker, prototype, and patent their creations,
but they could not manufacture, commercialize,
and distribute a product. Those few designs
that made it out of the inventor’s garage were
licensed by large companies, often removing
the original inventor from the manufacturing
process, and paid royalties only until the
patent expired—leaving the inventor just as
disconnected from the market as when he or
she started.40
Times have changed. Today the barriers
between the inventor and the market are
diminishing, and individuals can own the
full lifecycle of their products. Individuals are
also finding that as barriers erode they have
the ability to participate in numerous communities,
unlimited by geography, where
they can build knowledge, develop skills, and
find collaborators. These communities facilitate
learning across all aspects of design and
commercialization of products, and they can
accelerate learning for everyone, especially for
participants who actively seek opportunities
to learn and share. In the following section,
we will examine three types of barriers that
are rapidly eroding in the growing number
of markets:
1. Barriers to entry: Access to the means of
production is overcoming barriers to entry
2. Barriers to commercialization: Individuals
and small organizations are gaining the
ability to commercialize offerings by
more easily finding customers, talent,
and resources
3. Barriers to learning: The ability to
learn faster by connecting more broadly
with others
Reduction of barriers to entry
The means of production are becoming
more accessible to individuals and smaller
companies. Technological advances are lowering
the capital investment necessary to launch
a new venture. Tools and physical infrastructure
are becoming increasingly accessible.
Liberalization in certain areas of public policy
is reducing some of the regulatory barriers that
have hindered the creation of new businesses.
Again, the exponential reduction in the cost
performance of core digital technologies—
computing power, storage, and bandwidth—is
a critical driver, in this case lowering barriers
to accessing the means of production, starting
with digital products. Advances in computing
power have reduced the importance of scale
for innovation. For example, cloud computing
allows individuals to access computing capabilities
as needed and without a significant investment
in infrastructure. Meanwhile, the cost of
digital storage has plummeted as a result of the
cloud, with storage cost performance increasing
exponentially.41 Finally, the cost of Internet
bandwidth has declined, bolstering connectivity
and enabling the consumption and sharing
of richer data. Together, these advances have
enabled small groups of individuals to launch
businesses with potentially global scale for
relatively little up-front capital expenditure.
In the technology industry, highly profitable
businesses are emerging at a rapid pace. Mobile
application developer Rovio developed the
game Angry Birds for only $140,000, but generated
an estimated $70 million in revenue.42
As similar examples proliferate, it is evident
that tools for launching businesses based on
simple, technology-based digital products
are becoming more and more accessible with
modest investment. The effects of this accessibility
will likely increasingly spill over into
other, non-digital products (for example, prosthetics),
further diminishing the need for large
capital investments. For example, with the cost
of a 3D printer—equipment once found only in
industrial settings, but now available in a more
compact size with comparable resolution for
17
desktops—dropping from $300,000 in 2000 to
$1,300 in 2012, it is becoming easier for individuals
to independently experiment with and
prototype ideas, leading to breakthroughs in
physical product design and even medicine.43
As technology continues to become better and
cheaper, more individuals will be able to create
small but sustainable economic entities.
Even for technologies that have not become
affordable, the emerging “sharing economy” is
helping to make them accessible. For example,
TechShop, one of the larger “maker space”
communities catalyzing the maker movement,
offers the use of equipment ranging from milling
machines and lathes to welding equipment,
3D printers, and industrial sewing machines,
giving members access to millions of dollars’
worth of industrial-grade tools for a monthly
membership fee comparable to that of a gym.
After a series of failed pitches, mobile payments
company Square’s founders, Jack Dorsey
and Jim McKelvey, turned to TechShop, where
they used a milling machine and other tools to
develop a Square card reader prototype. With
the working prototype in hand, Dorsey and
McKelvey easily secured Square’s first round of
funding.44 These industrial tools of fabrication
and production are also more accessible now
because they are increasingly digitally enabled,
meaning that individuals can more easily learn
to use them without having years of experience
and training.
While TechShop reduces barriers to production
through the volume and variety of
tools it offers, other co-working spaces also
reduce barriers to entry by providing physical
infrastructure such as office space. In the
case of RocketSpace, start-ups have access
to organized workspaces, conference rooms,
and office equipment and amenities that allow
them to meet with clients and work more
seamlessly as a team without investing in real
estate or equipment. These types of co-working
spaces typically rent space on a month-tomonth
basis or even by the day, so they are
less risky for individuals experimenting with
a new idea or offering. These spaces also allow
opportunities for serendipitous encounters,
tacit knowledge transfer, and idea-sharing with
others working in related areas.
Public policy and regulation also determine
how easy or difficult it is for small entities to
launch businesses. In general, US public policy
has trended toward encouraging fluid labor
markets and creating opportunities for both
competition and collaboration within many
industries, both of which tend to encourage
new entrants.45 While this is a general trend,
in specific industries regulations continue to
create a significant barrier to entry. Economywide,
the Accountable Care Act (ACA) has
further empowered individuals to pursue
independent ventures, by making health insurance
coverage available to everyone. Prior to
the ACA’s passage and the subsequent launch
of health insurance exchanges (HIX) in 2013,
individuals often stayed with large, established
employers to secure reliable, affordable health
insurance options for themselves and their
families. A 2008 Harvard Business School
study estimated that 11 million US workers
were affected by this phenomenon, known
as “job lock,” which served to discourage
worker movement within the economy.46 HIXs
are still new enough that many US workers
may not yet feel free of job lock; however,
the Congressional Budget Office estimates
that the ACA will reduce employment by 2.5
million full-time jobs, as workers, no longer
afraid to lose health insurance coverage, elect
to leave the traditional labor market in favor
of independent ventures and other forms
of employment.47
The confluence of cheap and accessible
technology, shareable tools and infrastructure,
and supportive public policy has made it
more attractive for individuals to leave large
organizations and create their own fragmented
businesses. For these businesses to be viable,
they must grow to be able to reach the market,
even a small, niche market, effectively and
profitably—another challenge made more surmountable
by technology and platforms.
The hero’s journey through the landscape of the future
18
Reduction of barriers to
commercialization
With the path to market entry more accessible,
technology has again been instrumental
to lowering barriers to commercialization,
largely through online platforms that connect
individuals and organizations to the resources
they seek. Specifically, individual entrepreneurs
or small businesses need access to four
primary resources to commercialize an idea:
• Financing
• Infrastructure
• Talent
• Customers
Access to financing. While low technology
costs and the accessibility of shared tools
allow small operations to enter markets, access
to capital is crucial for businesses to grow.
For many small teams, venture capital (VC)
financing is not an option. The average size of
a Series A deal in 2013 was $5.4 million, a sum
vastly larger than what many small entities
need to reach their planned market, especially
now that smaller-scale businesses can be
viable.48 In other cases, business owners may
not want to give up equity or control of the
company to interested VCs.
As a result, online crowdsourced financing
platforms such as Kickstarter and Indiegogo
have emerged to address the gap between
institutional investors and individual entrepreneurs.
Individuals and teams post a pitch
for their product or service as well as a request
for funding. Potential funders browse the site
and pledge funding, in increments ranging
from a few dollars to thousands of dollars, to
the projects that interest them. In exchange,
funders typically receive non-monetary
rewards, such as pre-release versions of the
product or a signed copy of an artistic work.
In 2013 alone, 3 million people pledged $480
million to Kickstarter projects for a total of
19,911 successfully funded projects.49 Many of
the projects on Kickstarter have already been
prototyped, and some may even have small
lots in production, but the online campaign
can provide the infusion of capital needed in
order to scale production to meet demand or
reach a bigger market. These crowd-financing
platforms can also allow entrepreneurs to
quickly test demand for a product and identify
early adopters. Other funding platforms serve
a similar purpose for more specific audiences,
with slightly different takes on the basic funding
model. For example, CircleUp connects
credited investors with curated funding opportunities
from innovative consumer and retail
companies. By harnessing the alternative funding
sources gathered by these platforms, individuals
can finance their commercialization
activities without ceding power to third-party
VCs. Depending on the goals of the funding
seeker, the scale of the venture, and the nature
of the product, crowdfunding alone may not be
able to fully bridge the financing gap for new
ventures, but it allows small players to test a
market and iterate a product in a way that was
not previously possible.
Access to scale infrastructure. In addition
to capital, small players need access to scalable
infrastructure, both virtual and physical. Cloud
computing has been instrumental in this
regard, providing flexible, cost-effective solutions
that allow start-up businesses to rent data
storage space or computing power and easily
scale up and down based on real-time needs.
The ability to do this was critical for Dropcam,
a video monitoring hardware and software
company that allows users to keep tabs on their
homes and pets through live streaming, as well
as to store high-definition video of the stream.
Launched in 2009, Dropcam was hosting up to
100 GB per user per month by 2011, and storage
space quickly became a limitation on scalability.
Using Amazon Web Services, Dropcam
is able to quickly adjust to changing demand—
driven, for instance, by the introduction of a
new camera or positive press that leads to a
bump in new subscribers. The company can
19
acquire additional hosting capacity within a
couple of minutes by running a simple script,
thereby delivering a seamless experience to
Dropcam’s growing user base.50
Infrastructure in the physical realm is also
becoming more accessible. Contract manufacturing,
logistics services, and call center
services can now be accessed in small volumes
at costs that are within reach for small entities.
For instance, small contract manufacturers in
Shenzen, China—once used primarily for overflow
and prototyping by large multinational
product companies—are increasingly offering
short-run production to start-up ventures,
enabling these ventures to commercialize at
a smaller scale. As they have developed their
small-scale capabilities, these contract manufacturers
have achieved efficiencies that allow
them to break even on a lot of only 10,000
units, a feat previously unattainable.51 Similarly,
on-demand cloud-based contact centers allow
companies to deploy a call center service in a
matter of days without up-front capital expenditure
or integration costs. The use of these
services is rapidly catching on; IDC estimates
that spending in the United States for ondemand,
cloud-based contact center services
will grow at a compound annual growth rate
(CAGR) of 17.5 percent, reaching $1.6 billion
by 2018.52 These rapidly scalable logistical support
options provide fragmented players with
resources never before available. Flexible, inexpensive,
easily scalable infrastructure—virtual
and physical—lets small entities punch above
their weight, enabling them to provide competitive
levels of service, quality, and responsiveness
to customers.
Access to talent. Small entities also need
access to additional skills and capabilities,
whether by teaming, contracting, or hiring.
In the past, a small business might seek
talent through temporary staffing agencies,
career centers, or trade conferences.
These avenues required up-front investments
of time and money for both the hirer
and the job seeker, and they captured only
a fraction of the available workforce due to
geographical constraints.
In contrast, online staffing platforms have
made it much easier for freelancers to connect
with opportunities regardless of location.
The growth of these platforms has coincided
with the growth of the independent worker
population, which has increased from 16.1
million workers in 2011 to 17.7 million workers
in 2013.53 In late 2013, Elance and oDesk
merged to form the largest online marketplace
for freelancers, with a combined total of over
8 million “elancers.”54 A number of niche
staffing platforms have also rapidly emerged
to complement the larger platforms. Andrew
Karpie of Staffing Industry Analysts estimates
that the number of job sites for freelancers
jumped from 24 before 2008 to over 80 dedicated
online staffing marketplaces at the beginning
of 2014.55 Such platforms have created a
plethora of opportunities for small ventures to
connect with talent on a flexible basis, reducing
labor overhead and affording employers
access to a wide range of skill sets as business
needs arise (see figure 9).
Access to customers. With increased digitization,
an entirely different set of platforms
has emerged that allow small ventures to reach
a large customer base, and often to deliver the
actual product online, democratizing access to
relevant markets. While in the physical world,
product variety is limited by shelf space (or the
number of movie screens), in the digital world
these constraints disappear. As Chris Anderson
wrote in his 2004 article The long tail, “Now,
with online distribution and retail, we are
entering a world of abundance.”56 On platforms
like Etsy, the leading online marketplace for
handmade and vintage goods, small niche
providers can connect with consumers with
very specific requirements and offer goods and
services that fit their preferences. Often, these
consumers don’t exist in large enough numbers
to have created a market in any physical location.
Founded in 2005, Etsy had accrued over
a million sellers by 2013 and grew from $0.17
The hero’s journey through the landscape of the future
20
Graphic: Deloitte University Press | DUPress.com
* While these are primarily physical platforms, traditional temporary staffing agencies are increasingly building out their digital presence.
This map is intended to illustrate the diverse options for freelancers and others in nontraditional employment arrangements. The  placement of
companies on this map reflects current services and positioning derived from company websites and is not intended to reflect future strategic
positioning or business models.  This is a rapidly evolving space, with new acquisitions and partnerships increasingly blurring the boundaries
between categories. For example, traditional temporary staffing agencies are increasingly developing their digital presence through partnerships
and new offerings.
Figure 9. Freelancer platform map
Task
Highly specialized
platforms for accessing
experts
GLG
Gigwalk
CrowdFlower
Craigslist College
career
centers
Cad Crowd
Freelance
Physician
Elance-oDesk
RentACoder
Freelancer.com
MBA & Company
Kelly
Services
LinkedIn
Manpower
Group
Platforms engaging
highly specialized
professionals
Broad-based online marketplaces complemented
by vertical freelancer platforms
Low skill, micro-work Platforms for more
general online ads
Collective/career
services
Generalized
online
networking
Traditional temporary
Lo
staffing agencies
w Moderate
Training level
Scope
High
Project Staff augmentation
Digital platform Physical platform*
Illustration of options for freelancers and nontraditional employment arrangements
The shift to digital platforms has given both individuals and companies more options for connecting work
opportunities with independent workers. Currently, platforms tend to cater to specific demographics and
project types. Scope refers to the level of involvement and integration an assignment requires (for example,
a task that can be done independently in one sitting versus a project that will unfold over multiple working
sessions). Training level refers to how much specialized knowledge is required to complete the assignment (for
example, no specialized education or trade experience necessary versus the need for a PhD or a demonstrated
elite achieve-ment). This map does not include competition-based crowdsourcing platforms (for example,
Innocentive) or platforms that connect individuals directly to consumers (for example, Uber, Etsy).
21
million worth of goods sold in its first year to
$1.35 billion in 2013 (see figure 10 and 11).57
As described earlier, Etsy has also recently
added a wholesaler program, which allows
artisans who wish to reach a broader audience
to forge relationships with mass retailers.58
Similarly, Amazon’s Kindle Direct
Publishing allows any author to self-publish
ebooks and distribute them globally on
Amazon. And Netflix is increasingly used as a
platform to release indie films, allowing filmmakers
to find audiences for their work without
first wooing a large production company.
While online platforms have improved
access to finance, infrastructure, talent, and
customers by connecting small players with
others outside their immediate ecosystem, discovery—finding
the right resources and being
found by potential customers—will still pose
a challenge for individuals and small teams
in the near term. In part, this is because new
platforms are still emerging. Curators already
help with discovery, and as the business landscape
evolves, new roles beyond just curation
are likely to emerge to help connect individuals
with opportunities.
Reduction in barriers to learning
Even after starting a venture and commercializing
a product or service, individuals and
small teams (and large companies) still need
to learn in order to improve performance.
Most of the learning around product innovation
and commercialization, particularly for
smaller players, will occur in the ecosystem
among small entities, customers, partners, and
suppliers. Here, too, platforms are emerging
to facilitate creating and sharing knowledge
among participants. Opportunities for formal
and informal learning related to product
innovation and commercialization are growing
Graphic: Deloitte University Press | DUPress.com
Figure 10. Etsy merchandise sales ($ million)
Source: “Etsy’s total annual merchandise sales volume from 2005 to 2013
(in million US dollars)”, Statista,
http://www.statista.com/statistics/219412/etsys-total-merchandise-sales-per-year/,
accessed February 2014.
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013
$400
$200
$600
$800
$1,00
$1,200
$1,400
$1,600
Figure 11. Etsy year-over-year new monthly growth
(in thousands)
Source: “Etsy statistics: 2012 weather report,” Etsy, https://blog.etsy.com/news/2012/
etsy-statistics-may-2012-weather-report/, accessed February 2014.
Graphic: Deloitte University Press | DUPress.com
2008
# of new users
# of new items listed
# of new items sold
2009 2010 2011 2012 2013
80000
70000
60000
50000
40000
30000
20000
10000
The hero’s journey through the landscape of the future
22
as a result of improved access to knowledge
and more ways to create and share knowledge,
including:
• Online learning platforms and communities
• New organizational models to build
tacit knowledge
• Feedback loops from platforms and other
scale players
Online learning platforms and communities.
The proliferation of learning platforms
(for example, Udacity and YouTube) and
service tools for creating online learning (for
example, Schoolkeep) have lowered the costs
of producing and distributing learning content.
These technologies not only make it easier to
share content, but also, through video, better
transfer tacit knowledge by capturing actions
in motion.
As content creation and distribution has
become more democratized, the requirement
for certification is also lessening. The ability to
warrant is expanding beyond higher education
institutions and educational publishing firms
to corporations (for example, Google, Intuit),
online accreditation organizations (for example,
Balloon, Degreed, Accredible), and the
crowd (through reviews, ratings, and “likes”).
For example, Udemy’s open platform hosts 3
million users and 16,000 courses, from yoga
to finance to web development.59 Meanwhile,
companies like SchoolKeep, Fedora, and
Skilljar make it easier for individuals to create
and operate courses on their own web domain.
Educational material—ranging from academic
examinations to practical tutorials—is largely
open to the public for consumption. It can
serve the diverse learning needs of individuals,
teams, and companies over time, whether they
need to master new technologies, maintain
relevant skills, or learn the next step of the
business just in time.
New organizational models to build tacit
knowledge. Beyond the more formal learning
platforms, organizations are experimenting
with models to facilitate sustained interactions
between disparate workers and partners,
connecting those with complementary talents
under the banner of a common goal. Techshop,
Rocketspace, and Meetup—an online social
networking portal that facilitates in-person
group meetings in cities around the world—
all serve as platforms for disparate players to
interact and share ideas and practices. These
organizations also provide infrastructure
and support for maintaining and governing
these relationships over time. With the
ability to more easily find and connect with
others from whom they might learn, small
players have a better chance to forge viable,
sustainable businesses.
Feedback loops from platforms and other
scale players. Another interesting way that the
barriers to learning are falling is through the
increased use of platforms, shared resources,
and on-demand infrastructure, which has
given rise to feedback loops that engage others
in the ecosystem. For example, a vendor on
Amazon can track not only sales of its own
products, but also those of its competitors; the
vendor can also can see how the products compare
by reading customer reviews of its own
and competitors’ products. Similarly, a product
company might gain insight about cost-cutting
design modifications from a contract manufacturer
that has developed deep expertise by
serving many players in an industry. The ability
to learn from others in the ecosystem—customers,
suppliers, service providers—becomes
increasingly important as demand for personalization
and customization grows.
23
The erosion of barriers to forming and
pursuing a business venture will lead to
increasing fragmentation in certain parts of the
economy. In this section, we’ll explore:
1. Pathways to fragmentation
2. Roles that will fragment
3. Fragmentation potential of
specific industries
4. Challenges to growth in fragmented arenas
Pathways to fragmentation
For individuals and small entities, the barriers
to forming and pursuing a business venture
are rapidly being dismantled. As barriers fall,
many small yet viable players will emerge, with
increasing influence on the economy, via three
primary pathways:
• Freelancers, empowered by online staffing
platforms, will begin as individual
contractors, but will quickly transition to
forming flexible teams—colloquially called
“hives”—comprised of other freelancers
Fragmentation: Staying
niche, nimble, and small is
the new goal for many
Figure 12. The journey to the future of the business landscape: Fragmentation
The hero’s journey through the landscape of the future
24
with complementary skill sets. Gradually,
these hives will move from just accepting
work from other businesses to collectively
creating their own products and
services, and ultimately forming their own
small companies.
• Hobbyists will transition from “moonlighting”—working
full-time for someone
else while pursuing their passion projects
during off-hours—to being fully dedicated
business owners. Consider that, while only
18 percent of Etsy’s sellers sold their products
full-time in 2012, 91 percent aspired to
grow their businesses. Of those who wanted
to grow, 61 percent aspired to grow to a
“manageable size” rather than to achieve
unlimited growth.60 These aspirations signal
the possibility of a broad shift in the common
notion of a successful business.
• “Star” performers within big companies—
confident of their value and frustrated by a
lack of autonomy—will increasingly choose
to leave employers in favor of building businesses
that use their full range of talents.
Enabled by new tools and technologies,
these workers may be able to experience the
same, or greater, success as in their corporate
jobs while deriving additional benefits
from greater autonomy and doing work that
better aligns with their personal values.
This proliferation of individual and small
business ventures addressing highly differentiated
industry and consumer needs will drive
significant fragmentation in certain parts
of the business landscape. Fragmentation
(within a domain) is defined by the
following characteristics:
• Each player within the domain has a small,
addressable market and is focused on a
specific niche
• Collectively, players address a diverse spectrum
of customer and market needs
• Both players and niches are proliferating
within the domain
• No single player has enough market share
to influence the direction of the domain
long term
• A relatively modest level of investment is
sufficient to enter and sustain position
• “Diseconomies of scale” are in play—it is
more challenging for large players to stay
in business
Charting an individual path forward
Spencer Walle has been a freelance translator for nearly three years. Driven by a passion for language, he
taught himself Japanese in order to build a career for himself in the most lucrative part of the translation
industry—Japanese IP translations. Walle has since built out a strong network that keeps his work pipeline
flowing, and provided he actively manages his cash flow, he can live an autonomous lifestyle full of travel
and flexibility. Long-term, Walle sees this freelance work transitioning into a small business.
Walle sees himself staying in the translation industry indefinitely, simply due to his passion for language.
However, he can see himself getting bored with his current projects, as the work can become monotonous
and there is no real advancement potential. He has considered eventually starting his own small translation
company, mirroring the trend toward small business formation that he’s seen in the translation community.
According to Walle, “It happens organically that translators start to work collectively.” Pretty soon they
get larger assignments, hire more junior staff, and then start to require organizational trappings like an
accountant—and with that, “a company is born.”61
25
Roles that will fragment
Fragmentation will occur at different rates
and to varying degrees across the economy.
Much of the fragmentation is likely to occur in
product design and commercialization activities.
This activity depends on creative talent,
and creative talent tends to seek the autonomy
available in smaller organizational settings.
This creative talent can establish much closer
connections to their customers and build
deeper relationships over time that will help
them to deliver more effective personalization
and customization, opening up opportunities
for customers to participate in the design and
creation of the products. These more specialized
players will acquire deeper insight into
the needs of the highly focused niches they are
serving—needs that the customers themselves
have a hard time articulating or may not even
recognize. However, as we will see below, not
all products or services will be subject to fragmentation,
and not all fragmented players will
focus on product/service innovation.
Niche operators
As described above, niche operators will
tend to form specialized product/service businesses,
either designing and commercializing
Coders
Consumer Creator
Individual
Niche operators
Angels Domain
experts
Artists
Makers
Momandpop
Figure 13. Niche operators
creative products or acting as domain experts
or contractors to support these specialized
product businesses. One of the early effects of
the Big Shift has been the increasing capacity
for connection between participants in an ecosystem.
For individuals and small teams, this
means they can more easily forge connections
with one another and with large companies
to learn, improve performance, and pursue
opportunities for long-term viability.
The fragmentation already underway is,
with some rare exceptions, still on the edge
of most established markets. However, early
shifts—including the loosening bonds between
workers and large employers and the widespread
erosion of barriers—are paving the way
for more small businesses to arise. The historical
growth of the independent workforce has
not been reliably tracked;62 however, a study
by MBO Partners revealed that, in 2013, there
were 17.7 million independent workers in the
United States—up 10 percent from 2011. This
number is expected to increase to 24 million
independent workers by 2018.63 Many
of these workers may eventually form businesses.
Over time, they should have a greater
impact on their domains, competing with large
companies by serving increasingly diversified
consumer desires and providing personalized,
even localized, products and services.
The hero’s journey through the landscape of the future
26
The music industry is one of the first areas
where fragmentation is evident, illustrating
how very diverse consumers’ preferences are
once they have an easy way to personalize
their experience across a seemingly boundless
variety of artists and offerings (genre, format,
and setting). Streaming services, aggregation
platforms, and self-distribution channels have
made recording and distributing music easier
than ever. The proportion of independent
musicians in the United States—those not
“owned” by a major label—has increased from
25 percent in 2003 to over 90 percent in 2012.64
Independent musicians are also making up a
greater proportion of the US music market’s
revenue, from 28.8 percent in 2007 to 34.5
percent in 2012.65
Fragmentation is likely to be most pronounced
in the design, development, and
production of new products and services for
specific markets. This can already be seen
in the software industry, where the tools of
production are readily accessible to coders and
the proliferation of devices has created highly
differentiated customer demand. Since 2005,
the number of mobile application developers
has increased from 950 entities to approximately
158,000 in 2013—a 166-fold increase.
At the same time, the top four players in
2013 accounted for only 11.8 percent of the
industry revenue.66
As consumer demand for uniqueness or
other specialized attributes causes product
fragmentation, another type of fragmentation
will occur in the retail space, as retailers
cater to specific consumer preferences with
a targeted set of niche products. A new type
of retailer is emerging that uses both physical
and virtual facilities to help customers more
effectively navigate a vast range of products
to find and use those that are most personally
relevant. They will increasingly offer targeted
experiences to niche customer segments—
showcasing products, providing learning environments
to help customers get more value
from the products, and creating venues for
customers to form communities around these
niche offerings. This phenomenon is different
from more narrowly defined curation services,
which simply provide expertise or reviews in a
product category.
Increasingly, we will see similar trends
across other domains where the barriers to
entry, commercialization, and learning are
diminishing. For example, although angel
investors are already fragmented, the number
of small investors could grow with the emergence
of a different type of angel investor—one
who, now that it is easier for individual investors
to connect with individual makers, artists,
or entrepreneurs, values his or her connection
to a specific product or mission more than
tenfold returns. Similarly, we expect to see
growing numbers of highly specialized domain
experts who will provide niche consulting and
support services to other fragmented players.
Fragmentation potential
of specific industries
As just discussed, we expect fragmentation
to be most evident in those activities centered
on the design and commercialization of
innovative products and services. The extent to
which an industry will fragment depends upon
two elements:
• The degree to which customers are expressing
a desire for more specialization, personalization,
and customization in the products
and services they buy or are beginning
to make
• The degree to which barriers to entry,
commercialization, and learning
are diminishing
We have already discussed how the Big
Shift has empowered consumers to expect
products and services that more closely meet
their preferences for price, format, and timing,
in addition to their preferences for productspecific
variables like style, color, uniqueness,
and so on. Customers, whether individuals or
companies, may also begin to demand more
27
customized offerings as their own environments
and operating requirements change
more rapidly, again in response to the forces
of the Big Shift. Anywhere that customers are
demanding—or might be expected to start
demanding—more personalized offerings
has the potential for fragmentation, because
effectively meeting such highly specific
needs requires a high degree of creativity
and the ability to thrive on small volumes
of production.
Even given a demand for innovation,
broader industry barriers (see figure 14) play
a significant role in determining the rate at
which fragmentation occurs. Certain forces
accelerate fragmentation by reducing barriers
or dampen it by propping up barriers. The first
set of forces in figure 14 concerns the ability
to overcome barriers to entry; without them,
fragmentation is unlikely to occur regardless of
reductions in barriers to commercialization or
learning. For this reason, the first set of forces
is most important in assessing the potential for
fragmentation at the industry level.
However, even in industries where the barriers
to entry initially seem high, such as where
production requires large physical plants,
the demand for design innovation can cause
Figure 14. Assessment of barriers by industry
1
2
3
llustrative industry comparison
The extent to which barriers to entry, commercialization, and learning are falling in an industry or domain determines how vulnerable it is to fragmentation.
Software Health
care Media Retail
Your
industry
Technological advancements in the means of production
Accessible tools and physical infrastructure
Liberalization in sector policy and regulation
Access to financing
Access to scale infrastructure
Access to talent
Access to customers
Online learning platforms and communities
New organizational models to build tacit knowledge
Feedback loops from platforms and other scale players
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
û
ü
û
û
ü
ü
û
û
ü
ü
û
ü
ü
ü
ü
ü
ü
ü
ü
ü
û
ü
ü
ü
ü
ü
ü
ü
Graphic: Deloitte University Press | DUPress.com
Reduction
in barriers
to entry
Reduction
in barriers
to commercialization
Reduction
in barriers
to learning
The hero’s journey through the landscape of the future
28
business models to evolve, reducing barriers
by providing access to scale and transforming
industry economics. In the semiconductor
industry, for example, the high cost and
scale economies of semiconductor fabrication
facilities (fabs) would have seemed an insurmountable
barrier to small-scale players. In
the 1980s, as manufacturing began to require
more precise and advanced techniques, many
semiconductor companies shed their in-house
fab capabilities. Companies that kept fabs
sold their excess capacity to the newly “fabless”
companies, but the negotiation process
was often complicated and slow. Then, in
1987, Taiwan Semiconductor Manufacturing
Company (TSMC) launched a new “foundry”
business, making it their sole business to
manufacture for fabless or limited-capacity
semiconductor companies, essentially renting
out partial capacity. The foundry model transformed
the semiconductor industry. Fabless
integrated circuit (IC) design companies now
represent more than 20 percent of the global
market. In China alone, the number of IC
design enterprises has grown from 96 in 2000
to 518 in 2012.67
Once the barriers to entry start to come
down, infrastructure and platforms to support
fragmented players’ commercialization
and learning activities are likely to emerge.
As the barriers at all three levels diminish,
fragmentation is likely to significantly increase.
In contrast, in industries where one or more
forces are serving to prop up barriers to entry,
commercialization, or learning, fragmentation
may still occur, but more gradually. In health
care, for example, fragmentation is happening
on the edges where regulation is not a factor, in
the markets for wellness providers and quantified-self
devices. The platforms that emerge to
connect and support these fragmented players
may, over time, drive fragmentation in core
health care services. In fact, even under regulation,
highly specialized facilities focused on the
treatment of specific diseases are emerging.
While the first set of forces acting on
barriers to entry is most critical in assessing
whether fragmentation will occur, public policy
and regulation are also particularly important.
Overall policies and regulations (at the
federal, state, and local levels) that encourage
or discourage starting new businesses, regardless
of industry, weigh heavily in any decision
to start a new venture. In a survey by the US
Chamber of Commerce, 44 percent of small
business owners cited over-regulation as one of
their chief challenges.68 Public policy can also
act as a barrier when wielded as a tool to block
new entrants. Established interests historically
try to use regulations to prevent new competition;
while public policy can be a driving
force of change, established interests are often
driving the changes in policy. Even in industries
in which other barriers are diminishing,
if policy and regulation prop up barriers, the
process of fragmentation may be significantly
slowed. The craft beer industry illustrates both
the accelerating and dampening effects of
policy and regulation (see sidebar, “The impact
of regulations on the craft beer industry”).
Thus, sustainable fragmentation relies on the
continuation of policy trends that support the
emergence of fragmented players.
29
Figure 15. iTunes app store—number of applications
Source: “Number of available apps in the iTunes App Store from 2008 to 2013
(cumulative),” Statistica, http://www.statista.com/statistics/268251/number-of-apps-in-the-itunes-app-store-since-2008/,
accessed June 2014.
Graphic: Deloitte University Press | DUPress.com
2008 2009 2010 2011 2012 2013
1000
800
600
400
200
(in thousands)
Figure 16. Mobile application development, percent of
market share (by revenue)
Source: “Smartphone app developers in the US,” IBISWorld, January 2014.
Graphic: Deloitte University Press | DUPress.com
4.3
4.3 2.2
1.0
Kings Game
Kabam
Zynga
Electronic Arts
Other 88.1
The impact of platforms on the mobile
applications development industry
In 2007, Apple® introduced the iPhone®
mobile digital device and the App Storesm in
2008, spawning a new market for mobile
application development.69 A year later,
Google introduced the Android and its own
application marketplace, Google Play. In just
seven years, the nonexistent applications
development sector has grown to over
$10 billion.70
Having experienced 50 percent annualized
growth since 2009, the application
development space is crowded and
highly fragmented. In the past three years
alone, employment related to applications
development has increased by 80 percent.
In 2013, the largest four players—King’s
Game, Kabam, Zynga, and Electronic Arts—
account for less than 12 percent of industry
revenue, while the remaining 88 percent is
distributed across over 195,000 publishers
and developers.71
Why is this sector so fragmented?
Entry: Labor accounts for 67 percent of
mobile application development costs. As
such, skillsets and time, not capital, are the
most important resources needed to enter
the market.72 The low level of capital intensity
has also stayed relatively steady over the
past five years.73 The mobile app space has
limited regulation.
Commercialization: With marketplace
platforms like iTunes®, Google Play, and
more recently, Amazon’s Appstore and
Salesforce’s Appexchange, small, thirdparty
participants can easily reach and
distribute their product to a wide range of
potential customers.
Learning: Given the large number of coding
languages (for example, JavaScript, C#, PHP,
and Objective-C) and the continuous changes
in underlying devices and technologies (for
example, near-field communication and radio
frequency tech), mobile app developers must
constantly learn new skills. Individuals now
have access to a wide range of formal and
informal learning tools and communities
through sites such as GitHub, Codeacademy,
and General Assembly.
The hero’s journey through the landscape of the future
30
The impact of regulations on the craft beer industry
In recent years, the US beer industry has been stagnating: Revenue from beer production grew at an average
annual rate of 2.1 percent since 2009, and it is expected to decline 4.1 percent in 2014.74 Craft beer’s volume
share (in beer barrels) of the market, however, more than doubled, from 2.9 percent in 2005 to 6.5 percent
in 2012.75 Even though this represents a relatively small percentage of total market sales, the upward trend in
craft beer growth will likely continue: Demeter Group estimates that craft beer will represent 15 percent of the
industry by 2020.76
The graph below shows the total number of US breweries since 1887. The rise of craft beer started in 1978
when President Jimmy Carter signed H.R. 1337 into law, legalizing the home production of small amounts of
beer. By June 2013, 2,483 of the United States’ 2,538 breweries (nearly 98 percent) were craft breweries.77
Figure 17. Number of breweries in the United States
Source: “Number of breweries,” Brewers Association, http://www.brewersassociation.org/statistics/number-of-breweries/, accessed March 2014.
Graphic: Deloitte University Press | DUPress.com
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
3000
2500
Number of breweries, US
2000
1500
1000
500
2,156
1,092
857
89
2,822
The success of commercial craft brewing and the shift in consumer preferences has led some giants to explore
ways to provide more unique selections of products. MillerCoors has invested in an in-house craft beer branch,
Tenth and Blake, which introduced products such as Blue Moon and Leinenkugel’s to appeal to the growing
craft beer market.78 Others, such as AB InBev, which acquired the Chicago brand Goose Island in 2011, have
used acquisitions to sustain growth by leveraging new brand names, offering craft brewers scale. Goose Island
doubled production from 127,000 beer barrels in 2010 to 230,000 beer barrels in 2012 and achieved national
distribution in 2013, while maintaining “street cred” by maintaining independent marketing and branding.79
US craft breweries still face many barriers. Beer distribution is heavily regulated: Most states require three-tier
distribution systems, leaving craft breweries few alternatives for reaching consumers directly.80 Complicated
regulations based on which state a seller or buyer is operating in limit many craft brewers to the shelf space
and tap handles in the local market.81 Imagine a world where beer could move freely between states and
small craft breweries could easily access niche consumers across the country. Already the role of distributors
is changing. According to Craig Purser, president of the National Beer Wholesalers Association (NBWA),
distributors are “transitioning from being brand-dependent beer wholesalers to [being] brand-building beverage
distribution companies.”82
31
Fragmentation will be a
permanent feature of the
business landscape
Some might argue that fragmentation is
simply a transitional state. After all, every
large company started as a small one that grew
larger either organically or through acquisition.
Similarly, new sectors or product categories
often begin with a large number of players
testing various models before a winning
business model emerges and consolidation
occurs around that model. As a sector matures,
smaller players disappear or are acquired, as
happened in the early days of the personal
computer (PC)83 and automobile. In 1907, 82
new firms entered the US automobile industry,
but by the 1930s, three companies accounted
for 80 percent of the industry’s output.84
If product categories follow an S-curve
adoption pattern, fragmentation at the beginning
of the curve is replaced by concentration
and scale as a category matures. In the past,
it took approximately 25 years for a product
category or sector to go through a complete
life cycle. However, this timeline is getting
shorter.85 Increasingly, institutional and industry
structures do not have time to adjust to
more frequent periods of disruption. In fact,
with technology advancing ever faster, amplified
by the cumulative effects of innovation
and public policy, the S-curves of the product
life cycle are likely to become shorter, and the
periods of stability between disruptions will
largely disappear. This, in itself, will lead to
more continuous fragmentation.
Challenges to growth in
fragmented arenas
On the other hand, not all fragmentation is
tied to sector or product evolution. As niche
operators create businesses focused on product
and service development and commercialization,
they will discover that the same trends
that lowered barriers for them may also limit
the growth potential of businesses like theirs.
As a result, a sustained (not transitory) fragmentation
will prevail in certain parts of the
economy. In areas of persistent fragmentation,
diseconomies of scale will likely discourage
growth for several reasons:
1. The quicker, easier product discovery
and marketplace connections enabled by
technology create a long tail of opportunities,
each with smaller total returns.
Consumers are no longer limited to the
choices within their close proximity.
Instead, as Chris Anderson explains in The
long tail, online sales and distribution let
consumers discover products and services
from around the globe and expand their
preferences and tastes.86 Customers who
once felt satisfied with mainstream options
may often discover they enjoy alternatives
that they didn’t previously know existed.
For example, in 1998, Amazon customers
who viewed the then-contemporary
bestseller Into Thin Air were recommended
the out-of-print mountaineering memoir
Touching the Void. As a result, Touching the
Void started to outsell Into Thin Air two to
one. Over half of Amazon’s book sales now
come from books outside its top 130,000
titles.87 This is good news for the lesserknown
titles, but spreading market share
means that growth potential is moderated,
even for industry leaders. A “hit” today
is much smaller than it was years ago. As
Anderson points out, most of the all-time
top 50 best-selling music albums were created
in the ’70s and ’80s (by acts such as the
Eagles and Michael Jackson); none were
The hero’s journey through the landscape of the future
32
made after 2000. Measured by viewership,
the No. 1 TV show today would not have
made the top 10 in 1970.88
Today’s consumers expect offerings that
exactly fit their needs and lifestyle requirements.
The good news is that digital
technologies allow niche products to reach
consumers. The bad news is that, given
the fragmentation of the consumer base,
it is harder to get an offering adopted by
the mass market, earn market share, and
generate large returns. Indeed, the whole
idea of the “mass market” may become
less relevant as niche market proliferate.
Revenue opportunities may be limited to
capturing a relevant niche segment instead
of an entire market.
2. Increased competition and disruption are
shortening product life cycles, reducing
the total return for each product. Product
life cycles have been compressed and will
continue to shrink due to lower barriers to
entry, the increasing speed of innovation,
and increased competition, thus reducing
the potential returns for each individual
player. As reported in the Shift Index 2013
series of reports, competitive intensity
(as defined by economists to be inversely
related to industry concentration) in the
United States has been increasing substantially
over the past 47 years.89 Additionally,
the topple rate—the rate at which companies
lose their leadership position in the
market—has increased by 39 percent since
1965.90 As a result, new product turnover
has increased substantially. Half a century
ago, companies could expect their product
to remain relevant for 15 years. Today, it is
more likely to be three years, and for some
technology products, relevance may last
only six months.91 This shortening of the
product life cycle puts significant pressure
on traditional go-to-market models, R&D,
and resource utilization.
One factor that is putting pressure on the
product life cycle is a decrease in consumer
loyalty. Consumers are increasingly
willing to switch between brands to find
products that best address their needs.92
For example, going back to the game Angry
Birds, although the iTunes App Store was
the source of the game’s success, it also
opened the door to intense competition.
After spending 22 months on the Top 20
chart of most revenue generating apps in
the US and achieving astonishing growth
(from €6.5 million in 2010 to €75.6 million
in 2011 to €152.2 million in 2012), Angry
Birds’ revenue stagnated in 2013, and new
entrants like Candy Crush Saga and Clash
of Clans, both released in 2012, now occupy
the top slots.93
3. Niche players that scale will have difficulty
retaining creative talent, given the
increasing ability of talent to pursue other
ventures. As highlighted earlier in this
report, the safety nets that used to attract
workers to large, established companies
are rapidly disappearing. As the benefits
of staying employed by a large organization
diminish, top talent will look for
opportunities to increase their autonomy
and creativity. Many may leave for smaller
organizations where they can achieve these
goals. After all, talent is not insensitive to
the Dilbert paradox: While established,
large companies typically state that acquiring
and retaining talent is their No. 1 priority,
cost reductions and layoffs are often
the most common responses to economic
pressures. As an organization scales, it
often becomes focused on efficiency, tightly
33
scripting processes and governance models
and thus limiting workers’ autonomy and
creativity. In addition, because technology
and public policy have been rapidly
reducing barriers to means of production,
commercialization, and learning, it is
often more attractive and less risky for top
creative individuals to pursue autonomous
work arrangements in which they can make
a more direct impact on their industry or
domain. With outside options becoming
more attractive, achievable, and less risky,
why should top talent stay in an environment
that is less rewarding?
In sum, current trends suggest that fragmentation
will be a sustained and even desirable
outcome in the new business landscape.
But not all parts of the business landscape will
fragment. As we’ll discuss below, this fragmentation
in the product design and commercialization
and related arenas creates an
opportunity for more scale- and scope-intensive
businesses to emerge and grow. Platforms
and infrastructures will be needed to support
fragmented production and distribution, and
consumers, talent, and businesses will need
help to navigate the large number of options
available to them.
The hero’s journey through the landscape of the future
34
As fragmented players focus on product
innovation and commercialization, what
will happen to the established companies of
today, and how will they capitalize on their
advantages of scale or scope?
Concurrent with the fragmentation occurring
in the product innovation and commercialization
space, concentration will begin
to take place within parts of the economy
that support niche operators. At a high level,
concentrated players are those companies
that maintain their competitive position by
leveraging scale and scope economics to
provide operational support to fragmented
players. The trends toward fragmentation and
concentration will reinforce one another as
large players find ways to achieve even greater
scale and scope by serving the needs of a growing
arena of fragmented players.
Concentration within a domain,
such as an industry sector, displays the
following characteristics:
• Players are tightly focused on a single business
activity or function
Concentration: Emerging scaleand-scope
operators will fuel
and benefit fragmentation
Figure 18. The journey to the future of the business landscape: Concentration
35
• A significant level of investment is required
to enter and sustain a marketplace position
• Players generate value by providing information,
resources, and platforms to fragmented
players, leveraging resources such
as large-scale technology infrastructure or
big data
Roles that will tend
to concentrate
As performance pressures intensify in
tandem with barriers coming down, fragmentation
will accelerate. Large-scale infrastructure
providers and rich platforms will emerge
to connect these fragmented players with
resources within their ecosystems.
Scale-and-scope operators
Large companies in the concentrating parts
of the economy will adopt roles that require
scale and scope in order to create value for
large numbers of fragmented players.
The first scale-and-scope role is the infrastructure
provider. Infrastructure providers
deliver high-volume, routine process services.
They have far-reaching networks and will likely
serve both business-to-business (B2B) and
business-to-consumer (B2C) needs. Many of
the companies that will fill the infrastructure
provider role will have made large capital
investments in physical infrastructure such
as transportation networks (for example,
UPS and FedEx), manufacturing equipment
(for example, Flextronics), or facilities.
Alternatively, their infrastructure may be in the
form of digital technology or based on scaleintensive
business processes that can extend
across industry verticals, such as routine
human resources (HR) process management
or risk management. Infrastructure providers
will be instrumental to the viable operation
of fragmented businesses, as they can provide
affordable access to services and physical
networks that can only be operated cost-effectively
at scale.
The second scale-and-scope role is the
aggregation platform. Aggregation platforms
enable connections among fragmented players,
helping to dismantle the kinds of barriers to
entry, commercialization, and learning discussed
earlier in this report. These platforms
create connections in one of two ways: Either
they foster connections among participants—
both fragmented and concentrated—in the
ecosystem, or they connect fragmented players
conveniently and quickly to aggregated data
and resources.
Platforms that foster connections typically
target certain types of participants or focus
on a specific purpose. For example, online
marketplaces such as eBay connect sellers and
consumers, while financing platforms such as
Kickstarter connect artists and entrepreneurs
with financiers and social platforms such as
Facebook connect individuals who want to
share knowledge or information with each
other. Additionally, platforms that connect
entities to data or other resources typically
rely on deep, relevant expertise. For example,
PCH International is one of several emerging
platform businesses that help nascent maker
businesses navigate and access the small-batch
or sample factories of Shenzhen, China, based
on a network of connections, experience in the
region, and specific manufacturing knowledge.
The final scale-and-scope role is the agent.
Two types of agents exist: the consumer agent
and the talent agent. Consumer agents serve
as a trusted advisor to the consumer across a
growing array of products and services. Talent
agents connect talent to opportunities and
provide advice to help individuals pursue lifelong
learning and successfully evolve in terms
of their business careers. Driving the need for
agents are the increasingly diverse preferences
and expectations of consumers, employees,
and employers, as well as their growing access
to a wide variety of offerings. Both types of
agents create value by helping people sift
through information and choices to find the
products, services, and opportunities to best fit
their needs.
The hero’s journey through the landscape of the future
36
Figure 19. Scale-and-scope operators
Graphic: Deloitte University Press | DUPress.com
Coders
Consumer Creator
Individual
Niche operators
Scale-and-scope operators
Angels Domain
experts
Artists
Makers
MomandPop
Coders
Consumer Creator
Individual
Niche operators
Angels Domain
experts
Artists
Makers
MomandPop
Manufacturing
Logistics
Digital tech
infrastructure
Facilities
management
Back office
Risk management
Social
Content
Data
Broker/market
Finance
Consumer
Talent
Infrastructure
providers
Aggregation
platforms
Agent
businesses
The agent role has always existed, from the
personal wealth manager to the Hollywood
agent representing celebrities. What has
changed with the advance of technology is the
ways in which agents can operate and their
consequent increase in reach. Agents can now
function in a virtual format—from Pandora’s
music recommendations to Sosh’s event recommendations—to
cost-effectively address the
needs of the mass market rather than targeting
just the very affluent.
A talent agent employs a deep understanding
of an individual’s learning and career goals
to provide proactive, holistic career coaching
and learning services. The talent agent’s goal
is to help the individual learn faster from new
situations or new connections in the everchanging
landscape. One factor driving the
need for talent agents is the increasing speed at
which skills lose relevance, primarily as a result
of rapid advances in technology. With no signs
that technological or related business change
will slow down, individuals’ skills will be ever
more subject to obsolescence, and workers
will face an unprecedented need to almost
continually build new skillsets. As a result,
37
lifelong learning will become a permanent part
of our professional lives, and talent agents will
play an increasingly important role in helping
people and organizations learn faster and
improve performance.
Consumer agents will be particularly
important for connecting consumers to
the work of fragmented creators. As agents
improve their ability to analyze customer
data to generate recommendations for specific
individuals, the highly specialized niche
offerings of fragmented players will rise to the
surface. For example, Netflix is developing
ever more sophisticated algorithms to predict
movie-watchers’ tastes, allowing it to provide
recommendations for independent films that
users likely would not have discovered on their
own. Similarly, LinkedIn leverages the data
each professional provides to recommend job
opportunities and professional connections.
Regardless of format—physical or virtual—
agents will share several defining characteristics,
described in figure 20. At this time,
however, no pure-play agents exist that are
completely brand-agnostic, anticipate customer
needs with proactive recommendations,
and are widely accessible to a mass market.
Figure 20. Characteristics of agent businesses
The ability to recommend
services, products or opportunities
that best meet the
needs of the individual,
irrespective of the source or
provider of the options
Low High
Recommends services/products/
opportunities from within the
organization’s portfolio
The agent business
Agnosticism
Recommends services/
products/opportunities from
across the entire marketplace
The ability to actively
recommend services, products
or opportunities based on a
deep understanding of the
individual
Low High
Responds to customer requests
for products/services, seeking
to find the best match
Anticipation
Proactively makes
recommendations to an
individual based on a deep
understanding of
the individual
The accessibility of agents to
individuals with respect to
price, availability, and format
Low High
Accessible only to a limited
number of individuals (high
cost or limited availability)
Democratization
Easily accessible to a wide
range and large number of
individuals (low cost and
wide availability)
Graphic: Deloitte University Press | DUPress.com
The hero’s journey through the landscape of the future
38
The new business landscape has one
final role: the mobilizer. Mobilizers
will become increasingly important, especially
in fragmented areas of the economy,
in connecting disparate participants within
the ecosystem.
Mobilizers are entities that orient participants
toward a common goal by creating an
environment for a sustained, shared collaboration
among ecosystem participants. Rather
than aggregate participants and broker transaction-based
relationships (as do aggregation
platforms), mobilizers enable a web of sustained,
complex interactions that evolve over
time to achieve focus, drive specific initiatives,
and accelerate learning.
Mobilizers add value in three ways:
• Frame explicit, motivating goals
• Provide governance that
enhances interactions
• Facilitate collaboration
Mobilizers: Connecting and
mobilizing the ecosystem
Figure 21. The journey to the future of the business landscape: Mobilizers
39
Coders
Consumer Creator
Individual
Niche operators
Scale-and-scope operators
Angels Domain
experts
Artists
Makers
Momandpop
Manufacturing
Logistics
Digital tech
infrastructure
Facilities
management
Back office
Risk management
Social
Content
Data
Broker/market
Finance
Consumer
Talent
Product/service
Infrastructure
Customer
relationship
Graphic: Deloitte University Press | DUPress.com
Infrastructure
providers
Aggregation
platforms
Agent
businesses
Coders
Consumer Creator
Individual
Niche operators
Scale-and-scope operators
Angels Domain experts
Artists
Makers
Mom- and- pop
Manufacturing
Logistics
Digital tech
infrastructure
Facilities
management
Back office
Risk management
Social
Content
Data
Broker/market
Finance
Consumer
Talent
Product/service
Infrastructure
Customer
relationship
Infrastructure
providers
Aggregation
platforms
Agent
businesses
Mobilizer
Flash orgs
Creation spaces
Communication
of action
Open source
Process networks
Infrastructure
standard setter
Mobilizer
Figure 22. The role of mobilizers
Frame explicit, motivating goals
Mobilizers unite participants—often with
different motivations, capabilities, and cultures—within
an ecosystem under the banner
of a common goal. For instance, Code
for America, a non-profit that helps residents
and governments harness technology to solve
community problems, was created explicitly
to fill this role. With just 30 employees, the
nonprofit has mobilized a network of thousands
of volunteers, government officials, civic
organizations, and entrepreneurs across more
than 50 US cities to improve city life through
code. Among their accomplishments: improving
the delivery of social services, providing
real-time access to mass transit arrival
times, making it easier for small businesses to
navigate local requirements, generating maps
of flooding to help citizens stay safe, giving
residents visibility and input into land-use
planning, putting health inspections on restaurants’
Yelp reviews, and improving government
transparency and civic engagement.94
The hero’s journey through the landscape of the future
40
Provide governance that
enhances interactions
Mobilizers create the infrastructural support
for the maintenance and governance of
connections between players in the landscape
over time. For example, Li & Fung—a global
consumer goods sourcing company—provides
a governance structure for its vast network of
suppliers by specifying standardized interfaces
for work modules. Li & Fung has created standards
around how each partner should operate
with other partners in the ecosystem (for
example, quality requirements, conflict resolution
practices), thereby facilitating the flow of
transactions. This system of governance makes
it possible for the vast network of customers
and suppliers within the Li & Fung network to
operate with a high degree of efficiency.
Mobilizers may also take the form of nonprofit
organizations, which can exert tremendous
influence over businesses by supporting
an industry ecosystem with a governance
infrastructure. The Internet Corporation for
Assigned Names and Numbers (ICANN) does
this by setting security and interoperability
standards for the Internet. ICANN thereby dictates
how players can interact on the Internet
and determines the rules by which they do so,
providing a valuable service to the vast number
of organizations and individuals that rely on
the Internet.
Facilitate collaboration
Mobilizers forge connections across players
with complementary talents and enable goaldirected
collaboration. For example, when Li
& Fung’s customers request a red sweater, the
suppliers know exactly what shade of red to
use. Commonly understood requirements help
suppliers collaborate more effectively.
Going back to Code for America, the
nonprofit has not only mobilized a network of
thousands of largely unpaid parties, but also
facilitates collaboration between two seemingly
distinct groups of professionals: coders and
policy makers. Code for America has catalyzed
rapid solutions to problems that otherwise
might have taken exorbitant amounts of funding,
years of planning, and prohibitive amounts
of bureaucracy.95
One of the key benefits of collaboration
is the exchange of tacit knowledge and the
facilitation of learning across an ecosystem.
For example, Ashoka, the largest network
of social entrepreneurs worldwide, acts as a
mobilizer through its Changemaker program.
Ashoka Changemakers convenes and connects
Ashoka’s fragmented network of social innovators
via an online, open-source platform that
conducts challenges, enabling social entrepreneurs
and partners to share ideas and exchange
resources and analyses aimed at solving
complex social problems, build relationships,
and document effective in-country practices
to recreate in other regions.96 Some mobilizers
facilitate learning more passively through the
thoughtful creation of spaces, venues, or events
that bring fragmented players together to connect
and exchange knowledge. TechShop, for
instance, was created to provide infrastructure
for individuals and small businesses seeking
to create their own products. However, in
addition to providing access to tools (physical
platform), TechShop is starting to act as a
mobilizer for knowledge-sharing across the
maker community. For example, TechShop’s
members are encouraged to interact with each
other, and coaches—or “dream consultants”—
help members learn how to use machines,
monitor the community culture, and facilitate
interactions among members.97
The future of the business
landscape map
A new business landscape will emerge (see
figure 23) as the roles described above map
into three types of businesses: product/service,
infrastructure, and customer relationship. Each
of the business types will have its own focus,
economics, and value in the ecosystem.
41
Some concentrated players will create infrastructure
businesses, acting as either infrastructure
providers or aggregation platforms.
Infrastructure businesses compete on scale,
providing high-volume, routine processes (or
products) that support fragmented players (as
well as other large companies) as they go to
market, execute financial transactions, or connect
with customers.
Other concentrated players will create customer
relationship businesses, filling the role of
consumer agent or talent agent. They will act as
trusted advisors to consumers or talent, bringing
offerings to individuals based on the agent’s
determination of which products, services, or
opportunities best meet a particular customer’s
need. The customer relationship business
competes on its scope of relationships. The
Coders
Consumer Creator
Individual
Niche operators
Scale-and-scope operators
Angels Domain
experts
Artists
Makers
Momandpop
Manufacturing
Logistics
Digital tech
infrastructure
Facilities
management
Back office
Risk management
Social
Content
Data
Broker/market
Finance
Consumer
Talent
Figure 23. Map of the future business landscape
Product/service
Infrastructure
Customer
relationship
Graphic: Deloitte University Press | DUPress.com
Infrastructure
providers
Aggregation
platforms
Agent
businesses
Mobilizer
Flash orgs
Creation spaces
Communication
of action
Open source
Process networks
Infrastructure
standard setter
Mobilizer
The hero’s journey through the landscape of the future
42
more it knows about a customer, across all his
or her activities, the more helpful it can be in
recommending meaningful options. Moreover,
the more individuals a customer relationship
business works with, the more insights it can
offer based on the patterns it observes among
others in similar circumstances.
On the other side of the landscape, fragmented
businesses—the niche operators—will
tend to create product/service businesses
focused on developing and delivering creative
new products and services. These businesses
will compete on speed and creativity, anticipating
evolving customer needs and quickly
creating distinctive new products to meet
those needs.
In this business environment, mobilizers
will orchestrate the various business types in
the ecosystem.
These three business types—infrastructure,
customer relationship, and product/service—
exist today, some in pure form but also bundled
together within most large enterprises. As
we’ll discuss, large enterprises will increasingly
have to choose which business type to pursue,
which will dictate where they land in the new
business landscape.
Both the pressures introduced by the Big
Shift and the barriers removed by forces in the
Big Shift are beginning to dramatically alter the
business landscape, introducing new roles that
will lead to new types of businesses and new
dynamics among marketplace players, large
and small. Some industries, such as software
development, have already been impacted by
the trend toward fragmentation. Other sectors
are evolving more slowly, but they too will be
affected as technology continues to disrupt
business models and industries.
In light of this evolving environment, what
will be the future for Fortune 500 companies?
Will they see fragmented players as a threat
and a competitive problem that they need to
try to shut down? Or will they see fragmentation
as an opportunity to work with a more
diverse array of partners to accelerate innovation
and learning and achieve sustainable
performance improvement?
43
As technology continues its exponential
advance, amplified by public policies
that promote the movement of capital, labor,
product, and resources, increased volatility and
competitive intensity will likely prevail in the
global business environment. Companies will
need to refocus from maximizing operational
efficiency to accelerating learning. Efficiency
improvements are plagued by diminishing
returns. However, an environment that cultivates
learning and accelerates performance
improvement can turn Big Shift pressures into
opportunities that create increasing returns.
For companies, focus is often a prerequisite
for learning. However, many established companies
today play multiple roles and participate
in multiple, if not all, types of the businesses
discussed: product/service, infrastructure, and
customer relationship. For many companies,
pursuing all three business types concurrently
will become less and less sustainable. What
then should these incumbents do in order to
What do you do? Figure out
where to play and play it well
Figure 24. The journey to the future of the business landscape: What do you do?
The hero’s journey through the landscape of the future
44
begin positioning themselves to effectively
participate in the future business landscape?
We believe that they should:
• Understand the business types the company
participates in today
• Where possible, focus more tightly on
either the infrastructure or customer relationship
business (that is, scale-and-scope
roles)
• Reframe interactions with fragmented players
from competition to collaboration
Understand the business
types the company
participates in today
Most companies today operate multiple
business types (for example, product/services,
infrastructure, and customer relationship)
within a single organization. Such diversity is
often viewed as a strategic advantage, given
the uncertainty of a rapidly changing world;
a portfolio is comforting. However, when a
company participates in too many business
types at once, it can lack focus. Diverse groups
compete for resources, chafe under inappropriate
economics or metrics, and clash culturally.
The reality is that the three business types
found tightly bundled into large enterprises
today have very different economics, skill sets,
and cultures.
• Infrastructure management business:
Infrastructure management businesses are
driven by powerful scale economics, require
skills to manage high-volume, routine
processing activities, and have cultures that
prioritize standardization, cost control, and
predictability. The facility or asset trumps
the human being.
• Product/service business: Product/service
innovation and commercialization businesses
are driven by economies of time—
speed to market—and, as a result, require
skills focused on rapid iteration in design
and development so that market opportunities
can be quickly identified and addressed.
The culture prioritizes creative talent—
everything is oriented toward supporting
the creative “stars.”
• Customer relationship business: Customer
relationship business types are driven by
economies of scope—building broader
relationships with a growing number of
customers. This business type requires skills
related to gathering and analyzing large
amounts of data to develop a much deeper
understanding of the evolving context of
each customer. The culture of this business
type is completely focused on the customer—the
customer is king no matter how
much internal turmoil and heartburn meeting
customer requirements might create.
Is it any wonder that the friction across
these three business types within a single
enterprise is intense and continuous? Let’s just
take a couple of examples of how this friction
leads to sub-optimization of performance. If
a company really wants to build trust with its
customers through a customer relationship
business type, it should be prepared to connect
its customers with the best products and
services to meet their individual needs, even if
that involves recommending products and services
developed by other companies. Yet, the
product/service business type within the company
will want to restrict the choice offered to
customers so that it only involves the products
and services developed by that company.
On the culture front, product designers
may have contempt for the “suits” who try to
confine their creativity by seeking standardization
and cost savings. Or salespeople may view
back-office operations as an obstacle to effectively
serving the unanticipated and unique
needs of their customers. Unfortunately, in
a world of mounting performance pressure,
companies cannot afford to sub-optimize their
performance as they seek to navigate interminable
organizational conflicts. Instead, they
45
should focus their business activities so that
they can maximize their agility, flexibility, and
ability to learn.
If companies wish to continue in multiple
businesses, they must develop a clear and distinctive
performance leadership in each—simply
being at parity with others will no longer be
sufficient. Otherwise, they may be vulnerable
to more tightly focused competitors that are
truly performance leaders in the role they have
chosen and that benefit from accessing leading
capabilities in the roles they have not chosen.
These business types will each have very
different cultures and resource needs that are
likely to conflict with each other. But there are
other reasons to question the wisdom of keeping
these three business types tightly bundled
together within a single enterprise, no matter
how big it might be. For example, the distinct
skills and capabilities required for each business
type are likely to develop more rapidly if
the people engaged in this business type are
exposed to a broader range of business problems
and opportunities than they are likely to
encounter if they are only serving other parts
of one company. Thus an IT department within
a consumer products company will have less
opportunity for rapid learning than if it provided
support to a broader range of consumer
product companies, as well as industrial product
and financial services companies.
Here’s another challenge. Employees working
on IT in a consumer product company
will tend to be treated as support—they will
have lower status than the product designers
and product managers who are coming
up with creative new products and delivering
them to market. Leading IT talent is likely to
find working in such an environment far more
frustrating than if they could work for a more
focused infrastructure management business
whose only business is providing IT services to
other companies.
The functional, divisional, or matrix structures
of many Fortune 500 firms today mix
the different types of businesses, leading to the
competition for resources and sub-optimization
described above.
Focus can accelerate and amplify learning
opportunities. It reduces the risk of timeconsuming
and energy-draining cultural and
political battles within a single institution.
It provides exposure to a broader and more
challenging array of customers and use cases
that can improve and develop skills. It helps
to attract and retain leading talent who now
clearly perceive they are core to the success of
the business—now, they are heroes engaged in
the primary activity of the company. Finally,
focus can provide opportunities for the company’s
talent to collaborate with leading talent
in other, equally focused enterprises.
How does a company move toward focus?
The first step is to understand what types of
businesses it operates today. The next is to
separate those businesses operationally and
organizationally so that each unit is focused
around a single business type: product/service,
infrastructure, or customer relationship.
By consolidating business types with similar
cultures and economic drivers, companies
can reduce distractions and start gaining
focus. For example, all infrastructure business
activities, such as manufacturing, logistics,
and finance, could be grouped together into
a business unit that administers high-volume
routine processes.
Where possible, focus on the
infrastructure or customer
relationship business type
Eventually, many companies will realize
that creating separate units around each business
type, while helpful in the short run, is not
sustainable in the long run. Competition will
force them to become more focused. How?
By unbundling the different types of businesses,
choosing one of the core business types
to pursue, and using the ecosystem to access
services from leading players in the other two
business types.
The transition from the current state of
multiple roles to one of focusing on a single
role is not easy. Focus requires letting go of
The hero’s journey through the landscape of the future
46
certain capabilities and relinquishing absolute
control in favor of exerting influence within a
larger ecosystem. Historically, many companies
derived value in the marketplace through
control—of product features, the distribution
channel, or customer relationships. However,
in the rapidly changing future environment,
performance improvement will come not
from control but from opening up, embracing
knowledge flows, maximizing learning, and
accessing leading capabilities and resources
wherever they reside. Those companies that
can focus on one business—product/service,
infrastructure, or customer relationship—
will be able to connect with and learn from
other focused players and collaborate to solve
performance issues.
Many organizations today have already
begun to focus. The increase in the business
process outsourcing (BPO) and IT outsourcing
(ITO) markets indicates that companies
realize that focused vendors can perform
high-volume, routine process activities better
and at a lower cost. The BPO market has
increased since 1995 both in terms of revenue
and in terms of the number of contracts. The
number of ITO contracts has also continued
to increase since 1995, although total ITO revenue
has recently declined as a result of market
commoditization and contract rate pressures.
Additionally, according to a 2010 IDC survey,
approximately 64 percent of companies
that manufacture products outsource their
manufacturing. Forty-three percent of those
who already outsource stated that they expect
their company’s current outsourcing levels to
increase, while 45 percent said they expect it to
remain the same.98 Finally, third-party logistics
providers (3PL) recorded an estimated $250.2
billion in revenues from Global Fortune 500
companies in 2012—a 67 percent increase
from 2005.99
Most outsourcing activity today is still
driven by a short-term focus on cutting costs
or shifting fixed costs to variable costs, rather
the pursuit of learning or leading capabilities.
However, while the 2012 Deloitte Outsourcing
survey indicated that reduction in operating
costs was still the No. 1 reason for outsourcing,
“improvement in customer service” and
“gaining a competitive advantage” were the
No. 2 and No. 3 reasons for outsourcing, with
73 percent and 49 percent of respondents,
respectively, citing them as “important” or
“very important.”100 This indicates that the
decision criteria for outsourcing may be
expanding and shifting to include learning and
performance improvement.
These outsourcing trends also suggest that
many companies are already in the first wave
of unbundling—decoupling the infrastructure
businesses from the rest of the organization.
Some have begun to realize that focusing on
core capabilities and unbundling other functions
allows both the company and the unit it
unbundles to accelerate learning and performance
improvement. For example, Cognizant
was initially created as an internal technology
unit within Dun & Bradstreet in 1994.
By 1996, Cognizant began serving external
clients, and it subsequently held its IPO on the
NASDAQ in 1998. While unbundling from
Dun & Bradstreet enabled Cognizant to focus
on its core capabilities, Cognizant has since
consolidated with complementary companies
to broaden its scope—all within the infrastructure
type of business. Between 2002 and 2012,
Cognizant made 17 acquisitions, broadening
its scope from providing IT services to the
financial industry into providing these services
to the retail, manufacturing, logistics,
and health care industries. Cognizant’s clients
increased 423 percent during this time to
over 800 individual clients in 2012. Revenues
simultaneously skyrocketed from $368 million
in 2003 to $7.3 billion in 2012.101
Similarly, General Electric (GE) decided
to spin off its back-office processing unit—
Genpact—in 2005. Genpact became a publically
traded company (NYSE: G) in 2007.
One of the motivations for this spin-off was
to expose the employees of the unit to a more
diverse array of customer needs and performance
issues, giving them an opportunity to
learn faster than if they were simply focused on
the needs of one company. Since its spin-off,
47
Genpact grew from approximately 32,000
employees and a revenue of $823 million to
over 62,000 employees and revenues of over $2
billion in 2013.102
The next wave of unbundling is the decoupling
of the customer relationship and product/service
business types. This is at a much
earlier stage of development, but we can begin
to see some early signals in arenas like consumer
products and pharmaceuticals.  For
example, as the world’s innovation landscape
has changed, so has Procter & Gamble’s (P&G)
strategy for innovation. This started nearly
15 years ago as P&G realized that to achieve
the growth levels recommended for most
mature companies they could no longer rely
solely on  internal R&D efforts, and as such,
the company known for inventing the first
disposable diaper and first synthetic laundry
detergent, turned to identifying innovation
outside the parameters of its four walls. In
March 2000, the CEO, A.G. Lafley, decided
to harness the change that was occurring in
the innovation landscape within consumer
products to change how P&G was identifying
new product ideas. Noticing that most of the
impactful innovation was being done at small
and midsized entrepreneurial companies –
Lafley made it the company’s goal to acquire
50% of its innovation from outside the P&G
walls.103 Launching the “Connect and Develop”
program in attempt to tap into the ecosystem
of innovation around the company, P&G has
developed a systematized approach to find
innovative product ideas, to bring them in, and
to turn them into actual products harnessing
P&G’s already developed manufacturing, marketing,
and purchasing capabilities. By 2006,
35 percent of new products had elements that
originated outside of P&G (up from about 15
percent in 2000) and 45 percent of the product
development initiatives had elements that were
discovered externally.104
Similarly, large pharmaceutical companies
are increasingly sourcing their products from
more specialized third parties and leveraging
their own expertise in serving health care
providers. For example, in 2013, six of the
top 10 licensing deals in the pharmaceutical
industry were broad technology platform
deals that established research collaborations
between small, specialized companies and
big pharmaceutical companies. This signals a
continuing trend toward externalized R&D.105
Many pharmaceutical companies have also
established relationships with contract research
organizations (CROs). Despite representing a
relatively small share of the global R&D market
(9.6 percent in 2014), the global CRO market
has grown at a rate of 5.5 percent and is projected
to increase at a rate of 7.9 percent from
2014 to 2018.106
The likely trajectory here is that companies,
facing mounting performance pressure, will
seek to supplement their own internal product
development capabilities by sourcing and
licensing products from third parties so that
more and more of their revenue is generated
from externally developed products. Over
time, these companies will likely focus more on
understanding evolving customer needs so that
they can be more effective in sourcing the best
products. At some point, it is likely that these
companies will begin to question whether they
need to source or license these products at
all and whether they can become even more
helpful to their customers by connecting them
to whatever products and services might be
most relevant, regardless of who develops and
produces them.
Once companies focus around one role,
they will need to build trust-based, loosely
coupled relationships with others in their
ecosystem to gain access to capabilities that are
no longer in-house. A key to learning faster
through focus is connecting with leading talent
in other focused companies as well. For
example, many traditional large enterprises are
finding that the expertise of contract manufacturers
can be harnessed to help come up
with creative new ideas to design products that
can be manufactured with fewer defect rates.
More fragmented product/service businesses
will benefit from the holistic view of individual
customers and customer segments that
customer relationship businesses will be able
The hero’s journey through the landscape of the future
48
to develop, giving them more insight into the
emerging needs of customers.
It is important to note that some Fortune
500 companies will not be able to unbundle
their businesses—at least not right away—due
to regulatory requirements, business differentiation,
or internal structures (see figure 25).
For example, industries with high liability
risk such as financial services and aerospace
& defense are subject to forces that may slow
down or even prevent companies from outsourcing
parts of the supply chain or even
periphery business functions. For example,
the US government has implemented several
regulations to ensure security and control
over the supply chain for vendors that provide
information technology services to the government
agencies. These rules require vendors
to fully understand the activities that occur
throughout their supply chains—especially the
amount of foreign sourcing. Vendors are also
required to create governance and processes to
prevent any security risks that may occur as a
result.107 Due to these regulatory requirements,
outsourcing supply chain activities may be difficult
for some vendors.
Additionally, companies that are on the
forefront of industry development and do not
yet have partners or suppliers that can meet
their needs may need to remain bundled, at
least in the early stages of market development,
in order to continue innovating. For example,
Amazon invested in developing same-day
delivery capabilities to offer customers an
option to receive their online purchases the
same day the purchase is made. None of the
existing logistics vendors provided these offerings
at the time.108
Some industry players also rely on being
bundled as a source of competitive differentiation
due to considerations of proximity or
the need for extensive collaboration during
Figure 25. Factors that create exceptions to the need to unbundle
Graphic: Deloitte University Press | DUPress.com
Regulatory
requirements
Cutting-edge
capability
Nature of
design and
manufacturing
Cuture of
learning
Company elements
that create potential
exceptions to the
need for unbundling
Regulations call
for integration
Organization faces
liability or regulatory
risk associated with
giving up control over
parts of or the entire
supply chain
Learning occurs
faster inside company
Internal processes and
structures allow for
more rapid tacit
knowledge sharing
due to common
ontology, culture,
and norms
Design and
manufacturing are
highly integrated
Design and
manufacturing
processes require
a high degree
of integration
Ecosystem players
are unable to meet
requirements
Organization’s
capability is at the
forefront of industry
development and
thus no qualified
suppliers exist
49
product development and testing. For example,
Corning—a specialty glass and ceramics
manufacturer—has a tightly integrated manufacturing
and R&D process. This is largely
due to the deep interdependence between the
design of its glass products and the design of
its manufacturing processes and operations.
This deep interconnection between design and
manufacturing, however, is unusual.
Finally, companies that have embraced
cross-functional learning and have structures,
processes, and governance in place to allow
various types of businesses to collaborate and
share tacit knowledge do not necessarily need
to unbundle—at least while the company’s own
learning infrastructure is more robust than that
of the ecosystem. These are companies that
facilitate massive amounts of implicit and tacit
knowledge flows across radically different silos
through a shared culture, shared practices, and
shared appreciation for diverse backgrounds
and perspectives. In these environments, tacit
learning from failures is valuable and can be
shared in ways that a broader ecosystem with
diverse languages and practices does not allow.
Few companies have established these structures
so far.
In any case, companies that choose to pursue
multiple business types must be convinced
that they can truly be leaders in all aspects.
While certain situations may warrant remaining
bundled, companies that decide to do so
should understand which types of businesses
they are in and align their operations and
organizations around these types of businesses.
Increasingly, as more focused and innovative
players emerge, even these companies could
face pressures that cause them to unbundle.
Understanding what businesses a company
participates in, and focusing the operations
and organization on the business types, is
the first step to success in the business landscape
unfolding in the era of the Big Shift.
Many large companies may need to unbundle
for greater focus. Next, companies should
reevaluate their relationship with fragmented
players—competition is unproductive in
areas where fragmented organizations have
a structural advantage. In those areas, large
companies should devote resources to building
infrastructures, aggregation platforms,
or agent capabilities in order to connect and
enhance fragmented players’ efforts. In short,
large companies should define what scale or
scope activity they do best and establish deep,
trust-based relationships with other ecosystem
players—including niche operators—in order
to deliver more value.
Reframe interactions with
fragmented players from
competition to collaboration
Many of today’s large enterprises are likely
to believe that the product/service business is
their core competency, and to dedicate most of
their resources to developing and commercializing
new offerings. However, fragmentation
in the business landscape is likely to be most
pronounced in this business type, driven by
reduced barriers to entry, commercialization,
and learning. This puts large enterprises that
choose to focus on this business type in a challenging
environment. They may be fighting a
losing battle since the competencies required
to keep up with rapidly changing customer
needs and the shortening product life cycle will
increasingly reside with smaller, fragmented
players, which are closer to the consumer
and can provide personalized service due to a
deeper understanding of customer needs. With
a lower minimum efficient scale and lower
fixed costs, fragmented players are also more
nimble. By accepting that fragmented players
have the advantage in this space, and scaling
down product development efforts in favor of
developing mutually beneficial relationships
with niche product/service businesses, large
enterprises can maintain access to innovative
products and services.
Most of the value in this new business
landscape will come from the relationships
within the ecosystem. Large, established
companies and small, fragmented entities can
each benefit in meaningful ways from working
together. Concentrated players should take a
The hero’s journey through the landscape of the future
50
different approach to the way they collaborate
with niche operators, depending on the
business type.
• Evolve from a product to a platform business:
A large enterprise might leverage the
fragmented landscape of niche product
designers/vendors evolving its own products
into platforms that invite the participation
and contributions of specialized
product creators. Increasingly, the value to
the customer will come from the more specialized
products and services available on
the platform. For example, since the launch
in 2008 of the iOS Software Development
Kit, Apple® has provided the tools and
content needed for third-party developers
to become engaged with the mobile
ecosystem by developing on top of the core
smartphone operating system to create
and distribute applications.109 Similarly,
Google had also launched the Android
Open Source Project (AOSP) in an attempt
to bolster the community of developers,
coders, and even device manufacturers on
its Android operating system.110 Combined,
these two platforms have created an arena
for players of the fragmented landscape to
create and share their products.
However, the opportunities to evolve products
into platforms are not limited to the
software development space. A furniture
manufacturer, for example, can create basic
designs and then invite a broad set of makers
and craftspeople to enhance and tailor
the core products for particular market
niches and even individual uses. Retailers
can use their brick-and-mortar or online
stores, as well as their brand, as a platform
for local designers and niche makers to
collaborate. One early signal is J. Crew’s “In
Good Company” initiative, which provides
select smaller brands with floor space in
J. Crew’s clothing stores, giving J. Crew
customers access to curated products from
other brands that uniquely fit with J. Crew’s
aesthetic and product line.111
• Improve utilization of facilities through
partnerships: If a large enterprise chooses
to focus on an infrastructure business type,
it can leverage a broader ecosystem of fragmented
players by offering elements of its
scale infrastructure operations as a service
to smaller enterprises that need access to
scale facilities. Consider State Street Bank,
which evolved from a large enterprise to
a more focused infrastructure business.
Founded in 1792, State Street Bank started
out as a conventional bank, but by the
1970s, the bank’s large-scale back-office
processing operations were its primary
advantage over smaller rivals. The company
decided to focus on developing back-office
processing capabilities in diverse areas
such as investments, trusts, and securities
processing—and offer these capabilities on
a contract basis to other financial institutions.
State Street ultimately decided to
shut down its traditional commercial bank
operations and focus exclusively on growing
its infrastructure outsourcing business.
State Street found growth by leveraging its
scale in infrastructure, and in doing so, it
also provided access to the scale resources
that smaller financial services companies
needed to commercialize their products,
reach customers, and compete with
larger banks.112
• Connect with fragmented players to
understand trends: Companies that choose
to focus on the customer relationship business
type can deliver more value to their
clients by developing relationships with
fragmented domain experts and curators.
These more specialized experts and curators
can help the larger enterprise keep up with
the latest developments in the rapidly evolving
fragmented product/service businesses
that might be relevant to their clients. The
companies that choose to play the roles of
either consumer or talent agent will also
need to develop partnerships with aggregation
platforms that expand access to the
51
broadest array of product and service offerings
from specialized providers. Given the
expanding array of options and the rapid
evolution of these options on these platforms,
the customer relationship business
will benefit by assembling a rich ecosystem
of more specialized domain experts and
curators to surface the most relevant and
valuable options within the context of the
deep understanding of individual needs and
context developed by the customer relationship
business. At the same time, fragmented
domain experts and curators will have valuable
access to data and customers through
their interactions with the customer relationship
businesses. For an indication of the
potential opportunity here, we might look
at some of the specialized consumer agents
who serve very affluent customers today.
For example, wealth management advisors
often develop a network of investment specialists
in particular areas like bond investments
or real estate investments to help the
wealth management advisors connect their
clients with the most promising investment
opportunities given the specific needs and
context of each client.
Regardless of the business type a company
chooses, it should access a larger ecosystem
of third-party talent that can help it address
challenging performance issues and emerging
market opportunities by coming up with
creative ideas and approaches to pursue. As
the Silicon Valley entrepreneur, Bill Joy, once
observed: “No matter who you are, most of
the smartest people work for someone else.”113
Any company that does not find a way to tap
into that external talent will increasingly find
itself operating at a competitive disadvantage
with companies that are more aggressive on
this front.
A growing number of companies are
emerging to provide platforms that help
companies connect with relevant third-party
expertise around specific business problems or
performance issues. InnoCentive was one of
the pioneers in this area, helping researchers
in the R&D companies of larger enterprises to
connect with a diverse ecosystem of scientists
and technologists to solve challenging research
problems. More recently, Kaggle, an online
crowdsourcing competition site, connects
individual data experts with large companies
that have tough data science problems they
need help solving. Kaggle facilitates the process
of making corporate data available to a crowd
of data scientists, engineers, mathematicians,
and other specialists seeking opportunities to
do challenging work with large data sets. While
cash prizes are awarded for each challenge,
many of Kaggle’s “crowd” are primarily interested
in opportunities to solve problems about
which they are passionate while simultaneously
gaining experience and honing their craft.
Tapping into the ecosystem to crowdsource
ideas may be the first step for many companies.
The next step might be to develop loosely
coupled longer-term relationships with smaller
organizations. Some Fortune 500 companies
have already been proactively forming
loose partnerships with fragmented players
to crowdsource innovative ideas. Through
partnerships with organizations like Local
Motors, Quirky, and GrabCAD, GE has made
multiple efforts to connect with online communities
to access and develop designs for
new products. Through GrabCAD, GE fielded
nearly 700 submissions from around the world
to a challenge involving the redesign of a metal
jet engine bracket with the goal of making it 30
percent lighter while preserving its mechanical
integrity. The winner was an engineer from
Indonesia who was able to reduce the weight of
the bracket by 84 percent.114
While the larger companies benefit from
these crowdsourcing initiatives and platforms,
the fragmented community of experts also
benefits by getting better visibility into research
problems or business problems that map to
their own area of expertise. This is one example
of how ecosystems of relationships will evolve
to help all participants to learn faster by
working together.
The hero’s journey through the landscape of the future
52
We began our journey with
three questions:
1. Which parts of the economy
are fragmenting?
With fragmentation, we see a proliferation
of small players in a domain, each with a
small addressable market within a specific
niche. Collectively, these players address
a diverse spectrum of client and market
needs. Crucially, both the number of players
and the number of niches are increasing
within the domain. No one player
has enough market share to influence the
direction of the domain over the long term,
and only a modest level of investment is
required to enter the market and maintain
a viable business. These players are marked
by “diseconomies of scale”: The bigger they
get, the more challenging it is to stay in
the business.
Where is this happening? We expect
increased fragmentation in those areas of
the economy that are focused on product
innovation and commercialization.
It should be especially prevalent in markets
and industries where technological
advances and public policy liberalization
have reduced barriers to the means of production,
commercialization, and learning.
2. Which parts of the economy
are concentrating?
Concentration refers to the emergence of
large-scale players that are focused on a
single business activity or function. Because
of significant economies of scale and scope
as well as the potential for network effects,
certain business roles will tend to become
concentrated: infrastructure providers,
aggregation platforms, and agent businesses.
Concentration will occur in areas
of the economy focused on infrastructure
and customer relationship businesses where
scale and scope provide an advantage.
3. How will various ecosystem
players interact?
There are two broad categories of interaction
in this ecosystem: transactions between
the fragmented and consolidated players
and broader collaboration among all players
across the ecosystem.
In the former, fragmented players rely on
consolidated players’ services for their
very existence through information, scale
resources and platforms (for example, cloud
services, online marketplaces). In turn,
consolidated players need fragmented players
to purchase their services. Fragmented
Conclusion
53
players also provide concentrated players
with agility and diverse innovation.
Each business model fuels the other in a
symbiotic relationship.
In the latter, mobilizers bring the entire
ecosystem together for ongoing collaboration
and learning, beyond a series of
repeated transactions. Mobilizers enable
both fragmented and consolidated players
to work together more effectively to create
new knowledge and drive more rapid
performance improvement.
What does this mean
for your company?
The answers will be different for each company,
and the pace and breadth of change will
vary based on the industry’s degree of regulation
and openness to innovation. However, all
companies should systematically assess fragmentation/concentration
trends now. In those
industries or domains where fragmentation
is already occurring, companies will need to
move quickly to reposition. In a world where
the pace of change is accelerating and competition
intensifying, it is increasingly risky to be
complacent or to put off the hard decisions that
may be required to prosper in this changing
environment. This assessment is not just a onetime
exercise; trends toward fragmentation
and concentration need to be continuously
monitored, as competition and disruption can
come from unexpected regions, industries, and
technologies. Look for early signals in the form
of emerging disruptions and the significant
erosion of barriers over time.
All players must understand what roles they
currently play, where they want to be, and what
assets they can leverage to get there. Large
companies—as well as small companies looking
for growth—cannot afford to ignore the
dynamics around fragmentation and consolidation;
they must pinpoint where concentration
is occurring within the economy and pivot
to succeed in those spaces. In particular, the
continued success of Fortune 500 companies
will hinge upon the ability to position themselves
effectively in portions of the economy
driven by strong trends toward concentration.
The winners will be those that are simultaneously
aggressive and creative in serving
broader ecosystems of fragmented players,
anticipating those players’ needs and delivering
targeted, high-quality solutions that benefit
from scope or scale.
Focusing around scale-and-scope roles will
enable growth, as these areas will continue
concentrating. This will require some shifts
and repositioning, but companies can leverage
assets they already have to shape the role they
play. They may choose to:
• Transform into infrastructure businesses,
offering high-volume, routine processes
previously used for their own products as
an outsourced service
• Become platform businesses, aggregating
resources and vendors and connecting
them with appropriate users or customers
rather than acting as vendors themselves
• Become agent businesses, channeling their
sector experience and existing customer
relationships to provide specific recommendations
based on an understanding of each
customer and his or her needs
Whatever role they play, large companies
will also have to connect and collaborate with
mobilizers in order to unlock the collective
knowledge of the ecosystem and become part
of the transformation, rather than simply being
impacted by it.
The hero’s journey through the landscape of the future
54
Endnotes
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74. Vanessa Giraldo, Breweries in the
US, IBISWorld, June 2014, p. 4.
75. Tim Tully, Craft Beer Update, Tully & Holland
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76. Demeter Group Investment Bank, State of
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77. Brewers Association, “Number of breweries,”
http://www.brewersassociation.org/statistics/
number-of-breweries/, accessed June 25, 2014.
78. E.J. Schultz, “Inside Miller Coors’ Craft
Brewery, Tenth and Blake,” Ad Age, November
22, 2010, http://adage.com/article/news/
marketing-millercoors-craft-brewery-tenthblake/147201/,
accessed June 25, 2014.
79. E.J. Schultz, “A-B InBev proves a good home
for Goose Island as big brewer helps cult craft
rise,” Ad Age, December 16, 2013, http://adage.
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accessed June 25, 2014.
80. Thierry Godard, “The economics of
craft beer,” Smart Asset Blog, June 12,
2013, http://www.smartasset.com/
blog/economics-of/the-economics-ofcraft-beer/,
accessed June 25, 2014.
81. Noah Davis, “The craft beer market has
exploded, and now brewers are worried about a
collapse,” Business Insider, December 14, 2013,
http://www.businessinsider.com/alchemistcraft-beer-market-boom-bubble-outlook-2013-
12#ixzz2zV1sPt1O, accessed June 25, 2014.
82. William Latham and Kenneth Lewis,
America’s beer distributors: Fueling jobs,
generating economic growth & delivering
value to local communities, National Beer
Wholesalers’ Association, Center for Applied
Business & Economic Research, Alfred
Lerner College of Business & Economics,
University of Delaware, 2013, http://nbwa.
org/sites/default/files/NBWA-EconomicReport-2013.pdf,
accessed June 26, 2013.
83. Phong Vo, “The personal computer industry,”
1994, http://www.vacets.org/articles/pcindustry.html,
accessed June 26, 2014.
84. Steven Klepper, “The capabilities of new
firms and the evolution of the US automobile
industry,” Industrial and Corporate Change
11, no. 4 (2002), p. 651, https://faculty.
fuqua.duke.edu/~charlesw/LongStrat2010/
papers/class%203/Klepper2002_ICC.
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85. Deans, Graeme K. Kroeger, Fritz, Zeisel,
Stefan, “The consolidation curve,” Harvard
Business Review, December 2002, vol.
80 issue 12, p. 20-21, 2p. 1 graph.
The hero’s journey through the landscape of the future
58
86. Chris Anderson, The Long Tail: Why
the Future of Business is Selling Less of
More (New York: Hyperion, 2006).
87. Chris Anderson, “The long tail,” Wired,
http://archive.wired.com/wired/
archive/12.10/tail.html?pg=2, October
2004, accessed June 27, 2014.
88. Anderson, The long tail, p. 2.
89. Hagel et. al., 2013 Shift Index metrics, p. 22.
Competitive intensity is inversely related
to industry concentration (as measured
by the Herfindahl-Hirschman Index or
HHI). Industry concentration is less than
half of what it was in 1965, indicating a
steady increase in competitive intensity.
90. Hagel et. al., 2013 Shift Index metrics, p. 25.
91. Karl Fischer, “Where is project
management going?,” Project Smart,
2014, http://www.projectsmart.co.uk/
where-is-poject-management-going.
php, accessed June 26, 2014.
92. Hagel et. al., 2013 Shift Index metrics, p. 27.
93. Think Gaming, “Top grossing iOS
games,” http://thinkgaming.com/appsales-data/,
accessed June 26, 2014.
94. Erica Kwan (Senior Engineer, Code
for America) and Ashley Meyers
(Development & Engagement Manager,
Code for America), Interview with
Maggie Wooll, February 26, 2014.
95. Ibid.
96. Ashoka, “About us,” https://www.ashoka.
org/about, accessed July 2014.
97. Mark Hatch, CEO, TechShop, interview
with Center for the Edge, November 2012
98. Simon Ellis, Catherine White, and Kimberley
Knickle, Business Strategy: Supply Chain
Profitable Proximity Survey Results, IDC
Manufacturing Insights, April 2011, p. 10-11.
99. Armstrong & Associates, Inc., Global
and regional infrastructure, logistics costs,
and third-party logistics market trends
and analysis, http://www.3plogistics.
com/Global_3PL_Market_Analysis_EIS2014.pdf,
accessed June 3, 2014.
100. Deloitte Consulting LLP, 2012
global outsourcing and insourcing
survey results, February 2012.
101. Adam Andersen, “Cognizant Technology
Solutions Corporation,” Hoover’s Company
Overview, accessed June 26, 2014.
102. Genpact, “Company overview,” http://
www.genpact.com/home/about-us/
company-overview, accessed May 2014.
103. Larry Huston, “P&G’s new innovation
model,” http://hbswk.hbs.edu/
archive/5258.html, accessed July 2014.
104. Innosight, “How can you build a growth
factory,” http://www.innosight.com/
impact-stories/procter-and-gamble-growthfactory-case-study.cfm,
accessed July 2014.
105. Evaluate Pharma, Pharma & biotech
2013 in review, 2014, p. 18.
106. ISR Reports, 2014 CRO market size projections:
2012-2018, p. 5, http://www.isrreports.com/
wp-content/uploads/2014/01/ISR-ISRsCRO-Market-size-projections-PreviewFeb20141.pdf,
accessed June 26, 2014.
107. Latham & Watkins, Government procurement:
Increased security scrutiny in IT supply
chains, http://www.lw.com/practices/
GovernmentContracts, accessed July 1st, 2014.
108. Ben Bensinger, “Amazon, in threat to UPS,
tries its own deliveries,” Wall Street Journal
http://online.wsj.com/news/articles/SB
10001424052702304788404579521522
792859890, accessed June 26, 2014.
109. Apple, “Developing Apps for iPad,”
https://developer.apple.com/ipad/
sdk/, accessed July 1, 2014.
110. Ron Amadeo, “Google’s iron grip on Android:
Controlling open source by any means
necessary,” ARS Technica, http://arstechnica.
com/gadgets/2013/10/googles-iron-grip-onandroid-controlling-open-source-by-anymeans-necessary/,
accessed July 1, 2014.
111. Fast Company “Jenna Lyons reveals the
secrets to becoming a J.Crew collaborator,”
http://www.fastcompany.com/3009882/
creative-conversations/jenna-lyonsreveals-the-secrets-to-becoming-a-jcrewcollaborator,
accessed July 7, 2014.
112. Funding Universe, “State Street Corporation
history,” http://www.fundinguniverse.com/
company-histories/state-street-corporationhistory,
accessed March 3, 2014.
113. John Hagel and John Seely Brown, Finding
new sources of strategic advantage, Harvard
Business School, http://hbswk.hbs.edu/
archive/4778.html, accessed June 26, 2014.
114. Brad Power, “How GE stays young,”
HBR Blog Network, May 13, 2014, http://
blogs.hbr.org/2014/05/how-ge-staysyoung/,
accessed June 26, 2014.
59
Acknowledgements
This research would not have been possible without the generous contributions and valuable
feedback from numerous individuals. The authors would like to thank:
M.C. Abbott
Nick Alexander
Chris Arkenberg
Blythe Aronowitz
Eric Beinhocker
David Blake
Andrew Blau
Balaji Bondili
Bob Brook
Erik Brynjolfsson
Lynn Carruthers
Ian Chan
Franklyn Chen
Robin Chase
John Chisholm
Dan Chou
John Clippinger
Natalie Cooper
Jack Conte
Kenneth Cukier
Dale Dougherty
Brenna Erhlich
Matt Frost
Jodi Gray
Sonie Guseh
Mark Hatch
Adam Hendle
Carrie Howell
Jeff Huber
Julian Ivann
Joe Justice
Andrew Karpie
Eamonn Kelly
Steve King
David Kirkpatrick
Kim Knickle
Yoko Kumano
Pete Lyden
Jennifer Magee
Thomas Malone
Marc Mancher
Melita Marks
Bill Melton
Sudhir Menon
Richard Merchant
Jim McDonnell
Brooke Morin
Anupam Narula
Jonathan Ohm
Jeremiah Owyang
Jon Pittman
Mark Plakias
Sarah Qian
Mark Quinn
Ramzi Ramey
Matthew Ranen
Nicole Roccoforte
Adam Sandlin
Mathew Schutte
Peter Schwartz
Bonnie Sherman
Arthur Sheyn
Dan Simpson
Jack Stephenson
Michael Stoler
Gary Swart
Athappan Subramanian
Adrian Tay
Jonathan Taplin
Andrew Trabulsi
Maria Tsang
Hal Varian
Spencer Walle
Angela Wang
Jeanette Watson
Jason Williamson
Michael Wilson
Irving Wladawsky-Berger
Winston Yong
Terry Young
Tim Young
Whitney Young
Andrew Ysursa
Xiao-Fei Zhang
The hero’s journey through the landscape of the future
60
Contacts
Blythe Aronowitz
Chief of Staff, Center for the Edge
Deloitte Services LP
+1 408 704 2483
baronowitz@deloitte.com
Wassili Bertoen
Managing Director, Center for the Edge Europe
Deloitte Netherlands
+31 6 21272293
wbertoen@deloitte.nl
Peter Williams
Chief Edge Officer, Centre for the Edge Australia
Tel: +61 3 9671 7629
E-mail: pewilliams@deloitte.com.au
61
About the Center for the Edge
The Deloitte Center for the Edge conducts original research and develops substantive points of
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Australia, helps senior executives make sense of and profit from emerging opportunities on the edge
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landscape—in terms of technology, geography, demographics, markets—inevitably strikes at
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opportunities related to big shifts that are not yet on the senior management agenda, but ought
to be. While Center leaders are focused on long-term trends and opportunities, they are equally
focused on implications for near-term action, the day-to-day environment of executives.
Below the surface of current events, buried amid the latest headlines and competitive moves,
executives are beginning to see the outlines of a new business landscape. Performance pressures are
mounting. The old ways of doing things are generating diminishing returns. Companies are having
harder time making money—and increasingly, their very survival is challenged. Executives must
learn ways not only to do their jobs differently, but also to do them better. That, in part, requires
understanding the broader changes to the operating environment:
• What is really driving intensifying competitive pressures?
• What long-term opportunities are available?
• What needs to be done today to change course?
Decoding the deep structure of this economic shift will allow executives to thrive in the face of
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of the opportunities these challenges create.
For more information about the center’s unique perspective on these challenges, visit www.
deloitte.com/centerforedge.
The hero’s journey through the landscape of the future
62
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The hero’s journey through
the landscape of the future
From the Deloitte Center for the Edge
John Hagel (co-chairman, Deloitte Center for the Edge) has nearly 30 years of experience as a
management consultant, author, speaker, and entrepreneur, and has helped companies improve performance
by applying IT to reshape business strategies. In addition to holding significant positions
at leading consulting firms and companies throughout his career, Hagel is the author of bestselling
business books such as Net Gain, Net Worth, Out of the Box, The Only Sustainable Edge, and The
Power of Pull.
John Seely Brown (JSB) (independent co-chairman, Deloitte Center for the Edge) is a prolific
writer, speaker, and educator. In addition to his work with the Center for the Edge, JSB is Adviser to
the Provost and a visiting scholar at the University of Southern California. This position followed a
lengthy tenure at Xerox Corporation, where JSB was chief scientist and director of the Xerox Palo
Alto Research Center. JSB has published more than 100 papers in scientific journals and authored
or co-authored seven books, including The Social Life of Information, The Only Sustainable Edge, The
Power of Pull, and A New Culture of Learning.
Tamara Samoylova (head of research, Deloitte Center for the Edge) leads the Center’s research
agenda and manages rotating teams of Edge Fellows. Prior to joining the Center, Samoylova served
as a senior manager in Deloitte Consulting LLP’s Growth and Innovation practice, helping mature
companies find new areas of growth by better understanding unmet customer needs, industry
dynamics, and competitive moves.
Duleesha Kulasooriya (head of strategy, Deloitte Center for the Edge) leads the development of the
Center’s ecosystem and contributes to core research exploring the edges of business and technology.
Over the past few years he has explored how the world is changing in very dramatic ways as a result
of ever-evolving digital infrastructure and liberalizing public policy, as well as the implications for
individuals and institutions. Kulasooriya led the team that developed and authored the inaugural
Shift Index report and has written and spoken extensively on the use of new technologies to drive
business performance, pathways for moving from static to dynamic ecosystems, rethinking the roles
of firms and individuals in institutional innovation, and the relevance of “edges” such as the maker
movement, the sharing economy, and burning man.
About the authors
Maggie Wooll (senior editor, Deloitte Center for the Edge) combines her experience advising large
organizations on strategy and operations with her love of storytelling to share the Center’s research.
At the Center, she explores the implications of rapidly changing technologies for individuals and
their institutions. In particular, she is interested in learning and fulfillment within the shifting
business environment.
This report would not have been possible without the hard work of our Edge fellows, who over the
past year tracked down case studies, interviewed industry insiders, and tirelessly answered the call
for “more data” in service of telling this story.
Mengmeng Chen (research fellow, Deloitte Center for the Edge) is a consultant in Deloitte
Consulting LLP’s Human Capital practice. While at Deloitte, she has worked with clients throughout
the health care ecosystem, ranging from federal and state government to providers and health
plans. At the Center for the Edge, she has been working on research and analysis for the Future of
the Business Landscape topic and is currently taking a deep dive into the future of manufacturing
fueled by advanced technologies and the maker movement.
Ankur Damani (research fellow, Deloitte Center for the Edge) is interested in the dynamics of new
business models and growth strategies enabled by technology in both mature and emerging sectors.
As a consultant in Deloitte Consulting LLP’s Strategy and Operations practice, he helped clients
across a range of industries, including health care, technology, and consumer products. At the
Center, Damani has focused on conducting analytics and primary and secondary financial research
to model the changing dynamics of firm performance.
Neha Goel (research fellow, Deloitte Center for the Edge) is passionate about financial services and
payments in particular. As a consultant in Deloitte Consulting LLP’s Strategy and Operations practice,
she has worked with banks, credit card companies, and insurance exchanges to develop and
implement new strategies that reflect the fast-changing landscape of the industry. She is especially
invested in harnessing mobile technology to improve customers’ experiences and relationships with
financial institutions.
Christian Grames (research fellow, Deloitte Center for the Edge) is passionate about driving change
and innovation within organizations. His interests include the maker movement and its potential
for changing the world. Prior to joining the Center, Grames worked in global supply chain management
for the semiconductor industry. His research focus was on mapping the potential for fragmentation
and concentration across US industries.
About the research team
Shanna Hoversten (research fellow, Deloitte Center for the Edge) is interested in discovering innovative,
technology-driven approaches to tackling our nation’s health care challenges. As a consultant
in Deloitte Consulting LLP’s Strategy and Operations practice, she has spent the last three years
working alongside clinicians and hospital administrators to design executable strategies for improving
quality of patient care in cost-effective ways.
Emily Selvin (research fellow, Deloitte Center for the Edge) focused on identifying business trends
through an analysis of Fortune 500 companies over time. In addition to her continued efforts related
to work environment redesign, she also focuses on analyzing trends around concentration and fragmentation
related to freelancers.
Ashley Sung (research fellow, Deloitte Center for the Edge) is a consultant in Deloitte Consulting
LLP’s global innovation and strategy group, working with various Deloitte entities to drive corporate
innovation and growth initiatives. While at the Center for the Edge, she conducted research,
analysis, and workshops for the “future of the business landscape” topic and led the case study on its
implications in the media sector.
Wendy Tsu (research fellow, Deloitte Center for the Edge) is passionate in exploring the edges
between learning, social impact, and innovation. As part of Deloitte Consulting LLP’s Strategy &
Operations practice, her focus has been in technology and education. Most recently, she has been
helping higher education institutions reimagine their operating models. As part of the Center for
the Edge, she has conducted research and analysis related to new forms and institutions of education
and how they impact the educational journey for the lifelong learner.
Executive summary | 2
The journey begins | 3
Pressures on companies | 8
Pressures on individuals | 12
Eroding barriers: Lowered barriers to entry, commercialization, and
learning | 14
Fragmentation: Staying niche, nimble, and small is the new goal for
many | 24
Concentration: Emerging scale-and-scope operators will fuel and
benefit framentation | 35
Mobilizers: Connecting and mobilizing the ecosystem | 39
What do you do? Figure out where to play and play it well | 44
Conclusion | 53
Endnotes | 55
Acknowledgements | 60
Contacts | 61
Contents
Executive summary
Rapid advances in technology and the liberalization
of public policy have shaped a
world in which large companies face increasing
performance pressure amidst sinking return
on assets, intense competition, and changing
workforce dynamics. Individuals are taking
advantage of lowered barriers to market entry
and commercialization to become creators in
their own right. As a result, a new economic
landscape is beginning to emerge in which a
relatively few large, concentrated players will
provide infrastructure, platforms, and services
that support many fragmented, niche players.
In this way, both large players and small will
coexist and reinforce each other. Some parts of
the economy will be more affected by fragmentation
than others, and more quickly, but the
fragmentation will be enduring rather than
transitory. In this new landscape, much of the
world’s economic value will be created by the
relationships among participants. Therefore, it
is less useful to look at any one company than
to consider the dynamics that will develop
among the large and small players. This
changing landscape will have implications for
companies and individuals. Large companies
will likely play one of three roles in this new
landscape: infrastructure providers, aggregation
platforms, or agent businesses. Today’s
large companies will need to assess whether
the market for their core products or services is
susceptible to fragmentation and choose where
to focus in the future. The actions they take
today can help to position themselves for the
role they choose to play in the future. For individuals
and small entities, the new landscape
offers opportunities to transform the pressures
of today into profitable new ventures.
The hero’s journey through the landscape of the future
2
The journey begins
Many large companies are on shaky
ground. Seismic waves are already shaping
the landscape. The winners among large
companies in coming decades will be those
that position themselves on more solid ground
in areas of the economy that will continue to
support scale and scope economics. The evolving
landscape, reshaped and reformed, is opening
up large areas that will favor smaller, more
focused, enterprises—creating
opportunities for all
of us to build viable small
businesses that tap into our
creative potential, but only
if we know how to focus.
Companies large and small
have to be thoughtful
about where they position
themselves to be sustainable.
Strategies of position
are back with a vengeance.
The time to act is now,
before the ground shifts
any further.
If, in 2005, someone
had said that a marketplace
that didn’t even exist yet
would grow to over a million discrete sellers
with $1.35 billion in sales in only eight years,
he or she likely would have faced skepticism.2
Similarly, the emergence of a platform that
would enable 5.7 million individuals—most
of them not professional investors—to fund
over $1 billion worth of individual- and small
business-led projects might also have sounded
unlikely. Yet, today, both the Etsy marketplace
and the Kickstarter crowdfunding platform
not only exist but are thriving and continue
to grow rapidly. Such success is emblematic
of a dramatic shift in the business landscape.
The simultaneous fragmentation and concentration
that they exemplify will change how
we do business and go about our daily lives.
Companies of all sizes need to understand the
forces that led to their rise, as the marketplace’s
simultaneous fragmentation
into many smaller
entities and its concentration
in certain key
roles represents a crucial
redefinition of who is able
to start a business, what a
successful business looks
like, how big it can get,
and what is required to
sustain it.
Though it manifests
differently in different
parts of the economy,
fragmentation refers to an
increase in the number of
smaller entities addressing
a diverse range of
business and consumer needs. In fragmenting
parts of the economy, each entity has a small
addressable market, often focused on a niche;
minimal investment or backing is needed to
enter the market. These small entities proliferate
rapidly, and no one controls enough market
share to influence the industry. Crucially,
this fragmentation is not cyclical or transitory;
in these parts of the economy, where
“The future is
already here—
it’s just not
very evenly
distributed.”
—William Gibson1
3
businesses compete on specialization, personalization,
and customization, “diseconomies
of scale” mean that growing larger creates a
performance disadvantage. At the same time,
certain roles in the economy are increasingly
dominated by fewer, but larger, entities. In
concentrating parts of the economy, an entity
cannot profitably compete without having
scale or scope, and their value to fragmented
players is predicated on their being leaders in
the market.
We are still in the early stages of this
transformation, but signals are emerging from
a number of sectors that go well beyond Etsy
and Kickstarter:
• Pomplamoose, an American musical duo
featuring Jack Conte and Nataly Dawn, first
gained fame in 2008 with their YouTube hit
Single Ladies, which now has over 10 million
views. They recorded the song in Jack’s
bedroom using relatively basic software and
equipment. Having built a large fan base on
YouTube, the band remained independent,
generating income from ad revenues (via
YouTube’s Musicians Wanted, a program
for sharing ad revenue), iTunes online
marketplace sales, a Kickstarter campaign,
and commercial work and tours.3
In 2013,
Conte started Patreon, an online marketplace
that allows digital media creators to
monetize their web presence through recurring
funding from fans.4
As Conte summed
up in a 2012 TEDx talk, the traditional
music industry did not recognize the smallbusiness
version of a band, even as online
distribution and marketing were changing
the economics of production and distribution
and disrupting the traditional definition
of a “successful musician” as someone
backed by a major record label with record
sales in the millions.5
• Spencer Walle, a polyglot with a love of
languages who earns a living as a freelancing
intellectual property translator, represents
the changing face of the increasingly
empowered independent worker space.
After graduating college and joining a small
translation firm, Walle realized that he
loved the industry but wanted more flexibility
and autonomy. Using a combination
of online freelancer platforms, direct email
solicitation, and Google Groups, Walle has
cultivated a strong and consistent network
of customers. Earning a yearly income
that averages upwards of five times his
previous salary at the translation company,
Walle simultaneously enjoys the flexibility
and autonomy of freelancing—traveling
frequently, working from wherever he
chooses, and considering starting his own
small company.6
• Online retailer Nasty Gal illustrates the
powerful market reach that concentrated
platforms provide to small, niche businesses.
A photography school dropout with
a unique sense of style, Sophia Amoruso
began her business by buying low-cost
vintage items and reselling them for a much
higher price on eBay. She promoted her
business on a popular social-networking
platform, which she also used to find models.
As demand soared, Amoruso purchased
a domain name and began selling from
her own site, forging partnerships with
independent labels, offering limited runs
designed to sell out quickly, and continuing
to use platforms such as Facebook and
Instagram to cultivate a loyal following.
Relying on reinvested profits, Amoruso did
not use external financing until 2012, when
she accepted a $50 million investment from
Index Ventures.7
Sales in 2012 were nearly
$130 million.8
Unfortunately, many large companies
today don’t yet recognize or understand the
impact of fragmentation in their industries.
Later in this report, we will discuss why the
typical large company’s responses, to compete
or acquire, are losing tactics. Instead, companies
should understand the evolution of their
industry and their role within it. Ultimately,
both concentrated and fragmented players
The hero’s journey through the landscape of the future
4
need and reinforce each other. In order to
survive and thrive, businesses should consider
the following:
1. Which parts of the economy
are fragmenting?
2. Which parts of the economy
are concentrating?
3. How will various ecosystem
players interact?
Some large companies have begun to
take steps toward embracing the new symbiotic
relationship with fragmented entities.
Companies such as GE and West Elm are
exploring ways to engage with independent
designers and tap into the design potential
resident in the crowd. In November 2013, GE
invested $30 million in Quirky, a start-up that
crowdsources ideas and uses a mix of crowd
and internal capabilities to develop a product
from idea to retail shelf.9
One recent product:
the Aros, an 8,000-BTU smart air conditioner.
In addition to looking good, it can cool a
350-square-foot room, has a washable filter,
and the air intake is designed to prevent Aros
from using already-cooled air. The air conditioner
can be turned on and off using Quirky’s
Wink mobile app and gives dynamic savings
recommendations based on energy usage and
prices.10 The partnership with Quirky allows
GE to extend its research and development
(R&D) capabilities by tapping into a much
broader ecosystem of product design talent.
West Elm is also responding to the increasing
demand for unique and local products or
products with a “story” by working with Etsy’s
wholesale program to feature products—ranging
from paperweights and sculptures11 to
t-shirts, artwork, and even bridal wear—made
by Etsy sellers in their own stores.12 Through
national retail platforms, independent designers
such as Lisa Jones of Tiny Terrains—with
over 12,000 admirers and 4,500 sales transactions
on Etsy since 2011—can reach new customers
in physical stores across the nation.13
In this report, we will explore:
1. Pressures on companies: Macro trends
impacting today’s businesses, performance
implications, and common
response strategies
2. Pressures on individuals: The decline
of the “safety nets” commonly associated
with full-time employment by an
established company
3. Eroding barriers: Forces reducing barriers
to entry, commercialization, and learning
4. Fragmentation: The emergence of many
fragmented players focused on product and
service development and commercialization
in the sectors of the economy where
barriers were reduced
5. Concentration: The emergence of infrastructure,
platforms, and agent roles which
provide scale and scope services to the
fragmented players
6. Mobilizers: The emergence of players
focused on orchestrating the ecosystem
facilitates collaboration and learning
7. What companies can do: Winning strategies
that companies can take today to position
themselves successfully for the future
In our analysis, we will evaluate the signals
that we already see emerging on the edges of
various industries and extrapolate from these
signals to build a broader perspective.
Figure 1 illustrates the key elements of our
perspective. It is a map that can be used as a
guide to the hero’s journey, highlighting the
path that a company or an individual in the
business landscape would take. Each milestone
on this map—from “Pressures on companies”
to “Eroding barriers” to “What do you do?”—
illustrates how the changing business landscape
will impact the way companies will look
and interact with the overall ecosystem.
5
Figure 1. The journey to the future of the business landscape
The hero’s journey through the landscape of the future
6
7
Over the past few decades, the cost performance
of core digital technologies—computing,
storage, and bandwidth—has improved
rapidly and shows no signs of slowing down
(see figure 3, foundational trends). This exponential
improvement in digital technologies
is, in turn, fueling exponential innovation
in other technologies and business practices
across industries and markets.14 In addition,
since World War II, barriers to the movement
of products, money, people, and ideas, both
within countries as well as internationally, have
decreased.15 Together, these technology and
public policy trends have had the economic
effect of significantly intensifying competition
and lowering barriers to entry. (For a more
in-depth exploration of these forces, please see
our Shift Index 2013 series of reports.16)
The flows of talent, information, and
knowledge unleashed by exponential technology
improvements and liberalizing public
policy are challenging traditional business and
operating models and fundamentally reshaping
the business landscape in a phenomenon we
have termed the “Big Shift.”
Pressures on companies
Figure 2. The journey to the future of the business landscape: Pressures on companies
The hero’s journey through the landscape of the future
8
The cost of computing power has decreased from $222 per million transistors in 1992 to $0.06 per
million transistors in 2012.
Foundational trends Impact trends
The cost of data storage has decreased from $569 per gigabyte of storage in 1992 to $0.03 per
gigabyte in 2012.
The cost of Internet bandwidth has decreased from $1,245 per 1,000 Mbps in 1999 to $23 per
1,000 Mbps in 2012.
The overall trend of index of economic freedom, a compilation of 10 indicators measured by the
Heritage Foundation, has been increasing since 1995.
Nearly 70 percent of customers agree that they have increased information and choice about brands.
The compensation gap between the creative class and the rest of the workforce has steadily widened
over the past 10 years.
The economy-wide return on assets (ROA) has declined over the last 47 years, to a quarter of its
1965 level in 2012.
Graphic: Deloitte University Press | DUPress.com
Source: John Hagel, John Seely Brown, Tamara Samoylova, and Matt Frost, 2013 Shift Index metrics: The burdens of the past, Deloitte University Press,
November 11, 2013, pp. 9-27, http://dupress.com/articles/the-burdens-of-the-past/.
Figure 3. The Big Shift’s trends
The Big Shift impacts both individuals
and organizations. Individuals able to quickly
adopt new technologies and participate in
knowledge flows are benefiting from the forces
of the Big Shift as consumers and creative talent
(see figure 3, impact trends). Consumers
can now easily compare options and prices
and have multiple ways to make a purchase
(for example, shopping both online and in
brick-and-mortar stores), and their loyalty to
product brands is decreasing. Separately, top
workforce talent is highly sought after as the
key to growth, innovation, and performance
improvement for companies. However, top-tier
talent can also now easily identify new opportunities
and compare employment options,
wherever they might be. As a result, creative
talent has much more bargaining power and
is able to command higher compensation
and pursue more desirable work opportunities,
putting even more performance pressure
on companies.
Meanwhile, companies are struggling.
The performance of US public companies, as
measured by return on assets (ROA), is now
just a quarter of its 1965 level (see figure 4).
Competition has increased, emerging from
new and unexpected areas, making it more difficult
for companies to maintain performance.
In the past 55 years, the average tenure of a
company on the S&P 500 has declined from 61
years to 18 years.18 During that same period,
the rate at which companies lose their leadership
position within an industry has risen
39 percent.19
In response, many companies are resorting
to short-term cost-reduction tactics such as
layoffs and outsourcing, or using mergers and
acquisitions (M&A) to increase scale (and buy
revenue). As illustrated in figure 5, headcount
reduction has been a growing response to
poor performance. Many companies also try
9
Graphic: Deloitte University Press | DUPress.com
Source: Compustat, Deloitte analysis.
Figure 4. Return on assets for the US economy (1965–2012)
0%
Economy ROA
4.1%
0.9%
Linear (economy ROA)
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
2%
1%
3%
4%
5%
6%
Graphic: Deloitte University Press | DUPress.com
Source: Deloitte analysis of data from Compustat and the US Bureau of Labor Statistics.
Figure 5. Economy-wide return on assets and US unemployment rate (1976–2012)
0%
Unemployment rate (%)
Unemployment rate (%)
ROA (%)
Economy ROA (%)
‘81–’82 Unemployment from
7.6%–9.7%
‘82–’83: ROA from 2.7%–2.8%
‘91–’92 Unemployment from
6.8%–7.5%
‘92–’96: ROA from 1.6%–2.3%
‘00–’03 Unemployment from
4.0%–6.0%
‘01–’06: ROA from 0.2%–2.2%
‘08–’10 Unemployment from
4.9%–9.6%
‘08–’12: ROA from 0.5%–1.8%
1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
4%
2%
0.5%
0.0%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
6%
8%
10%
12%
The hero’s journey through the landscape of the future
10
to insulate against volatility by shifting fixed
costs to variable costs through increased reliance
on contract labor and outsourcing key
business activities. In fact, both the number
of contracts and total revenues from business
process outsourcing (BPO) and IT outsourcing
(ITO) have increased significantly since
the 1990s.20 Contract manufacturing is also
increasing, based on a survey conducted by the
International Data Corporation (IDC) in 2010.
While trends vary across industries, 64 percent
of companies surveyed currently outsource
manufacturing to contract manufacturers. Of
those companies, 43 percent expect to increase
their current levels of outsourcing, and 45
percent expect to maintain current levels
over the next two years.21 Finally, third-party
logistics providers (3PL) recorded an estimated
$250.2 billion in revenues from Global Fortune
500 companies in 2012—a 67 percent increase
from 2005.22
These tactics, while effective in the short
term, offer diminishing returns. For example,
economy-wide ROA continues to decline
despite short periods of increased performance
following layoffs (see figure 5). When
companies focus only on reducing costs, they
risk cutting into core business operations and
threatening the viability of the company. At the
same time, done incorrectly, M&A activities
intended to build scale can instead increase
overhead and make a company less resilient
and less flexible to respond to an increasingly
volatile environment. Moreover, as companies
pursue efficiency improvements, so do
their competitors, and the benefits are quickly
competed away.
Bottom line, companies have launched
major performance improvement initiatives
but the evidence suggests that they are falling
farther and farther behind in terms of ROA, a
key performance metric. The old approaches
are not working but the response is to squeeze
harder. This is not a sustainable situation. In
the meantime, the pressure continues to mount
and shows no sign of abating.
11
The short-term efficiency measures companies
have taken to respond to mounting
performance pressures are having an important
impact on individuals. These measures
have eliminated many of the benefits of working
for a large organization and undermined
the financial and emotional security of many
workers. Individual workers, especially those
not in the top tier, have borne the brunt of
companies’ responses to performance pressures.
Workers no longer have the historical
safety nets they once did, such as life-long
employment and pension plans. While certain
types of in-demand employees (for example,
creative knowledge workers and senior executives)
are still able to command higher compensation,
the statistics on unemployment
and the widening compensation gap indicate
that most workers are struggling.23 Though
the official US unemployment rate continues
to hover at 6 percent as of May 2014, unofficial
estimates put it at 23 percent, and further
estimates suggest that 20 percent of American
households do not have a single employed
member.24 Higher compensation for top workforce
talent has translated into less investment
in the rest of the workforce. However, with the
average lifespan of many skills decreasing, even
Pressures on individuals
Figure 6. The journey to the future of the business landscape: Pressures on individuals
The hero’s journey through the landscape of the future
12
those individuals who are sought after today
may become irrelevant tomorrow. No one—
not even top talent—is safe.
Without the benefits of stability and security
once associated with employment by a
large, established company, many individuals
will find themselves pursuing alternative career
paths, not always by choice. Over 20 percent of
independent workers (not employed by a company)
report striking out on their own due to
job loss resulting from layoff, termination, or
business closure.25 Among independent Baby
Boomers, the percentage of workers saying
they were driven to independent work by job
loss was even higher, at 27 percent. In addition,
many Baby Boomers are working, or planning
to work, past traditional retirement age to
compensate for investment value lost during
the recession. Approximately 57 percent of
all US workers now plan to work past age 65,
and of these, 66 percent say it is for financial
reasons and health care benefits.26
On the other end of the age spectrum,
recent college graduates face both
unemployment and underemployment. In
2013, 11.5 percent of recent college graduates
with bachelor’s degrees were unemployed,
compared to only 7.7 percent in 2007.27
Additionally, 37 percent of college graduates
over 25 are in jobs requiring only a high
school diploma, while 11 percent are in jobs
that require more than a high school diploma
but not a bachelor’s degree.28 The workforce,
overall, has become more educated—less than
1 percent of taxi drivers and 2 percent of firefighters
had college degrees in 1970, while over
15 percent of each occupation does today.29
Clearly, the forces underlying the Big Shift
are putting increasing pressures on institutions
and individuals. However, the trends
unleashed by the Big Shift also offer new
opportunities to build profitable businesses
that were previously not possible. In the next
section, we will discuss how these forces are
eroding barriers to building businesses and
how companies and individuals can turn pressures
into opportunities.
13
The same forces that have led to mounting
performance pressures on companies
and individuals have also reduced barriers to
alternate ways to earn a living or find meaning.
The somewhat surprising effect has been to tap
into workers’ latent desire for autonomy. In the
past, workers sacrificed autonomy for the security
and compensation associated with working
for a large enterprise. The traditional trade-offs
between autonomy and security are shifting,
and other options beyond the umbrella of a
large employer are becoming more attractive,
even to top-performing workers.
Many are driven by a desire for autonomy,
flexibility, or alignment with personal values.
Talented, high-performing workers are
taking their increased negotiating power to
pursue independent ventures or to work at
companies where work is more tailored to
individual priorities, values, and interests.
A study by MBO Partners found that many
independent workers, in particular, bring
a desire for flexibility and meaning to their
choice of livelihood. For example, of the 64
percent of independent workers who report
being “highly satisfied,” 62 percent prioritized
Eroding barriers:
Lowered barriers to entry,
commercialization, and learning
Figure 7. The journey to the future of the business landscape: Eroding barriers
The hero’s journey through the landscape of the future
14
flexibility over compensation, with 73 percent
stating that doing work they “like” trumps high
compensation and 79 percent prioritizing a
job that “makes a difference for someone.” Of
course, being an “independent” worker does
not always mean autonomy. For the 36 percent
who do not report being “highly satisfied”—often
temporary, on-call, and fixed-term
contract workers who depend on a middleman—the
lack of control over scheduling,
career, and work assignments; the lack of benefits;
and the uncertainty of making sufficient
income all weigh heavily, particularly for those
who are on this path unwillingly.30
In parallel, individuals are also beginning to
move away from seeking status and meaning
through consumption—for example, having a
large house, a fancy car, and expensive clothes.
Instead, many are seeking status and meaning
through the ability to create or participate. This
trend is reflected in the growth in attendance at
events like Maker Faire, the growing popularity
of hackerspaces, and increasing revenues from
maker-driven businesses (see figure 8).31 Make
Media estimates that the market for products
and core components used by makers will
exceed $1 billion by 2015.32 Similarly, an average
of 1,600 new users sign up for online do-ityourself
(DIY) tutorial platform Craftsy every
day,33 bringing the site to 840,000 enrollments
by January 2013, just a year after it launched.34
Currently, Craftsy has approximately 4 million
registered members.35
Source: John Hagel, John Seely Brown, and Duleesha Kulasooriya, A movement in the making, Deloitte University Press, January 2014,
http://dupress.com/articles/a-movement-in-the-making/.
Figure 8. Maker movement overview and drivers
Graphic: Deloitte University Press | DUPress.com
ment in the making, Deloitte University Press, January 2014,
Number of attendees at Maker Faire
Kickstarter project hits
Revenue from maker-driven businesses
>1,000 hackerspaces around the world
2011 2012 2013 2011 2012 2013
$7M
$18M
$50M $525M
$895M
$>1B
Quirky Etsy
Find details at: http://hackerspaces.org/wiki/list_of_hacker_spaces
2009
2010
2011
2012
2013
San Francisco Bay Area New York
Did not exist!
120K
64K
110K
50K
97K
27K
83K
23K
74K
Project Goal Funded
# of
backers
Pebble $100K $10.3M 69,000
Oculus rift $250K $2.4M 9,522
Goldieblox $150K $286K 5,519
Safecast $4K $104K 290
projected projected
15
The maker movement: Overview and drivers
Nineteenth- and twentieth-century technological advances consolidated manufacturing and created a
mass consumption economy. As a result, many of us today are further away from the actual creation of
goods than any prior generation. However, recent technological leaps like 3D printing and customizable
features have actually brought the power of creation back to the consumer. “Making”—the next
generation of inventing and do-it-yourself—is creeping into everyday discourse. A plethora of physical
and virtual platforms have emerged to serve the maker community, from platforms that inspire and
teach to spaces that provide tools and collaborative opportunities.
While just what motivates consumers to create is yet to be quantified, a couple of themes resonate
through the stories of individuals in the maker movement. First, many express a desire to create as part
of permanently marking their own existence. In Shop Class as Soulcraft, author Matthew B. Crawford
cites the journalist Hannah Arendt’s observation that part of the appeal of creating material objects
stems from the belief that “the reality and reliability of the human world rest primarily on the fact that
we are surrounded by things more permanent than the activity by which they were produced, and
potentially even more permanent than the lives of their authors.” In other words, humans may seek to
create as part of a need to contribute to our surroundings and leave a tangible legacy; we may now be
seeing a shift in how we derive our self-worth. Crawford also speaks of the sense of visceral satisfaction
from creating or repairing an object and of the clarity of such success relative to success in other fields;
his creation either works, fulfilling its purpose, or it does not.36
Second, in today’s digital world and information economy, many makers express a sense of being
divorced from the process of creating actual goods, and hence want even more to be in a “hands-on”
profession. The maker movement values creation over consumption, as well as, crucially, sharing and
collaborating.37 For example, financial software consultant Ayah Bdeir, founder of littleBits, created
modular electronics that not only fulfilled her own desire to create but that enabled others to do so as
well—in contrast, in her previous career she felt separated from the products she “made” and didn’t
believe that her work was constructive.38
These individuals are benefiting from lowered barriers to access and scale. With technology-guided
tools that are less expensive and easier to use, the hurdles to making—either as a hobby or a business—
are disappearing. The same forces that are democratizing information are also lowering the cost of
producing physical objects. Never before has it been so easy to create or modify something with
minimal technical training or investment in tools. Open source hardware opens the door for newcomers
by undermining the proprietary foothold of larger competitors. Physical and virtual platforms reduce
barriers to learning, making it easier for a maker to connect with the greater community. Events like
Maker Faire accelerate the sharing and testing of ideas and techniques, allowing individuals to come out
from the garages, to inspire and be inspired, and, for some, to discover an audience.
Partly because of the reduction of barriers to making and learning, the number of small maker
businesses is growing. Meanwhile, the need for large-scale providers—for example, of logistics, design
tools, and marketplaces—to serve these fragmented businesses is increasing as well. Incubators and
other intermediaries have sprung up to assist makers in refining their inventions and finding efficient
ways to bring their products to market. For example, PCH International helps makers to make the
leap from having a successful product to developing a business by offering services such as contract
manufacturing, e-commerce, inventory management, packaging, and retail distribution.
The maker movement has the potential to have a significant impact across a broad spectrum of sectors
and regions. Besides the impact on manufacturing, we can also anticipate impacts in areas such as
education, retail, government and public policy, and citizen science. Read more in A movement in the
making and Impact of maker movement.
39
The hero’s journey through the landscape of the future
16
The good news is that the same technological
and political forces causing increased
pressures and challenging traditional structures
and practices have also created the tools
and opportunities for participation, commercialization,
and learning. As Chris Anderson
describes, the inventors of yesterday could
tinker, prototype, and patent their creations,
but they could not manufacture, commercialize,
and distribute a product. Those few designs
that made it out of the inventor’s garage were
licensed by large companies, often removing
the original inventor from the manufacturing
process, and paid royalties only until the
patent expired—leaving the inventor just as
disconnected from the market as when he or
she started.40
Times have changed. Today the barriers
between the inventor and the market are
diminishing, and individuals can own the
full lifecycle of their products. Individuals are
also finding that as barriers erode they have
the ability to participate in numerous communities,
unlimited by geography, where
they can build knowledge, develop skills, and
find collaborators. These communities facilitate
learning across all aspects of design and
commercialization of products, and they can
accelerate learning for everyone, especially for
participants who actively seek opportunities
to learn and share. In the following section,
we will examine three types of barriers that
are rapidly eroding in the growing number
of markets:
1. Barriers to entry: Access to the means of
production is overcoming barriers to entry
2. Barriers to commercialization: Individuals
and small organizations are gaining the
ability to commercialize offerings by
more easily finding customers, talent,
and resources
3. Barriers to learning: The ability to
learn faster by connecting more broadly
with others
Reduction of barriers to entry
The means of production are becoming
more accessible to individuals and smaller
companies. Technological advances are lowering
the capital investment necessary to launch
a new venture. Tools and physical infrastructure
are becoming increasingly accessible.
Liberalization in certain areas of public policy
is reducing some of the regulatory barriers that
have hindered the creation of new businesses.
Again, the exponential reduction in the cost
performance of core digital technologies—
computing power, storage, and bandwidth—is
a critical driver, in this case lowering barriers
to accessing the means of production, starting
with digital products. Advances in computing
power have reduced the importance of scale
for innovation. For example, cloud computing
allows individuals to access computing capabilities
as needed and without a significant investment
in infrastructure. Meanwhile, the cost of
digital storage has plummeted as a result of the
cloud, with storage cost performance increasing
exponentially.41 Finally, the cost of Internet
bandwidth has declined, bolstering connectivity
and enabling the consumption and sharing
of richer data. Together, these advances have
enabled small groups of individuals to launch
businesses with potentially global scale for
relatively little up-front capital expenditure.
In the technology industry, highly profitable
businesses are emerging at a rapid pace. Mobile
application developer Rovio developed the
game Angry Birds for only $140,000, but generated
an estimated $70 million in revenue.42
As similar examples proliferate, it is evident
that tools for launching businesses based on
simple, technology-based digital products
are becoming more and more accessible with
modest investment. The effects of this accessibility
will likely increasingly spill over into
other, non-digital products (for example, prosthetics),
further diminishing the need for large
capital investments. For example, with the cost
of a 3D printer—equipment once found only in
industrial settings, but now available in a more
compact size with comparable resolution for
17
desktops—dropping from $300,000 in 2000 to
$1,300 in 2012, it is becoming easier for individuals
to independently experiment with and
prototype ideas, leading to breakthroughs in
physical product design and even medicine.43
As technology continues to become better and
cheaper, more individuals will be able to create
small but sustainable economic entities.
Even for technologies that have not become
affordable, the emerging “sharing economy” is
helping to make them accessible. For example,
TechShop, one of the larger “maker space”
communities catalyzing the maker movement,
offers the use of equipment ranging from milling
machines and lathes to welding equipment,
3D printers, and industrial sewing machines,
giving members access to millions of dollars’
worth of industrial-grade tools for a monthly
membership fee comparable to that of a gym.
After a series of failed pitches, mobile payments
company Square’s founders, Jack Dorsey
and Jim McKelvey, turned to TechShop, where
they used a milling machine and other tools to
develop a Square card reader prototype. With
the working prototype in hand, Dorsey and
McKelvey easily secured Square’s first round of
funding.44 These industrial tools of fabrication
and production are also more accessible now
because they are increasingly digitally enabled,
meaning that individuals can more easily learn
to use them without having years of experience
and training.
While TechShop reduces barriers to production
through the volume and variety of
tools it offers, other co-working spaces also
reduce barriers to entry by providing physical
infrastructure such as office space. In the
case of RocketSpace, start-ups have access
to organized workspaces, conference rooms,
and office equipment and amenities that allow
them to meet with clients and work more
seamlessly as a team without investing in real
estate or equipment. These types of co-working
spaces typically rent space on a month-tomonth
basis or even by the day, so they are
less risky for individuals experimenting with
a new idea or offering. These spaces also allow
opportunities for serendipitous encounters,
tacit knowledge transfer, and idea-sharing with
others working in related areas.
Public policy and regulation also determine
how easy or difficult it is for small entities to
launch businesses. In general, US public policy
has trended toward encouraging fluid labor
markets and creating opportunities for both
competition and collaboration within many
industries, both of which tend to encourage
new entrants.45 While this is a general trend,
in specific industries regulations continue to
create a significant barrier to entry. Economywide,
the Accountable Care Act (ACA) has
further empowered individuals to pursue
independent ventures, by making health insurance
coverage available to everyone. Prior to
the ACA’s passage and the subsequent launch
of health insurance exchanges (HIX) in 2013,
individuals often stayed with large, established
employers to secure reliable, affordable health
insurance options for themselves and their
families. A 2008 Harvard Business School
study estimated that 11 million US workers
were affected by this phenomenon, known
as “job lock,” which served to discourage
worker movement within the economy.46 HIXs
are still new enough that many US workers
may not yet feel free of job lock; however,
the Congressional Budget Office estimates
that the ACA will reduce employment by 2.5
million full-time jobs, as workers, no longer
afraid to lose health insurance coverage, elect
to leave the traditional labor market in favor
of independent ventures and other forms
of employment.47
The confluence of cheap and accessible
technology, shareable tools and infrastructure,
and supportive public policy has made it
more attractive for individuals to leave large
organizations and create their own fragmented
businesses. For these businesses to be viable,
they must grow to be able to reach the market,
even a small, niche market, effectively and
profitably—another challenge made more surmountable
by technology and platforms.
The hero’s journey through the landscape of the future
18
Reduction of barriers to
commercialization
With the path to market entry more accessible,
technology has again been instrumental
to lowering barriers to commercialization,
largely through online platforms that connect
individuals and organizations to the resources
they seek. Specifically, individual entrepreneurs
or small businesses need access to four
primary resources to commercialize an idea:
• Financing
• Infrastructure
• Talent
• Customers
Access to financing. While low technology
costs and the accessibility of shared tools
allow small operations to enter markets, access
to capital is crucial for businesses to grow.
For many small teams, venture capital (VC)
financing is not an option. The average size of
a Series A deal in 2013 was $5.4 million, a sum
vastly larger than what many small entities
need to reach their planned market, especially
now that smaller-scale businesses can be
viable.48 In other cases, business owners may
not want to give up equity or control of the
company to interested VCs.
As a result, online crowdsourced financing
platforms such as Kickstarter and Indiegogo
have emerged to address the gap between
institutional investors and individual entrepreneurs.
Individuals and teams post a pitch
for their product or service as well as a request
for funding. Potential funders browse the site
and pledge funding, in increments ranging
from a few dollars to thousands of dollars, to
the projects that interest them. In exchange,
funders typically receive non-monetary
rewards, such as pre-release versions of the
product or a signed copy of an artistic work.
In 2013 alone, 3 million people pledged $480
million to Kickstarter projects for a total of
19,911 successfully funded projects.49 Many of
the projects on Kickstarter have already been
prototyped, and some may even have small
lots in production, but the online campaign
can provide the infusion of capital needed in
order to scale production to meet demand or
reach a bigger market. These crowd-financing
platforms can also allow entrepreneurs to
quickly test demand for a product and identify
early adopters. Other funding platforms serve
a similar purpose for more specific audiences,
with slightly different takes on the basic funding
model. For example, CircleUp connects
credited investors with curated funding opportunities
from innovative consumer and retail
companies. By harnessing the alternative funding
sources gathered by these platforms, individuals
can finance their commercialization
activities without ceding power to third-party
VCs. Depending on the goals of the funding
seeker, the scale of the venture, and the nature
of the product, crowdfunding alone may not be
able to fully bridge the financing gap for new
ventures, but it allows small players to test a
market and iterate a product in a way that was
not previously possible.
Access to scale infrastructure. In addition
to capital, small players need access to scalable
infrastructure, both virtual and physical. Cloud
computing has been instrumental in this
regard, providing flexible, cost-effective solutions
that allow start-up businesses to rent data
storage space or computing power and easily
scale up and down based on real-time needs.
The ability to do this was critical for Dropcam,
a video monitoring hardware and software
company that allows users to keep tabs on their
homes and pets through live streaming, as well
as to store high-definition video of the stream.
Launched in 2009, Dropcam was hosting up to
100 GB per user per month by 2011, and storage
space quickly became a limitation on scalability.
Using Amazon Web Services, Dropcam
is able to quickly adjust to changing demand—
driven, for instance, by the introduction of a
new camera or positive press that leads to a
bump in new subscribers. The company can
19
acquire additional hosting capacity within a
couple of minutes by running a simple script,
thereby delivering a seamless experience to
Dropcam’s growing user base.50
Infrastructure in the physical realm is also
becoming more accessible. Contract manufacturing,
logistics services, and call center
services can now be accessed in small volumes
at costs that are within reach for small entities.
For instance, small contract manufacturers in
Shenzen, China—once used primarily for overflow
and prototyping by large multinational
product companies—are increasingly offering
short-run production to start-up ventures,
enabling these ventures to commercialize at
a smaller scale. As they have developed their
small-scale capabilities, these contract manufacturers
have achieved efficiencies that allow
them to break even on a lot of only 10,000
units, a feat previously unattainable.51 Similarly,
on-demand cloud-based contact centers allow
companies to deploy a call center service in a
matter of days without up-front capital expenditure
or integration costs. The use of these
services is rapidly catching on; IDC estimates
that spending in the United States for ondemand,
cloud-based contact center services
will grow at a compound annual growth rate
(CAGR) of 17.5 percent, reaching $1.6 billion
by 2018.52 These rapidly scalable logistical support
options provide fragmented players with
resources never before available. Flexible, inexpensive,
easily scalable infrastructure—virtual
and physical—lets small entities punch above
their weight, enabling them to provide competitive
levels of service, quality, and responsiveness
to customers.
Access to talent. Small entities also need
access to additional skills and capabilities,
whether by teaming, contracting, or hiring.
In the past, a small business might seek
talent through temporary staffing agencies,
career centers, or trade conferences.
These avenues required up-front investments
of time and money for both the hirer
and the job seeker, and they captured only
a fraction of the available workforce due to
geographical constraints.
In contrast, online staffing platforms have
made it much easier for freelancers to connect
with opportunities regardless of location.
The growth of these platforms has coincided
with the growth of the independent worker
population, which has increased from 16.1
million workers in 2011 to 17.7 million workers
in 2013.53 In late 2013, Elance and oDesk
merged to form the largest online marketplace
for freelancers, with a combined total of over
8 million “elancers.”54 A number of niche
staffing platforms have also rapidly emerged
to complement the larger platforms. Andrew
Karpie of Staffing Industry Analysts estimates
that the number of job sites for freelancers
jumped from 24 before 2008 to over 80 dedicated
online staffing marketplaces at the beginning
of 2014.55 Such platforms have created a
plethora of opportunities for small ventures to
connect with talent on a flexible basis, reducing
labor overhead and affording employers
access to a wide range of skill sets as business
needs arise (see figure 9).
Access to customers. With increased digitization,
an entirely different set of platforms
has emerged that allow small ventures to reach
a large customer base, and often to deliver the
actual product online, democratizing access to
relevant markets. While in the physical world,
product variety is limited by shelf space (or the
number of movie screens), in the digital world
these constraints disappear. As Chris Anderson
wrote in his 2004 article The long tail, “Now,
with online distribution and retail, we are
entering a world of abundance.”56 On platforms
like Etsy, the leading online marketplace for
handmade and vintage goods, small niche
providers can connect with consumers with
very specific requirements and offer goods and
services that fit their preferences. Often, these
consumers don’t exist in large enough numbers
to have created a market in any physical location.
Founded in 2005, Etsy had accrued over
a million sellers by 2013 and grew from $0.17
The hero’s journey through the landscape of the future
20
Graphic: Deloitte University Press | DUPress.com
* While these are primarily physical platforms, traditional temporary staffing agencies are increasingly building out their digital presence.
This map is intended to illustrate the diverse options for freelancers and others in nontraditional employment arrangements. The  placement of
companies on this map reflects current services and positioning derived from company websites and is not intended to reflect future strategic
positioning or business models.  This is a rapidly evolving space, with new acquisitions and partnerships increasingly blurring the boundaries
between categories. For example, traditional temporary staffing agencies are increasingly developing their digital presence through partnerships
and new offerings.
Figure 9. Freelancer platform map
Task
Highly specialized
platforms for accessing
experts
GLG
Gigwalk
CrowdFlower
Craigslist College
career
centers
Cad Crowd
Freelance
Physician
Elance-oDesk
RentACoder
Freelancer.com
MBA & Company
Kelly
Services
LinkedIn
Manpower
Group
Platforms engaging
highly specialized
professionals
Broad-based online marketplaces complemented
by vertical freelancer platforms
Low skill, micro-work Platforms for more
general online ads
Collective/career
services
Generalized
online
networking
Traditional temporary
Lo
staffing agencies
w Moderate
Training level
Scope
High
Project Staff augmentation
Digital platform Physical platform*
Illustration of options for freelancers and nontraditional employment arrangements
The shift to digital platforms has given both individuals and companies more options for connecting work
opportunities with independent workers. Currently, platforms tend to cater to specific demographics and
project types. Scope refers to the level of involvement and integration an assignment requires (for example,
a task that can be done independently in one sitting versus a project that will unfold over multiple working
sessions). Training level refers to how much specialized knowledge is required to complete the assignment (for
example, no specialized education or trade experience necessary versus the need for a PhD or a demonstrated
elite achieve-ment). This map does not include competition-based crowdsourcing platforms (for example,
Innocentive) or platforms that connect individuals directly to consumers (for example, Uber, Etsy).
21
million worth of goods sold in its first year to
$1.35 billion in 2013 (see figure 10 and 11).57
As described earlier, Etsy has also recently
added a wholesaler program, which allows
artisans who wish to reach a broader audience
to forge relationships with mass retailers.58
Similarly, Amazon’s Kindle Direct
Publishing allows any author to self-publish
ebooks and distribute them globally on
Amazon. And Netflix is increasingly used as a
platform to release indie films, allowing filmmakers
to find audiences for their work without
first wooing a large production company.
While online platforms have improved
access to finance, infrastructure, talent, and
customers by connecting small players with
others outside their immediate ecosystem, discovery—finding
the right resources and being
found by potential customers—will still pose
a challenge for individuals and small teams
in the near term. In part, this is because new
platforms are still emerging. Curators already
help with discovery, and as the business landscape
evolves, new roles beyond just curation
are likely to emerge to help connect individuals
with opportunities.
Reduction in barriers to learning
Even after starting a venture and commercializing
a product or service, individuals and
small teams (and large companies) still need
to learn in order to improve performance.
Most of the learning around product innovation
and commercialization, particularly for
smaller players, will occur in the ecosystem
among small entities, customers, partners, and
suppliers. Here, too, platforms are emerging
to facilitate creating and sharing knowledge
among participants. Opportunities for formal
and informal learning related to product
innovation and commercialization are growing
Graphic: Deloitte University Press | DUPress.com
Figure 10. Etsy merchandise sales ($ million)
Source: “Etsy’s total annual merchandise sales volume from 2005 to 2013
(in million US dollars)”, Statista,
http://www.statista.com/statistics/219412/etsys-total-merchandise-sales-per-year/,
accessed February 2014.
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013
$400
$200
$600
$800
$1,00
$1,200
$1,400
$1,600
Figure 11. Etsy year-over-year new monthly growth
(in thousands)
Source: “Etsy statistics: 2012 weather report,” Etsy, https://blog.etsy.com/news/2012/
etsy-statistics-may-2012-weather-report/, accessed February 2014.
Graphic: Deloitte University Press | DUPress.com
2008
# of new users
# of new items listed
# of new items sold
2009 2010 2011 2012 2013
80000
70000
60000
50000
40000
30000
20000
10000
The hero’s journey through the landscape of the future
22
as a result of improved access to knowledge
and more ways to create and share knowledge,
including:
• Online learning platforms and communities
• New organizational models to build
tacit knowledge
• Feedback loops from platforms and other
scale players
Online learning platforms and communities.
The proliferation of learning platforms
(for example, Udacity and YouTube) and
service tools for creating online learning (for
example, Schoolkeep) have lowered the costs
of producing and distributing learning content.
These technologies not only make it easier to
share content, but also, through video, better
transfer tacit knowledge by capturing actions
in motion.
As content creation and distribution has
become more democratized, the requirement
for certification is also lessening. The ability to
warrant is expanding beyond higher education
institutions and educational publishing firms
to corporations (for example, Google, Intuit),
online accreditation organizations (for example,
Balloon, Degreed, Accredible), and the
crowd (through reviews, ratings, and “likes”).
For example, Udemy’s open platform hosts 3
million users and 16,000 courses, from yoga
to finance to web development.59 Meanwhile,
companies like SchoolKeep, Fedora, and
Skilljar make it easier for individuals to create
and operate courses on their own web domain.
Educational material—ranging from academic
examinations to practical tutorials—is largely
open to the public for consumption. It can
serve the diverse learning needs of individuals,
teams, and companies over time, whether they
need to master new technologies, maintain
relevant skills, or learn the next step of the
business just in time.
New organizational models to build tacit
knowledge. Beyond the more formal learning
platforms, organizations are experimenting
with models to facilitate sustained interactions
between disparate workers and partners,
connecting those with complementary talents
under the banner of a common goal. Techshop,
Rocketspace, and Meetup—an online social
networking portal that facilitates in-person
group meetings in cities around the world—
all serve as platforms for disparate players to
interact and share ideas and practices. These
organizations also provide infrastructure
and support for maintaining and governing
these relationships over time. With the
ability to more easily find and connect with
others from whom they might learn, small
players have a better chance to forge viable,
sustainable businesses.
Feedback loops from platforms and other
scale players. Another interesting way that the
barriers to learning are falling is through the
increased use of platforms, shared resources,
and on-demand infrastructure, which has
given rise to feedback loops that engage others
in the ecosystem. For example, a vendor on
Amazon can track not only sales of its own
products, but also those of its competitors; the
vendor can also can see how the products compare
by reading customer reviews of its own
and competitors’ products. Similarly, a product
company might gain insight about cost-cutting
design modifications from a contract manufacturer
that has developed deep expertise by
serving many players in an industry. The ability
to learn from others in the ecosystem—customers,
suppliers, service providers—becomes
increasingly important as demand for personalization
and customization grows.
23
The erosion of barriers to forming and
pursuing a business venture will lead to
increasing fragmentation in certain parts of the
economy. In this section, we’ll explore:
1. Pathways to fragmentation
2. Roles that will fragment
3. Fragmentation potential of
specific industries
4. Challenges to growth in fragmented arenas
Pathways to fragmentation
For individuals and small entities, the barriers
to forming and pursuing a business venture
are rapidly being dismantled. As barriers fall,
many small yet viable players will emerge, with
increasing influence on the economy, via three
primary pathways:
• Freelancers, empowered by online staffing
platforms, will begin as individual
contractors, but will quickly transition to
forming flexible teams—colloquially called
“hives”—comprised of other freelancers
Fragmentation: Staying
niche, nimble, and small is
the new goal for many
Figure 12. The journey to the future of the business landscape: Fragmentation
The hero’s journey through the landscape of the future
24
with complementary skill sets. Gradually,
these hives will move from just accepting
work from other businesses to collectively
creating their own products and
services, and ultimately forming their own
small companies.
• Hobbyists will transition from “moonlighting”—working
full-time for someone
else while pursuing their passion projects
during off-hours—to being fully dedicated
business owners. Consider that, while only
18 percent of Etsy’s sellers sold their products
full-time in 2012, 91 percent aspired to
grow their businesses. Of those who wanted
to grow, 61 percent aspired to grow to a
“manageable size” rather than to achieve
unlimited growth.60 These aspirations signal
the possibility of a broad shift in the common
notion of a successful business.
• “Star” performers within big companies—
confident of their value and frustrated by a
lack of autonomy—will increasingly choose
to leave employers in favor of building businesses
that use their full range of talents.
Enabled by new tools and technologies,
these workers may be able to experience the
same, or greater, success as in their corporate
jobs while deriving additional benefits
from greater autonomy and doing work that
better aligns with their personal values.
This proliferation of individual and small
business ventures addressing highly differentiated
industry and consumer needs will drive
significant fragmentation in certain parts
of the business landscape. Fragmentation
(within a domain) is defined by the
following characteristics:
• Each player within the domain has a small,
addressable market and is focused on a
specific niche
• Collectively, players address a diverse spectrum
of customer and market needs
• Both players and niches are proliferating
within the domain
• No single player has enough market share
to influence the direction of the domain
long term
• A relatively modest level of investment is
sufficient to enter and sustain position
• “Diseconomies of scale” are in play—it is
more challenging for large players to stay
in business
Charting an individual path forward
Spencer Walle has been a freelance translator for nearly three years. Driven by a passion for language, he
taught himself Japanese in order to build a career for himself in the most lucrative part of the translation
industry—Japanese IP translations. Walle has since built out a strong network that keeps his work pipeline
flowing, and provided he actively manages his cash flow, he can live an autonomous lifestyle full of travel
and flexibility. Long-term, Walle sees this freelance work transitioning into a small business.
Walle sees himself staying in the translation industry indefinitely, simply due to his passion for language.
However, he can see himself getting bored with his current projects, as the work can become monotonous
and there is no real advancement potential. He has considered eventually starting his own small translation
company, mirroring the trend toward small business formation that he’s seen in the translation community.
According to Walle, “It happens organically that translators start to work collectively.” Pretty soon they
get larger assignments, hire more junior staff, and then start to require organizational trappings like an
accountant—and with that, “a company is born.”61
25
Roles that will fragment
Fragmentation will occur at different rates
and to varying degrees across the economy.
Much of the fragmentation is likely to occur in
product design and commercialization activities.
This activity depends on creative talent,
and creative talent tends to seek the autonomy
available in smaller organizational settings.
This creative talent can establish much closer
connections to their customers and build
deeper relationships over time that will help
them to deliver more effective personalization
and customization, opening up opportunities
for customers to participate in the design and
creation of the products. These more specialized
players will acquire deeper insight into
the needs of the highly focused niches they are
serving—needs that the customers themselves
have a hard time articulating or may not even
recognize. However, as we will see below, not
all products or services will be subject to fragmentation,
and not all fragmented players will
focus on product/service innovation.
Niche operators
As described above, niche operators will
tend to form specialized product/service businesses,
either designing and commercializing
Coders
Consumer Creator
Individual
Niche operators
Angels Domain
experts
Artists
Makers
Momandpop
Figure 13. Niche operators
creative products or acting as domain experts
or contractors to support these specialized
product businesses. One of the early effects of
the Big Shift has been the increasing capacity
for connection between participants in an ecosystem.
For individuals and small teams, this
means they can more easily forge connections
with one another and with large companies
to learn, improve performance, and pursue
opportunities for long-term viability.
The fragmentation already underway is,
with some rare exceptions, still on the edge
of most established markets. However, early
shifts—including the loosening bonds between
workers and large employers and the widespread
erosion of barriers—are paving the way
for more small businesses to arise. The historical
growth of the independent workforce has
not been reliably tracked;62 however, a study
by MBO Partners revealed that, in 2013, there
were 17.7 million independent workers in the
United States—up 10 percent from 2011. This
number is expected to increase to 24 million
independent workers by 2018.63 Many
of these workers may eventually form businesses.
Over time, they should have a greater
impact on their domains, competing with large
companies by serving increasingly diversified
consumer desires and providing personalized,
even localized, products and services.
The hero’s journey through the landscape of the future
26
The music industry is one of the first areas
where fragmentation is evident, illustrating
how very diverse consumers’ preferences are
once they have an easy way to personalize
their experience across a seemingly boundless
variety of artists and offerings (genre, format,
and setting). Streaming services, aggregation
platforms, and self-distribution channels have
made recording and distributing music easier
than ever. The proportion of independent
musicians in the United States—those not
“owned” by a major label—has increased from
25 percent in 2003 to over 90 percent in 2012.64
Independent musicians are also making up a
greater proportion of the US music market’s
revenue, from 28.8 percent in 2007 to 34.5
percent in 2012.65
Fragmentation is likely to be most pronounced
in the design, development, and
production of new products and services for
specific markets. This can already be seen
in the software industry, where the tools of
production are readily accessible to coders and
the proliferation of devices has created highly
differentiated customer demand. Since 2005,
the number of mobile application developers
has increased from 950 entities to approximately
158,000 in 2013—a 166-fold increase.
At the same time, the top four players in
2013 accounted for only 11.8 percent of the
industry revenue.66
As consumer demand for uniqueness or
other specialized attributes causes product
fragmentation, another type of fragmentation
will occur in the retail space, as retailers
cater to specific consumer preferences with
a targeted set of niche products. A new type
of retailer is emerging that uses both physical
and virtual facilities to help customers more
effectively navigate a vast range of products
to find and use those that are most personally
relevant. They will increasingly offer targeted
experiences to niche customer segments—
showcasing products, providing learning environments
to help customers get more value
from the products, and creating venues for
customers to form communities around these
niche offerings. This phenomenon is different
from more narrowly defined curation services,
which simply provide expertise or reviews in a
product category.
Increasingly, we will see similar trends
across other domains where the barriers to
entry, commercialization, and learning are
diminishing. For example, although angel
investors are already fragmented, the number
of small investors could grow with the emergence
of a different type of angel investor—one
who, now that it is easier for individual investors
to connect with individual makers, artists,
or entrepreneurs, values his or her connection
to a specific product or mission more than
tenfold returns. Similarly, we expect to see
growing numbers of highly specialized domain
experts who will provide niche consulting and
support services to other fragmented players.
Fragmentation potential
of specific industries
As just discussed, we expect fragmentation
to be most evident in those activities centered
on the design and commercialization of
innovative products and services. The extent to
which an industry will fragment depends upon
two elements:
• The degree to which customers are expressing
a desire for more specialization, personalization,
and customization in the products
and services they buy or are beginning
to make
• The degree to which barriers to entry,
commercialization, and learning
are diminishing
We have already discussed how the Big
Shift has empowered consumers to expect
products and services that more closely meet
their preferences for price, format, and timing,
in addition to their preferences for productspecific
variables like style, color, uniqueness,
and so on. Customers, whether individuals or
companies, may also begin to demand more
27
customized offerings as their own environments
and operating requirements change
more rapidly, again in response to the forces
of the Big Shift. Anywhere that customers are
demanding—or might be expected to start
demanding—more personalized offerings
has the potential for fragmentation, because
effectively meeting such highly specific
needs requires a high degree of creativity
and the ability to thrive on small volumes
of production.
Even given a demand for innovation,
broader industry barriers (see figure 14) play
a significant role in determining the rate at
which fragmentation occurs. Certain forces
accelerate fragmentation by reducing barriers
or dampen it by propping up barriers. The first
set of forces in figure 14 concerns the ability
to overcome barriers to entry; without them,
fragmentation is unlikely to occur regardless of
reductions in barriers to commercialization or
learning. For this reason, the first set of forces
is most important in assessing the potential for
fragmentation at the industry level.
However, even in industries where the barriers
to entry initially seem high, such as where
production requires large physical plants,
the demand for design innovation can cause
Figure 14. Assessment of barriers by industry
1
2
3
llustrative industry comparison
The extent to which barriers to entry, commercialization, and learning are falling in an industry or domain determines how vulnerable it is to fragmentation.
Software Health
care Media Retail
Your
industry
Technological advancements in the means of production
Accessible tools and physical infrastructure
Liberalization in sector policy and regulation
Access to financing
Access to scale infrastructure
Access to talent
Access to customers
Online learning platforms and communities
New organizational models to build tacit knowledge
Feedback loops from platforms and other scale players
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
û
ü
û
û
ü
ü
û
û
ü
ü
û
ü
ü
ü
ü
ü
ü
ü
ü
ü
û
ü
ü
ü
ü
ü
ü
ü
Graphic: Deloitte University Press | DUPress.com
Reduction
in barriers
to entry
Reduction
in barriers
to commercialization
Reduction
in barriers
to learning
The hero’s journey through the landscape of the future
28
business models to evolve, reducing barriers
by providing access to scale and transforming
industry economics. In the semiconductor
industry, for example, the high cost and
scale economies of semiconductor fabrication
facilities (fabs) would have seemed an insurmountable
barrier to small-scale players. In
the 1980s, as manufacturing began to require
more precise and advanced techniques, many
semiconductor companies shed their in-house
fab capabilities. Companies that kept fabs
sold their excess capacity to the newly “fabless”
companies, but the negotiation process
was often complicated and slow. Then, in
1987, Taiwan Semiconductor Manufacturing
Company (TSMC) launched a new “foundry”
business, making it their sole business to
manufacture for fabless or limited-capacity
semiconductor companies, essentially renting
out partial capacity. The foundry model transformed
the semiconductor industry. Fabless
integrated circuit (IC) design companies now
represent more than 20 percent of the global
market. In China alone, the number of IC
design enterprises has grown from 96 in 2000
to 518 in 2012.67
Once the barriers to entry start to come
down, infrastructure and platforms to support
fragmented players’ commercialization
and learning activities are likely to emerge.
As the barriers at all three levels diminish,
fragmentation is likely to significantly increase.
In contrast, in industries where one or more
forces are serving to prop up barriers to entry,
commercialization, or learning, fragmentation
may still occur, but more gradually. In health
care, for example, fragmentation is happening
on the edges where regulation is not a factor, in
the markets for wellness providers and quantified-self
devices. The platforms that emerge to
connect and support these fragmented players
may, over time, drive fragmentation in core
health care services. In fact, even under regulation,
highly specialized facilities focused on the
treatment of specific diseases are emerging.
While the first set of forces acting on
barriers to entry is most critical in assessing
whether fragmentation will occur, public policy
and regulation are also particularly important.
Overall policies and regulations (at the
federal, state, and local levels) that encourage
or discourage starting new businesses, regardless
of industry, weigh heavily in any decision
to start a new venture. In a survey by the US
Chamber of Commerce, 44 percent of small
business owners cited over-regulation as one of
their chief challenges.68 Public policy can also
act as a barrier when wielded as a tool to block
new entrants. Established interests historically
try to use regulations to prevent new competition;
while public policy can be a driving
force of change, established interests are often
driving the changes in policy. Even in industries
in which other barriers are diminishing,
if policy and regulation prop up barriers, the
process of fragmentation may be significantly
slowed. The craft beer industry illustrates both
the accelerating and dampening effects of
policy and regulation (see sidebar, “The impact
of regulations on the craft beer industry”).
Thus, sustainable fragmentation relies on the
continuation of policy trends that support the
emergence of fragmented players.
29
Figure 15. iTunes app store—number of applications
Source: “Number of available apps in the iTunes App Store from 2008 to 2013
(cumulative),” Statistica, http://www.statista.com/statistics/268251/number-of-apps-in-the-itunes-app-store-since-2008/,
accessed June 2014.
Graphic: Deloitte University Press | DUPress.com
2008 2009 2010 2011 2012 2013
1000
800
600
400
200
(in thousands)
Figure 16. Mobile application development, percent of
market share (by revenue)
Source: “Smartphone app developers in the US,” IBISWorld, January 2014.
Graphic: Deloitte University Press | DUPress.com
4.3
4.3 2.2
1.0
Kings Game
Kabam
Zynga
Electronic Arts
Other 88.1
The impact of platforms on the mobile
applications development industry
In 2007, Apple® introduced the iPhone®
mobile digital device and the App Storesm in
2008, spawning a new market for mobile
application development.69 A year later,
Google introduced the Android and its own
application marketplace, Google Play. In just
seven years, the nonexistent applications
development sector has grown to over
$10 billion.70
Having experienced 50 percent annualized
growth since 2009, the application
development space is crowded and
highly fragmented. In the past three years
alone, employment related to applications
development has increased by 80 percent.
In 2013, the largest four players—King’s
Game, Kabam, Zynga, and Electronic Arts—
account for less than 12 percent of industry
revenue, while the remaining 88 percent is
distributed across over 195,000 publishers
and developers.71
Why is this sector so fragmented?
Entry: Labor accounts for 67 percent of
mobile application development costs. As
such, skillsets and time, not capital, are the
most important resources needed to enter
the market.72 The low level of capital intensity
has also stayed relatively steady over the
past five years.73 The mobile app space has
limited regulation.
Commercialization: With marketplace
platforms like iTunes®, Google Play, and
more recently, Amazon’s Appstore and
Salesforce’s Appexchange, small, thirdparty
participants can easily reach and
distribute their product to a wide range of
potential customers.
Learning: Given the large number of coding
languages (for example, JavaScript, C#, PHP,
and Objective-C) and the continuous changes
in underlying devices and technologies (for
example, near-field communication and radio
frequency tech), mobile app developers must
constantly learn new skills. Individuals now
have access to a wide range of formal and
informal learning tools and communities
through sites such as GitHub, Codeacademy,
and General Assembly.
The hero’s journey through the landscape of the future
30
The impact of regulations on the craft beer industry
In recent years, the US beer industry has been stagnating: Revenue from beer production grew at an average
annual rate of 2.1 percent since 2009, and it is expected to decline 4.1 percent in 2014.74 Craft beer’s volume
share (in beer barrels) of the market, however, more than doubled, from 2.9 percent in 2005 to 6.5 percent
in 2012.75 Even though this represents a relatively small percentage of total market sales, the upward trend in
craft beer growth will likely continue: Demeter Group estimates that craft beer will represent 15 percent of the
industry by 2020.76
The graph below shows the total number of US breweries since 1887. The rise of craft beer started in 1978
when President Jimmy Carter signed H.R. 1337 into law, legalizing the home production of small amounts of
beer. By June 2013, 2,483 of the United States’ 2,538 breweries (nearly 98 percent) were craft breweries.77
Figure 17. Number of breweries in the United States
Source: “Number of breweries,” Brewers Association, http://www.brewersassociation.org/statistics/number-of-breweries/, accessed March 2014.
Graphic: Deloitte University Press | DUPress.com
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
3000
2500
Number of breweries, US
2000
1500
1000
500
2,156
1,092
857
89
2,822
The success of commercial craft brewing and the shift in consumer preferences has led some giants to explore
ways to provide more unique selections of products. MillerCoors has invested in an in-house craft beer branch,
Tenth and Blake, which introduced products such as Blue Moon and Leinenkugel’s to appeal to the growing
craft beer market.78 Others, such as AB InBev, which acquired the Chicago brand Goose Island in 2011, have
used acquisitions to sustain growth by leveraging new brand names, offering craft brewers scale. Goose Island
doubled production from 127,000 beer barrels in 2010 to 230,000 beer barrels in 2012 and achieved national
distribution in 2013, while maintaining “street cred” by maintaining independent marketing and branding.79
US craft breweries still face many barriers. Beer distribution is heavily regulated: Most states require three-tier
distribution systems, leaving craft breweries few alternatives for reaching consumers directly.80 Complicated
regulations based on which state a seller or buyer is operating in limit many craft brewers to the shelf space
and tap handles in the local market.81 Imagine a world where beer could move freely between states and
small craft breweries could easily access niche consumers across the country. Already the role of distributors
is changing. According to Craig Purser, president of the National Beer Wholesalers Association (NBWA),
distributors are “transitioning from being brand-dependent beer wholesalers to [being] brand-building beverage
distribution companies.”82
31
Fragmentation will be a
permanent feature of the
business landscape
Some might argue that fragmentation is
simply a transitional state. After all, every
large company started as a small one that grew
larger either organically or through acquisition.
Similarly, new sectors or product categories
often begin with a large number of players
testing various models before a winning
business model emerges and consolidation
occurs around that model. As a sector matures,
smaller players disappear or are acquired, as
happened in the early days of the personal
computer (PC)83 and automobile. In 1907, 82
new firms entered the US automobile industry,
but by the 1930s, three companies accounted
for 80 percent of the industry’s output.84
If product categories follow an S-curve
adoption pattern, fragmentation at the beginning
of the curve is replaced by concentration
and scale as a category matures. In the past,
it took approximately 25 years for a product
category or sector to go through a complete
life cycle. However, this timeline is getting
shorter.85 Increasingly, institutional and industry
structures do not have time to adjust to
more frequent periods of disruption. In fact,
with technology advancing ever faster, amplified
by the cumulative effects of innovation
and public policy, the S-curves of the product
life cycle are likely to become shorter, and the
periods of stability between disruptions will
largely disappear. This, in itself, will lead to
more continuous fragmentation.
Challenges to growth in
fragmented arenas
On the other hand, not all fragmentation is
tied to sector or product evolution. As niche
operators create businesses focused on product
and service development and commercialization,
they will discover that the same trends
that lowered barriers for them may also limit
the growth potential of businesses like theirs.
As a result, a sustained (not transitory) fragmentation
will prevail in certain parts of the
economy. In areas of persistent fragmentation,
diseconomies of scale will likely discourage
growth for several reasons:
1. The quicker, easier product discovery
and marketplace connections enabled by
technology create a long tail of opportunities,
each with smaller total returns.
Consumers are no longer limited to the
choices within their close proximity.
Instead, as Chris Anderson explains in The
long tail, online sales and distribution let
consumers discover products and services
from around the globe and expand their
preferences and tastes.86 Customers who
once felt satisfied with mainstream options
may often discover they enjoy alternatives
that they didn’t previously know existed.
For example, in 1998, Amazon customers
who viewed the then-contemporary
bestseller Into Thin Air were recommended
the out-of-print mountaineering memoir
Touching the Void. As a result, Touching the
Void started to outsell Into Thin Air two to
one. Over half of Amazon’s book sales now
come from books outside its top 130,000
titles.87 This is good news for the lesserknown
titles, but spreading market share
means that growth potential is moderated,
even for industry leaders. A “hit” today
is much smaller than it was years ago. As
Anderson points out, most of the all-time
top 50 best-selling music albums were created
in the ’70s and ’80s (by acts such as the
Eagles and Michael Jackson); none were
The hero’s journey through the landscape of the future
32
made after 2000. Measured by viewership,
the No. 1 TV show today would not have
made the top 10 in 1970.88
Today’s consumers expect offerings that
exactly fit their needs and lifestyle requirements.
The good news is that digital
technologies allow niche products to reach
consumers. The bad news is that, given
the fragmentation of the consumer base,
it is harder to get an offering adopted by
the mass market, earn market share, and
generate large returns. Indeed, the whole
idea of the “mass market” may become
less relevant as niche market proliferate.
Revenue opportunities may be limited to
capturing a relevant niche segment instead
of an entire market.
2. Increased competition and disruption are
shortening product life cycles, reducing
the total return for each product. Product
life cycles have been compressed and will
continue to shrink due to lower barriers to
entry, the increasing speed of innovation,
and increased competition, thus reducing
the potential returns for each individual
player. As reported in the Shift Index 2013
series of reports, competitive intensity
(as defined by economists to be inversely
related to industry concentration) in the
United States has been increasing substantially
over the past 47 years.89 Additionally,
the topple rate—the rate at which companies
lose their leadership position in the
market—has increased by 39 percent since
1965.90 As a result, new product turnover
has increased substantially. Half a century
ago, companies could expect their product
to remain relevant for 15 years. Today, it is
more likely to be three years, and for some
technology products, relevance may last
only six months.91 This shortening of the
product life cycle puts significant pressure
on traditional go-to-market models, R&D,
and resource utilization.
One factor that is putting pressure on the
product life cycle is a decrease in consumer
loyalty. Consumers are increasingly
willing to switch between brands to find
products that best address their needs.92
For example, going back to the game Angry
Birds, although the iTunes App Store was
the source of the game’s success, it also
opened the door to intense competition.
After spending 22 months on the Top 20
chart of most revenue generating apps in
the US and achieving astonishing growth
(from €6.5 million in 2010 to €75.6 million
in 2011 to €152.2 million in 2012), Angry
Birds’ revenue stagnated in 2013, and new
entrants like Candy Crush Saga and Clash
of Clans, both released in 2012, now occupy
the top slots.93
3. Niche players that scale will have difficulty
retaining creative talent, given the
increasing ability of talent to pursue other
ventures. As highlighted earlier in this
report, the safety nets that used to attract
workers to large, established companies
are rapidly disappearing. As the benefits
of staying employed by a large organization
diminish, top talent will look for
opportunities to increase their autonomy
and creativity. Many may leave for smaller
organizations where they can achieve these
goals. After all, talent is not insensitive to
the Dilbert paradox: While established,
large companies typically state that acquiring
and retaining talent is their No. 1 priority,
cost reductions and layoffs are often
the most common responses to economic
pressures. As an organization scales, it
often becomes focused on efficiency, tightly
33
scripting processes and governance models
and thus limiting workers’ autonomy and
creativity. In addition, because technology
and public policy have been rapidly
reducing barriers to means of production,
commercialization, and learning, it is
often more attractive and less risky for top
creative individuals to pursue autonomous
work arrangements in which they can make
a more direct impact on their industry or
domain. With outside options becoming
more attractive, achievable, and less risky,
why should top talent stay in an environment
that is less rewarding?
In sum, current trends suggest that fragmentation
will be a sustained and even desirable
outcome in the new business landscape.
But not all parts of the business landscape will
fragment. As we’ll discuss below, this fragmentation
in the product design and commercialization
and related arenas creates an
opportunity for more scale- and scope-intensive
businesses to emerge and grow. Platforms
and infrastructures will be needed to support
fragmented production and distribution, and
consumers, talent, and businesses will need
help to navigate the large number of options
available to them.
The hero’s journey through the landscape of the future
34
As fragmented players focus on product
innovation and commercialization, what
will happen to the established companies of
today, and how will they capitalize on their
advantages of scale or scope?
Concurrent with the fragmentation occurring
in the product innovation and commercialization
space, concentration will begin
to take place within parts of the economy
that support niche operators. At a high level,
concentrated players are those companies
that maintain their competitive position by
leveraging scale and scope economics to
provide operational support to fragmented
players. The trends toward fragmentation and
concentration will reinforce one another as
large players find ways to achieve even greater
scale and scope by serving the needs of a growing
arena of fragmented players.
Concentration within a domain,
such as an industry sector, displays the
following characteristics:
• Players are tightly focused on a single business
activity or function
Concentration: Emerging scaleand-scope
operators will fuel
and benefit fragmentation
Figure 18. The journey to the future of the business landscape: Concentration
35
• A significant level of investment is required
to enter and sustain a marketplace position
• Players generate value by providing information,
resources, and platforms to fragmented
players, leveraging resources such
as large-scale technology infrastructure or
big data
Roles that will tend
to concentrate
As performance pressures intensify in
tandem with barriers coming down, fragmentation
will accelerate. Large-scale infrastructure
providers and rich platforms will emerge
to connect these fragmented players with
resources within their ecosystems.
Scale-and-scope operators
Large companies in the concentrating parts
of the economy will adopt roles that require
scale and scope in order to create value for
large numbers of fragmented players.
The first scale-and-scope role is the infrastructure
provider. Infrastructure providers
deliver high-volume, routine process services.
They have far-reaching networks and will likely
serve both business-to-business (B2B) and
business-to-consumer (B2C) needs. Many of
the companies that will fill the infrastructure
provider role will have made large capital
investments in physical infrastructure such
as transportation networks (for example,
UPS and FedEx), manufacturing equipment
(for example, Flextronics), or facilities.
Alternatively, their infrastructure may be in the
form of digital technology or based on scaleintensive
business processes that can extend
across industry verticals, such as routine
human resources (HR) process management
or risk management. Infrastructure providers
will be instrumental to the viable operation
of fragmented businesses, as they can provide
affordable access to services and physical
networks that can only be operated cost-effectively
at scale.
The second scale-and-scope role is the
aggregation platform. Aggregation platforms
enable connections among fragmented players,
helping to dismantle the kinds of barriers to
entry, commercialization, and learning discussed
earlier in this report. These platforms
create connections in one of two ways: Either
they foster connections among participants—
both fragmented and concentrated—in the
ecosystem, or they connect fragmented players
conveniently and quickly to aggregated data
and resources.
Platforms that foster connections typically
target certain types of participants or focus
on a specific purpose. For example, online
marketplaces such as eBay connect sellers and
consumers, while financing platforms such as
Kickstarter connect artists and entrepreneurs
with financiers and social platforms such as
Facebook connect individuals who want to
share knowledge or information with each
other. Additionally, platforms that connect
entities to data or other resources typically
rely on deep, relevant expertise. For example,
PCH International is one of several emerging
platform businesses that help nascent maker
businesses navigate and access the small-batch
or sample factories of Shenzhen, China, based
on a network of connections, experience in the
region, and specific manufacturing knowledge.
The final scale-and-scope role is the agent.
Two types of agents exist: the consumer agent
and the talent agent. Consumer agents serve
as a trusted advisor to the consumer across a
growing array of products and services. Talent
agents connect talent to opportunities and
provide advice to help individuals pursue lifelong
learning and successfully evolve in terms
of their business careers. Driving the need for
agents are the increasingly diverse preferences
and expectations of consumers, employees,
and employers, as well as their growing access
to a wide variety of offerings. Both types of
agents create value by helping people sift
through information and choices to find the
products, services, and opportunities to best fit
their needs.
The hero’s journey through the landscape of the future
36
Figure 19. Scale-and-scope operators
Graphic: Deloitte University Press | DUPress.com
Coders
Consumer Creator
Individual
Niche operators
Scale-and-scope operators
Angels Domain
experts
Artists
Makers
MomandPop
Coders
Consumer Creator
Individual
Niche operators
Angels Domain
experts
Artists
Makers
MomandPop
Manufacturing
Logistics
Digital tech
infrastructure
Facilities
management
Back office
Risk management
Social
Content
Data
Broker/market
Finance
Consumer
Talent
Infrastructure
providers
Aggregation
platforms
Agent
businesses
The agent role has always existed, from the
personal wealth manager to the Hollywood
agent representing celebrities. What has
changed with the advance of technology is the
ways in which agents can operate and their
consequent increase in reach. Agents can now
function in a virtual format—from Pandora’s
music recommendations to Sosh’s event recommendations—to
cost-effectively address the
needs of the mass market rather than targeting
just the very affluent.
A talent agent employs a deep understanding
of an individual’s learning and career goals
to provide proactive, holistic career coaching
and learning services. The talent agent’s goal
is to help the individual learn faster from new
situations or new connections in the everchanging
landscape. One factor driving the
need for talent agents is the increasing speed at
which skills lose relevance, primarily as a result
of rapid advances in technology. With no signs
that technological or related business change
will slow down, individuals’ skills will be ever
more subject to obsolescence, and workers
will face an unprecedented need to almost
continually build new skillsets. As a result,
37
lifelong learning will become a permanent part
of our professional lives, and talent agents will
play an increasingly important role in helping
people and organizations learn faster and
improve performance.
Consumer agents will be particularly
important for connecting consumers to
the work of fragmented creators. As agents
improve their ability to analyze customer
data to generate recommendations for specific
individuals, the highly specialized niche
offerings of fragmented players will rise to the
surface. For example, Netflix is developing
ever more sophisticated algorithms to predict
movie-watchers’ tastes, allowing it to provide
recommendations for independent films that
users likely would not have discovered on their
own. Similarly, LinkedIn leverages the data
each professional provides to recommend job
opportunities and professional connections.
Regardless of format—physical or virtual—
agents will share several defining characteristics,
described in figure 20. At this time,
however, no pure-play agents exist that are
completely brand-agnostic, anticipate customer
needs with proactive recommendations,
and are widely accessible to a mass market.
Figure 20. Characteristics of agent businesses
The ability to recommend
services, products or opportunities
that best meet the
needs of the individual,
irrespective of the source or
provider of the options
Low High
Recommends services/products/
opportunities from within the
organization’s portfolio
The agent business
Agnosticism
Recommends services/
products/opportunities from
across the entire marketplace
The ability to actively
recommend services, products
or opportunities based on a
deep understanding of the
individual
Low High
Responds to customer requests
for products/services, seeking
to find the best match
Anticipation
Proactively makes
recommendations to an
individual based on a deep
understanding of
the individual
The accessibility of agents to
individuals with respect to
price, availability, and format
Low High
Accessible only to a limited
number of individuals (high
cost or limited availability)
Democratization
Easily accessible to a wide
range and large number of
individuals (low cost and
wide availability)
Graphic: Deloitte University Press | DUPress.com
The hero’s journey through the landscape of the future
38
The new business landscape has one
final role: the mobilizer. Mobilizers
will become increasingly important, especially
in fragmented areas of the economy,
in connecting disparate participants within
the ecosystem.
Mobilizers are entities that orient participants
toward a common goal by creating an
environment for a sustained, shared collaboration
among ecosystem participants. Rather
than aggregate participants and broker transaction-based
relationships (as do aggregation
platforms), mobilizers enable a web of sustained,
complex interactions that evolve over
time to achieve focus, drive specific initiatives,
and accelerate learning.
Mobilizers add value in three ways:
• Frame explicit, motivating goals
• Provide governance that
enhances interactions
• Facilitate collaboration
Mobilizers: Connecting and
mobilizing the ecosystem
Figure 21. The journey to the future of the business landscape: Mobilizers
39
Coders
Consumer Creator
Individual
Niche operators
Scale-and-scope operators
Angels Domain
experts
Artists
Makers
Momandpop
Manufacturing
Logistics
Digital tech
infrastructure
Facilities
management
Back office
Risk management
Social
Content
Data
Broker/market
Finance
Consumer
Talent
Product/service
Infrastructure
Customer
relationship
Graphic: Deloitte University Press | DUPress.com
Infrastructure
providers
Aggregation
platforms
Agent
businesses
Coders
Consumer Creator
Individual
Niche operators
Scale-and-scope operators
Angels Domain experts
Artists
Makers
Mom- and- pop
Manufacturing
Logistics
Digital tech
infrastructure
Facilities
management
Back office
Risk management
Social
Content
Data
Broker/market
Finance
Consumer
Talent
Product/service
Infrastructure
Customer
relationship
Infrastructure
providers
Aggregation
platforms
Agent
businesses
Mobilizer
Flash orgs
Creation spaces
Communication
of action
Open source
Process networks
Infrastructure
standard setter
Mobilizer
Figure 22. The role of mobilizers
Frame explicit, motivating goals
Mobilizers unite participants—often with
different motivations, capabilities, and cultures—within
an ecosystem under the banner
of a common goal. For instance, Code
for America, a non-profit that helps residents
and governments harness technology to solve
community problems, was created explicitly
to fill this role. With just 30 employees, the
nonprofit has mobilized a network of thousands
of volunteers, government officials, civic
organizations, and entrepreneurs across more
than 50 US cities to improve city life through
code. Among their accomplishments: improving
the delivery of social services, providing
real-time access to mass transit arrival
times, making it easier for small businesses to
navigate local requirements, generating maps
of flooding to help citizens stay safe, giving
residents visibility and input into land-use
planning, putting health inspections on restaurants’
Yelp reviews, and improving government
transparency and civic engagement.94
The hero’s journey through the landscape of the future
40
Provide governance that
enhances interactions
Mobilizers create the infrastructural support
for the maintenance and governance of
connections between players in the landscape
over time. For example, Li & Fung—a global
consumer goods sourcing company—provides
a governance structure for its vast network of
suppliers by specifying standardized interfaces
for work modules. Li & Fung has created standards
around how each partner should operate
with other partners in the ecosystem (for
example, quality requirements, conflict resolution
practices), thereby facilitating the flow of
transactions. This system of governance makes
it possible for the vast network of customers
and suppliers within the Li & Fung network to
operate with a high degree of efficiency.
Mobilizers may also take the form of nonprofit
organizations, which can exert tremendous
influence over businesses by supporting
an industry ecosystem with a governance
infrastructure. The Internet Corporation for
Assigned Names and Numbers (ICANN) does
this by setting security and interoperability
standards for the Internet. ICANN thereby dictates
how players can interact on the Internet
and determines the rules by which they do so,
providing a valuable service to the vast number
of organizations and individuals that rely on
the Internet.
Facilitate collaboration
Mobilizers forge connections across players
with complementary talents and enable goaldirected
collaboration. For example, when Li
& Fung’s customers request a red sweater, the
suppliers know exactly what shade of red to
use. Commonly understood requirements help
suppliers collaborate more effectively.
Going back to Code for America, the
nonprofit has not only mobilized a network of
thousands of largely unpaid parties, but also
facilitates collaboration between two seemingly
distinct groups of professionals: coders and
policy makers. Code for America has catalyzed
rapid solutions to problems that otherwise
might have taken exorbitant amounts of funding,
years of planning, and prohibitive amounts
of bureaucracy.95
One of the key benefits of collaboration
is the exchange of tacit knowledge and the
facilitation of learning across an ecosystem.
For example, Ashoka, the largest network
of social entrepreneurs worldwide, acts as a
mobilizer through its Changemaker program.
Ashoka Changemakers convenes and connects
Ashoka’s fragmented network of social innovators
via an online, open-source platform that
conducts challenges, enabling social entrepreneurs
and partners to share ideas and exchange
resources and analyses aimed at solving
complex social problems, build relationships,
and document effective in-country practices
to recreate in other regions.96 Some mobilizers
facilitate learning more passively through the
thoughtful creation of spaces, venues, or events
that bring fragmented players together to connect
and exchange knowledge. TechShop, for
instance, was created to provide infrastructure
for individuals and small businesses seeking
to create their own products. However, in
addition to providing access to tools (physical
platform), TechShop is starting to act as a
mobilizer for knowledge-sharing across the
maker community. For example, TechShop’s
members are encouraged to interact with each
other, and coaches—or “dream consultants”—
help members learn how to use machines,
monitor the community culture, and facilitate
interactions among members.97
The future of the business
landscape map
A new business landscape will emerge (see
figure 23) as the roles described above map
into three types of businesses: product/service,
infrastructure, and customer relationship. Each
of the business types will have its own focus,
economics, and value in the ecosystem.
41
Some concentrated players will create infrastructure
businesses, acting as either infrastructure
providers or aggregation platforms.
Infrastructure businesses compete on scale,
providing high-volume, routine processes (or
products) that support fragmented players (as
well as other large companies) as they go to
market, execute financial transactions, or connect
with customers.
Other concentrated players will create customer
relationship businesses, filling the role of
consumer agent or talent agent. They will act as
trusted advisors to consumers or talent, bringing
offerings to individuals based on the agent’s
determination of which products, services, or
opportunities best meet a particular customer’s
need. The customer relationship business
competes on its scope of relationships. The
Coders
Consumer Creator
Individual
Niche operators
Scale-and-scope operators
Angels Domain
experts
Artists
Makers
Momandpop
Manufacturing
Logistics
Digital tech
infrastructure
Facilities
management
Back office
Risk management
Social
Content
Data
Broker/market
Finance
Consumer
Talent
Figure 23. Map of the future business landscape
Product/service
Infrastructure
Customer
relationship
Graphic: Deloitte University Press | DUPress.com
Infrastructure
providers
Aggregation
platforms
Agent
businesses
Mobilizer
Flash orgs
Creation spaces
Communication
of action
Open source
Process networks
Infrastructure
standard setter
Mobilizer
The hero’s journey through the landscape of the future
42
more it knows about a customer, across all his
or her activities, the more helpful it can be in
recommending meaningful options. Moreover,
the more individuals a customer relationship
business works with, the more insights it can
offer based on the patterns it observes among
others in similar circumstances.
On the other side of the landscape, fragmented
businesses—the niche operators—will
tend to create product/service businesses
focused on developing and delivering creative
new products and services. These businesses
will compete on speed and creativity, anticipating
evolving customer needs and quickly
creating distinctive new products to meet
those needs.
In this business environment, mobilizers
will orchestrate the various business types in
the ecosystem.
These three business types—infrastructure,
customer relationship, and product/service—
exist today, some in pure form but also bundled
together within most large enterprises. As
we’ll discuss, large enterprises will increasingly
have to choose which business type to pursue,
which will dictate where they land in the new
business landscape.
Both the pressures introduced by the Big
Shift and the barriers removed by forces in the
Big Shift are beginning to dramatically alter the
business landscape, introducing new roles that
will lead to new types of businesses and new
dynamics among marketplace players, large
and small. Some industries, such as software
development, have already been impacted by
the trend toward fragmentation. Other sectors
are evolving more slowly, but they too will be
affected as technology continues to disrupt
business models and industries.
In light of this evolving environment, what
will be the future for Fortune 500 companies?
Will they see fragmented players as a threat
and a competitive problem that they need to
try to shut down? Or will they see fragmentation
as an opportunity to work with a more
diverse array of partners to accelerate innovation
and learning and achieve sustainable
performance improvement?
43
As technology continues its exponential
advance, amplified by public policies
that promote the movement of capital, labor,
product, and resources, increased volatility and
competitive intensity will likely prevail in the
global business environment. Companies will
need to refocus from maximizing operational
efficiency to accelerating learning. Efficiency
improvements are plagued by diminishing
returns. However, an environment that cultivates
learning and accelerates performance
improvement can turn Big Shift pressures into
opportunities that create increasing returns.
For companies, focus is often a prerequisite
for learning. However, many established companies
today play multiple roles and participate
in multiple, if not all, types of the businesses
discussed: product/service, infrastructure, and
customer relationship. For many companies,
pursuing all three business types concurrently
will become less and less sustainable. What
then should these incumbents do in order to
What do you do? Figure out
where to play and play it well
Figure 24. The journey to the future of the business landscape: What do you do?
The hero’s journey through the landscape of the future
44
begin positioning themselves to effectively
participate in the future business landscape?
We believe that they should:
• Understand the business types the company
participates in today
• Where possible, focus more tightly on
either the infrastructure or customer relationship
business (that is, scale-and-scope
roles)
• Reframe interactions with fragmented players
from competition to collaboration
Understand the business
types the company
participates in today
Most companies today operate multiple
business types (for example, product/services,
infrastructure, and customer relationship)
within a single organization. Such diversity is
often viewed as a strategic advantage, given
the uncertainty of a rapidly changing world;
a portfolio is comforting. However, when a
company participates in too many business
types at once, it can lack focus. Diverse groups
compete for resources, chafe under inappropriate
economics or metrics, and clash culturally.
The reality is that the three business types
found tightly bundled into large enterprises
today have very different economics, skill sets,
and cultures.
• Infrastructure management business:
Infrastructure management businesses are
driven by powerful scale economics, require
skills to manage high-volume, routine
processing activities, and have cultures that
prioritize standardization, cost control, and
predictability. The facility or asset trumps
the human being.
• Product/service business: Product/service
innovation and commercialization businesses
are driven by economies of time—
speed to market—and, as a result, require
skills focused on rapid iteration in design
and development so that market opportunities
can be quickly identified and addressed.
The culture prioritizes creative talent—
everything is oriented toward supporting
the creative “stars.”
• Customer relationship business: Customer
relationship business types are driven by
economies of scope—building broader
relationships with a growing number of
customers. This business type requires skills
related to gathering and analyzing large
amounts of data to develop a much deeper
understanding of the evolving context of
each customer. The culture of this business
type is completely focused on the customer—the
customer is king no matter how
much internal turmoil and heartburn meeting
customer requirements might create.
Is it any wonder that the friction across
these three business types within a single
enterprise is intense and continuous? Let’s just
take a couple of examples of how this friction
leads to sub-optimization of performance. If
a company really wants to build trust with its
customers through a customer relationship
business type, it should be prepared to connect
its customers with the best products and
services to meet their individual needs, even if
that involves recommending products and services
developed by other companies. Yet, the
product/service business type within the company
will want to restrict the choice offered to
customers so that it only involves the products
and services developed by that company.
On the culture front, product designers
may have contempt for the “suits” who try to
confine their creativity by seeking standardization
and cost savings. Or salespeople may view
back-office operations as an obstacle to effectively
serving the unanticipated and unique
needs of their customers. Unfortunately, in
a world of mounting performance pressure,
companies cannot afford to sub-optimize their
performance as they seek to navigate interminable
organizational conflicts. Instead, they
45
should focus their business activities so that
they can maximize their agility, flexibility, and
ability to learn.
If companies wish to continue in multiple
businesses, they must develop a clear and distinctive
performance leadership in each—simply
being at parity with others will no longer be
sufficient. Otherwise, they may be vulnerable
to more tightly focused competitors that are
truly performance leaders in the role they have
chosen and that benefit from accessing leading
capabilities in the roles they have not chosen.
These business types will each have very
different cultures and resource needs that are
likely to conflict with each other. But there are
other reasons to question the wisdom of keeping
these three business types tightly bundled
together within a single enterprise, no matter
how big it might be. For example, the distinct
skills and capabilities required for each business
type are likely to develop more rapidly if
the people engaged in this business type are
exposed to a broader range of business problems
and opportunities than they are likely to
encounter if they are only serving other parts
of one company. Thus an IT department within
a consumer products company will have less
opportunity for rapid learning than if it provided
support to a broader range of consumer
product companies, as well as industrial product
and financial services companies.
Here’s another challenge. Employees working
on IT in a consumer product company
will tend to be treated as support—they will
have lower status than the product designers
and product managers who are coming
up with creative new products and delivering
them to market. Leading IT talent is likely to
find working in such an environment far more
frustrating than if they could work for a more
focused infrastructure management business
whose only business is providing IT services to
other companies.
The functional, divisional, or matrix structures
of many Fortune 500 firms today mix
the different types of businesses, leading to the
competition for resources and sub-optimization
described above.
Focus can accelerate and amplify learning
opportunities. It reduces the risk of timeconsuming
and energy-draining cultural and
political battles within a single institution.
It provides exposure to a broader and more
challenging array of customers and use cases
that can improve and develop skills. It helps
to attract and retain leading talent who now
clearly perceive they are core to the success of
the business—now, they are heroes engaged in
the primary activity of the company. Finally,
focus can provide opportunities for the company’s
talent to collaborate with leading talent
in other, equally focused enterprises.
How does a company move toward focus?
The first step is to understand what types of
businesses it operates today. The next is to
separate those businesses operationally and
organizationally so that each unit is focused
around a single business type: product/service,
infrastructure, or customer relationship.
By consolidating business types with similar
cultures and economic drivers, companies
can reduce distractions and start gaining
focus. For example, all infrastructure business
activities, such as manufacturing, logistics,
and finance, could be grouped together into
a business unit that administers high-volume
routine processes.
Where possible, focus on the
infrastructure or customer
relationship business type
Eventually, many companies will realize
that creating separate units around each business
type, while helpful in the short run, is not
sustainable in the long run. Competition will
force them to become more focused. How?
By unbundling the different types of businesses,
choosing one of the core business types
to pursue, and using the ecosystem to access
services from leading players in the other two
business types.
The transition from the current state of
multiple roles to one of focusing on a single
role is not easy. Focus requires letting go of
The hero’s journey through the landscape of the future
46
certain capabilities and relinquishing absolute
control in favor of exerting influence within a
larger ecosystem. Historically, many companies
derived value in the marketplace through
control—of product features, the distribution
channel, or customer relationships. However,
in the rapidly changing future environment,
performance improvement will come not
from control but from opening up, embracing
knowledge flows, maximizing learning, and
accessing leading capabilities and resources
wherever they reside. Those companies that
can focus on one business—product/service,
infrastructure, or customer relationship—
will be able to connect with and learn from
other focused players and collaborate to solve
performance issues.
Many organizations today have already
begun to focus. The increase in the business
process outsourcing (BPO) and IT outsourcing
(ITO) markets indicates that companies
realize that focused vendors can perform
high-volume, routine process activities better
and at a lower cost. The BPO market has
increased since 1995 both in terms of revenue
and in terms of the number of contracts. The
number of ITO contracts has also continued
to increase since 1995, although total ITO revenue
has recently declined as a result of market
commoditization and contract rate pressures.
Additionally, according to a 2010 IDC survey,
approximately 64 percent of companies
that manufacture products outsource their
manufacturing. Forty-three percent of those
who already outsource stated that they expect
their company’s current outsourcing levels to
increase, while 45 percent said they expect it to
remain the same.98 Finally, third-party logistics
providers (3PL) recorded an estimated $250.2
billion in revenues from Global Fortune 500
companies in 2012—a 67 percent increase
from 2005.99
Most outsourcing activity today is still
driven by a short-term focus on cutting costs
or shifting fixed costs to variable costs, rather
the pursuit of learning or leading capabilities.
However, while the 2012 Deloitte Outsourcing
survey indicated that reduction in operating
costs was still the No. 1 reason for outsourcing,
“improvement in customer service” and
“gaining a competitive advantage” were the
No. 2 and No. 3 reasons for outsourcing, with
73 percent and 49 percent of respondents,
respectively, citing them as “important” or
“very important.”100 This indicates that the
decision criteria for outsourcing may be
expanding and shifting to include learning and
performance improvement.
These outsourcing trends also suggest that
many companies are already in the first wave
of unbundling—decoupling the infrastructure
businesses from the rest of the organization.
Some have begun to realize that focusing on
core capabilities and unbundling other functions
allows both the company and the unit it
unbundles to accelerate learning and performance
improvement. For example, Cognizant
was initially created as an internal technology
unit within Dun & Bradstreet in 1994.
By 1996, Cognizant began serving external
clients, and it subsequently held its IPO on the
NASDAQ in 1998. While unbundling from
Dun & Bradstreet enabled Cognizant to focus
on its core capabilities, Cognizant has since
consolidated with complementary companies
to broaden its scope—all within the infrastructure
type of business. Between 2002 and 2012,
Cognizant made 17 acquisitions, broadening
its scope from providing IT services to the
financial industry into providing these services
to the retail, manufacturing, logistics,
and health care industries. Cognizant’s clients
increased 423 percent during this time to
over 800 individual clients in 2012. Revenues
simultaneously skyrocketed from $368 million
in 2003 to $7.3 billion in 2012.101
Similarly, General Electric (GE) decided
to spin off its back-office processing unit—
Genpact—in 2005. Genpact became a publically
traded company (NYSE: G) in 2007.
One of the motivations for this spin-off was
to expose the employees of the unit to a more
diverse array of customer needs and performance
issues, giving them an opportunity to
learn faster than if they were simply focused on
the needs of one company. Since its spin-off,
47
Genpact grew from approximately 32,000
employees and a revenue of $823 million to
over 62,000 employees and revenues of over $2
billion in 2013.102
The next wave of unbundling is the decoupling
of the customer relationship and product/service
business types. This is at a much
earlier stage of development, but we can begin
to see some early signals in arenas like consumer
products and pharmaceuticals.  For
example, as the world’s innovation landscape
has changed, so has Procter & Gamble’s (P&G)
strategy for innovation. This started nearly
15 years ago as P&G realized that to achieve
the growth levels recommended for most
mature companies they could no longer rely
solely on  internal R&D efforts, and as such,
the company known for inventing the first
disposable diaper and first synthetic laundry
detergent, turned to identifying innovation
outside the parameters of its four walls. In
March 2000, the CEO, A.G. Lafley, decided
to harness the change that was occurring in
the innovation landscape within consumer
products to change how P&G was identifying
new product ideas. Noticing that most of the
impactful innovation was being done at small
and midsized entrepreneurial companies –
Lafley made it the company’s goal to acquire
50% of its innovation from outside the P&G
walls.103 Launching the “Connect and Develop”
program in attempt to tap into the ecosystem
of innovation around the company, P&G has
developed a systematized approach to find
innovative product ideas, to bring them in, and
to turn them into actual products harnessing
P&G’s already developed manufacturing, marketing,
and purchasing capabilities. By 2006,
35 percent of new products had elements that
originated outside of P&G (up from about 15
percent in 2000) and 45 percent of the product
development initiatives had elements that were
discovered externally.104
Similarly, large pharmaceutical companies
are increasingly sourcing their products from
more specialized third parties and leveraging
their own expertise in serving health care
providers. For example, in 2013, six of the
top 10 licensing deals in the pharmaceutical
industry were broad technology platform
deals that established research collaborations
between small, specialized companies and
big pharmaceutical companies. This signals a
continuing trend toward externalized R&D.105
Many pharmaceutical companies have also
established relationships with contract research
organizations (CROs). Despite representing a
relatively small share of the global R&D market
(9.6 percent in 2014), the global CRO market
has grown at a rate of 5.5 percent and is projected
to increase at a rate of 7.9 percent from
2014 to 2018.106
The likely trajectory here is that companies,
facing mounting performance pressure, will
seek to supplement their own internal product
development capabilities by sourcing and
licensing products from third parties so that
more and more of their revenue is generated
from externally developed products. Over
time, these companies will likely focus more on
understanding evolving customer needs so that
they can be more effective in sourcing the best
products. At some point, it is likely that these
companies will begin to question whether they
need to source or license these products at
all and whether they can become even more
helpful to their customers by connecting them
to whatever products and services might be
most relevant, regardless of who develops and
produces them.
Once companies focus around one role,
they will need to build trust-based, loosely
coupled relationships with others in their
ecosystem to gain access to capabilities that are
no longer in-house. A key to learning faster
through focus is connecting with leading talent
in other focused companies as well. For
example, many traditional large enterprises are
finding that the expertise of contract manufacturers
can be harnessed to help come up
with creative new ideas to design products that
can be manufactured with fewer defect rates.
More fragmented product/service businesses
will benefit from the holistic view of individual
customers and customer segments that
customer relationship businesses will be able
The hero’s journey through the landscape of the future
48
to develop, giving them more insight into the
emerging needs of customers.
It is important to note that some Fortune
500 companies will not be able to unbundle
their businesses—at least not right away—due
to regulatory requirements, business differentiation,
or internal structures (see figure 25).
For example, industries with high liability
risk such as financial services and aerospace
& defense are subject to forces that may slow
down or even prevent companies from outsourcing
parts of the supply chain or even
periphery business functions. For example,
the US government has implemented several
regulations to ensure security and control
over the supply chain for vendors that provide
information technology services to the government
agencies. These rules require vendors
to fully understand the activities that occur
throughout their supply chains—especially the
amount of foreign sourcing. Vendors are also
required to create governance and processes to
prevent any security risks that may occur as a
result.107 Due to these regulatory requirements,
outsourcing supply chain activities may be difficult
for some vendors.
Additionally, companies that are on the
forefront of industry development and do not
yet have partners or suppliers that can meet
their needs may need to remain bundled, at
least in the early stages of market development,
in order to continue innovating. For example,
Amazon invested in developing same-day
delivery capabilities to offer customers an
option to receive their online purchases the
same day the purchase is made. None of the
existing logistics vendors provided these offerings
at the time.108
Some industry players also rely on being
bundled as a source of competitive differentiation
due to considerations of proximity or
the need for extensive collaboration during
Figure 25. Factors that create exceptions to the need to unbundle
Graphic: Deloitte University Press | DUPress.com
Regulatory
requirements
Cutting-edge
capability
Nature of
design and
manufacturing
Cuture of
learning
Company elements
that create potential
exceptions to the
need for unbundling
Regulations call
for integration
Organization faces
liability or regulatory
risk associated with
giving up control over
parts of or the entire
supply chain
Learning occurs
faster inside company
Internal processes and
structures allow for
more rapid tacit
knowledge sharing
due to common
ontology, culture,
and norms
Design and
manufacturing are
highly integrated
Design and
manufacturing
processes require
a high degree
of integration
Ecosystem players
are unable to meet
requirements
Organization’s
capability is at the
forefront of industry
development and
thus no qualified
suppliers exist
49
product development and testing. For example,
Corning—a specialty glass and ceramics
manufacturer—has a tightly integrated manufacturing
and R&D process. This is largely
due to the deep interdependence between the
design of its glass products and the design of
its manufacturing processes and operations.
This deep interconnection between design and
manufacturing, however, is unusual.
Finally, companies that have embraced
cross-functional learning and have structures,
processes, and governance in place to allow
various types of businesses to collaborate and
share tacit knowledge do not necessarily need
to unbundle—at least while the company’s own
learning infrastructure is more robust than that
of the ecosystem. These are companies that
facilitate massive amounts of implicit and tacit
knowledge flows across radically different silos
through a shared culture, shared practices, and
shared appreciation for diverse backgrounds
and perspectives. In these environments, tacit
learning from failures is valuable and can be
shared in ways that a broader ecosystem with
diverse languages and practices does not allow.
Few companies have established these structures
so far.
In any case, companies that choose to pursue
multiple business types must be convinced
that they can truly be leaders in all aspects.
While certain situations may warrant remaining
bundled, companies that decide to do so
should understand which types of businesses
they are in and align their operations and
organizations around these types of businesses.
Increasingly, as more focused and innovative
players emerge, even these companies could
face pressures that cause them to unbundle.
Understanding what businesses a company
participates in, and focusing the operations
and organization on the business types, is
the first step to success in the business landscape
unfolding in the era of the Big Shift.
Many large companies may need to unbundle
for greater focus. Next, companies should
reevaluate their relationship with fragmented
players—competition is unproductive in
areas where fragmented organizations have
a structural advantage. In those areas, large
companies should devote resources to building
infrastructures, aggregation platforms,
or agent capabilities in order to connect and
enhance fragmented players’ efforts. In short,
large companies should define what scale or
scope activity they do best and establish deep,
trust-based relationships with other ecosystem
players—including niche operators—in order
to deliver more value.
Reframe interactions with
fragmented players from
competition to collaboration
Many of today’s large enterprises are likely
to believe that the product/service business is
their core competency, and to dedicate most of
their resources to developing and commercializing
new offerings. However, fragmentation
in the business landscape is likely to be most
pronounced in this business type, driven by
reduced barriers to entry, commercialization,
and learning. This puts large enterprises that
choose to focus on this business type in a challenging
environment. They may be fighting a
losing battle since the competencies required
to keep up with rapidly changing customer
needs and the shortening product life cycle will
increasingly reside with smaller, fragmented
players, which are closer to the consumer
and can provide personalized service due to a
deeper understanding of customer needs. With
a lower minimum efficient scale and lower
fixed costs, fragmented players are also more
nimble. By accepting that fragmented players
have the advantage in this space, and scaling
down product development efforts in favor of
developing mutually beneficial relationships
with niche product/service businesses, large
enterprises can maintain access to innovative
products and services.
Most of the value in this new business
landscape will come from the relationships
within the ecosystem. Large, established
companies and small, fragmented entities can
each benefit in meaningful ways from working
together. Concentrated players should take a
The hero’s journey through the landscape of the future
50
different approach to the way they collaborate
with niche operators, depending on the
business type.
• Evolve from a product to a platform business:
A large enterprise might leverage the
fragmented landscape of niche product
designers/vendors evolving its own products
into platforms that invite the participation
and contributions of specialized
product creators. Increasingly, the value to
the customer will come from the more specialized
products and services available on
the platform. For example, since the launch
in 2008 of the iOS Software Development
Kit, Apple® has provided the tools and
content needed for third-party developers
to become engaged with the mobile
ecosystem by developing on top of the core
smartphone operating system to create
and distribute applications.109 Similarly,
Google had also launched the Android
Open Source Project (AOSP) in an attempt
to bolster the community of developers,
coders, and even device manufacturers on
its Android operating system.110 Combined,
these two platforms have created an arena
for players of the fragmented landscape to
create and share their products.
However, the opportunities to evolve products
into platforms are not limited to the
software development space. A furniture
manufacturer, for example, can create basic
designs and then invite a broad set of makers
and craftspeople to enhance and tailor
the core products for particular market
niches and even individual uses. Retailers
can use their brick-and-mortar or online
stores, as well as their brand, as a platform
for local designers and niche makers to
collaborate. One early signal is J. Crew’s “In
Good Company” initiative, which provides
select smaller brands with floor space in
J. Crew’s clothing stores, giving J. Crew
customers access to curated products from
other brands that uniquely fit with J. Crew’s
aesthetic and product line.111
• Improve utilization of facilities through
partnerships: If a large enterprise chooses
to focus on an infrastructure business type,
it can leverage a broader ecosystem of fragmented
players by offering elements of its
scale infrastructure operations as a service
to smaller enterprises that need access to
scale facilities. Consider State Street Bank,
which evolved from a large enterprise to
a more focused infrastructure business.
Founded in 1792, State Street Bank started
out as a conventional bank, but by the
1970s, the bank’s large-scale back-office
processing operations were its primary
advantage over smaller rivals. The company
decided to focus on developing back-office
processing capabilities in diverse areas
such as investments, trusts, and securities
processing—and offer these capabilities on
a contract basis to other financial institutions.
State Street ultimately decided to
shut down its traditional commercial bank
operations and focus exclusively on growing
its infrastructure outsourcing business.
State Street found growth by leveraging its
scale in infrastructure, and in doing so, it
also provided access to the scale resources
that smaller financial services companies
needed to commercialize their products,
reach customers, and compete with
larger banks.112
• Connect with fragmented players to
understand trends: Companies that choose
to focus on the customer relationship business
type can deliver more value to their
clients by developing relationships with
fragmented domain experts and curators.
These more specialized experts and curators
can help the larger enterprise keep up with
the latest developments in the rapidly evolving
fragmented product/service businesses
that might be relevant to their clients. The
companies that choose to play the roles of
either consumer or talent agent will also
need to develop partnerships with aggregation
platforms that expand access to the
51
broadest array of product and service offerings
from specialized providers. Given the
expanding array of options and the rapid
evolution of these options on these platforms,
the customer relationship business
will benefit by assembling a rich ecosystem
of more specialized domain experts and
curators to surface the most relevant and
valuable options within the context of the
deep understanding of individual needs and
context developed by the customer relationship
business. At the same time, fragmented
domain experts and curators will have valuable
access to data and customers through
their interactions with the customer relationship
businesses. For an indication of the
potential opportunity here, we might look
at some of the specialized consumer agents
who serve very affluent customers today.
For example, wealth management advisors
often develop a network of investment specialists
in particular areas like bond investments
or real estate investments to help the
wealth management advisors connect their
clients with the most promising investment
opportunities given the specific needs and
context of each client.
Regardless of the business type a company
chooses, it should access a larger ecosystem
of third-party talent that can help it address
challenging performance issues and emerging
market opportunities by coming up with
creative ideas and approaches to pursue. As
the Silicon Valley entrepreneur, Bill Joy, once
observed: “No matter who you are, most of
the smartest people work for someone else.”113
Any company that does not find a way to tap
into that external talent will increasingly find
itself operating at a competitive disadvantage
with companies that are more aggressive on
this front.
A growing number of companies are
emerging to provide platforms that help
companies connect with relevant third-party
expertise around specific business problems or
performance issues. InnoCentive was one of
the pioneers in this area, helping researchers
in the R&D companies of larger enterprises to
connect with a diverse ecosystem of scientists
and technologists to solve challenging research
problems. More recently, Kaggle, an online
crowdsourcing competition site, connects
individual data experts with large companies
that have tough data science problems they
need help solving. Kaggle facilitates the process
of making corporate data available to a crowd
of data scientists, engineers, mathematicians,
and other specialists seeking opportunities to
do challenging work with large data sets. While
cash prizes are awarded for each challenge,
many of Kaggle’s “crowd” are primarily interested
in opportunities to solve problems about
which they are passionate while simultaneously
gaining experience and honing their craft.
Tapping into the ecosystem to crowdsource
ideas may be the first step for many companies.
The next step might be to develop loosely
coupled longer-term relationships with smaller
organizations. Some Fortune 500 companies
have already been proactively forming
loose partnerships with fragmented players
to crowdsource innovative ideas. Through
partnerships with organizations like Local
Motors, Quirky, and GrabCAD, GE has made
multiple efforts to connect with online communities
to access and develop designs for
new products. Through GrabCAD, GE fielded
nearly 700 submissions from around the world
to a challenge involving the redesign of a metal
jet engine bracket with the goal of making it 30
percent lighter while preserving its mechanical
integrity. The winner was an engineer from
Indonesia who was able to reduce the weight of
the bracket by 84 percent.114
While the larger companies benefit from
these crowdsourcing initiatives and platforms,
the fragmented community of experts also
benefits by getting better visibility into research
problems or business problems that map to
their own area of expertise. This is one example
of how ecosystems of relationships will evolve
to help all participants to learn faster by
working together.
The hero’s journey through the landscape of the future
52
We began our journey with
three questions:
1. Which parts of the economy
are fragmenting?
With fragmentation, we see a proliferation
of small players in a domain, each with a
small addressable market within a specific
niche. Collectively, these players address
a diverse spectrum of client and market
needs. Crucially, both the number of players
and the number of niches are increasing
within the domain. No one player
has enough market share to influence the
direction of the domain over the long term,
and only a modest level of investment is
required to enter the market and maintain
a viable business. These players are marked
by “diseconomies of scale”: The bigger they
get, the more challenging it is to stay in
the business.
Where is this happening? We expect
increased fragmentation in those areas of
the economy that are focused on product
innovation and commercialization.
It should be especially prevalent in markets
and industries where technological
advances and public policy liberalization
have reduced barriers to the means of production,
commercialization, and learning.
2. Which parts of the economy
are concentrating?
Concentration refers to the emergence of
large-scale players that are focused on a
single business activity or function. Because
of significant economies of scale and scope
as well as the potential for network effects,
certain business roles will tend to become
concentrated: infrastructure providers,
aggregation platforms, and agent businesses.
Concentration will occur in areas
of the economy focused on infrastructure
and customer relationship businesses where
scale and scope provide an advantage.
3. How will various ecosystem
players interact?
There are two broad categories of interaction
in this ecosystem: transactions between
the fragmented and consolidated players
and broader collaboration among all players
across the ecosystem.
In the former, fragmented players rely on
consolidated players’ services for their
very existence through information, scale
resources and platforms (for example, cloud
services, online marketplaces). In turn,
consolidated players need fragmented players
to purchase their services. Fragmented
Conclusion
53
players also provide concentrated players
with agility and diverse innovation.
Each business model fuels the other in a
symbiotic relationship.
In the latter, mobilizers bring the entire
ecosystem together for ongoing collaboration
and learning, beyond a series of
repeated transactions. Mobilizers enable
both fragmented and consolidated players
to work together more effectively to create
new knowledge and drive more rapid
performance improvement.
What does this mean
for your company?
The answers will be different for each company,
and the pace and breadth of change will
vary based on the industry’s degree of regulation
and openness to innovation. However, all
companies should systematically assess fragmentation/concentration
trends now. In those
industries or domains where fragmentation
is already occurring, companies will need to
move quickly to reposition. In a world where
the pace of change is accelerating and competition
intensifying, it is increasingly risky to be
complacent or to put off the hard decisions that
may be required to prosper in this changing
environment. This assessment is not just a onetime
exercise; trends toward fragmentation
and concentration need to be continuously
monitored, as competition and disruption can
come from unexpected regions, industries, and
technologies. Look for early signals in the form
of emerging disruptions and the significant
erosion of barriers over time.
All players must understand what roles they
currently play, where they want to be, and what
assets they can leverage to get there. Large
companies—as well as small companies looking
for growth—cannot afford to ignore the
dynamics around fragmentation and consolidation;
they must pinpoint where concentration
is occurring within the economy and pivot
to succeed in those spaces. In particular, the
continued success of Fortune 500 companies
will hinge upon the ability to position themselves
effectively in portions of the economy
driven by strong trends toward concentration.
The winners will be those that are simultaneously
aggressive and creative in serving
broader ecosystems of fragmented players,
anticipating those players’ needs and delivering
targeted, high-quality solutions that benefit
from scope or scale.
Focusing around scale-and-scope roles will
enable growth, as these areas will continue
concentrating. This will require some shifts
and repositioning, but companies can leverage
assets they already have to shape the role they
play. They may choose to:
• Transform into infrastructure businesses,
offering high-volume, routine processes
previously used for their own products as
an outsourced service
• Become platform businesses, aggregating
resources and vendors and connecting
them with appropriate users or customers
rather than acting as vendors themselves
• Become agent businesses, channeling their
sector experience and existing customer
relationships to provide specific recommendations
based on an understanding of each
customer and his or her needs
Whatever role they play, large companies
will also have to connect and collaborate with
mobilizers in order to unlock the collective
knowledge of the ecosystem and become part
of the transformation, rather than simply being
impacted by it.
The hero’s journey through the landscape of the future
54
Endnotes
1. William Gibson, “The science in
science fiction,” recorded November
30, 1999, NPR broadcast, 11:55, http://
www.npr.org/templates/story/story.
php?storyId=1067220, accessed June 26, 2014.
2. Statista, “Etsy’s total annual merchandise
sales volume from 2005 to 2013 (in million
US dollars),” http://www.statista.com/
statistics/219412/etsys-total-merchandisesales-per-year/,
accessed June 25, 2014.
3. NPR, “Pomplamoose: Making a living on
YouTube,” April 09, 2010, http://www.npr.org/
templates/story/story.php?storyId=12578327,
accessed June 26, 2014. iTunes is a trademark
of Apple Inc., registered in the United
States and other countries. The current
publication is an independent work and
has not been authorized, sponsored, or
otherwise approved by Apple Inc.
4. John Biggs, “Pomplamoose’s Jack Conte
creates a subscription-based funding site
for artists,” TechCrunch, May 8, 2013, http://
techcrunch.com/2013/05/08/pomplamoosejack-conte/,
accessed June 26, 2014.
5. Jack Conte, “Pomplamoose at
TEDxSonomaCounty”, June 22, 2012, https://
www.youtube.com/watch?v=w2D2KczzAjo,
accessed June 26, 2014.
6. Spencer Walle, phone interview with Shanna
Hoversten and Neha Goel, April 30, 2014.
7. John Ortved, “Sophia Amoruso expands
Nasty Gal,” Wall Street Journal, August 22,
2013, http://online.wsj.com/news/articles/
SB1000142412788732435470457863787
0086589666, accessed June 25, 2014.
8. Ortved, “Sophia Amoruso Expands Nasty Gal.”
9. Joshua Brustein, “Why GE sees big things
in Quirky’s little inventions,” Bloomberg
Businessweek, http://www.businessweek.
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These metrics fall into three areas: 1) the
developments in the technological and political
foundations underlying market changes, 2)
the flows of capital, information, and talent
changing the business landscape, and 3) the
impacts of these changes on competition,
volatility, and performance across industries.
Combined, these factors reflect what we
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55
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59
Acknowledgements
This research would not have been possible without the generous contributions and valuable
feedback from numerous individuals. The authors would like to thank:
M.C. Abbott
Nick Alexander
Chris Arkenberg
Blythe Aronowitz
Eric Beinhocker
David Blake
Andrew Blau
Balaji Bondili
Bob Brook
Erik Brynjolfsson
Lynn Carruthers
Ian Chan
Franklyn Chen
Robin Chase
John Chisholm
Dan Chou
John Clippinger
Natalie Cooper
Jack Conte
Kenneth Cukier
Dale Dougherty
Brenna Erhlich
Matt Frost
Jodi Gray
Sonie Guseh
Mark Hatch
Adam Hendle
Carrie Howell
Jeff Huber
Julian Ivann
Joe Justice
Andrew Karpie
Eamonn Kelly
Steve King
David Kirkpatrick
Kim Knickle
Yoko Kumano
Pete Lyden
Jennifer Magee
Thomas Malone
Marc Mancher
Melita Marks
Bill Melton
Sudhir Menon
Richard Merchant
Jim McDonnell
Brooke Morin
Anupam Narula
Jonathan Ohm
Jeremiah Owyang
Jon Pittman
Mark Plakias
Sarah Qian
Mark Quinn
Ramzi Ramey
Matthew Ranen
Nicole Roccoforte
Adam Sandlin
Mathew Schutte
Peter Schwartz
Bonnie Sherman
Arthur Sheyn
Dan Simpson
Jack Stephenson
Michael Stoler
Gary Swart
Athappan Subramanian
Adrian Tay
Jonathan Taplin
Andrew Trabulsi
Maria Tsang
Hal Varian
Spencer Walle
Angela Wang
Jeanette Watson
Jason Williamson
Michael Wilson
Irving Wladawsky-Berger
Winston Yong
Terry Young
Tim Young
Whitney Young
Andrew Ysursa
Xiao-Fei Zhang
The hero’s journey through the landscape of the future
60
Contacts
Blythe Aronowitz
Chief of Staff, Center for the Edge
Deloitte Services LP
+1 408 704 2483
baronowitz@deloitte.com
Wassili Bertoen
Managing Director, Center for the Edge Europe
Deloitte Netherlands
+31 6 21272293
wbertoen@deloitte.nl
Peter Williams
Chief Edge Officer, Centre for the Edge Australia
Tel: +61 3 9671 7629
E-mail: pewilliams@deloitte.com.au
61
About the Center for the Edge
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