The Few Keep Winning More; The Rest Make Up The Numbers

The Few Keep Winning More; The Rest Make Up The Numbers

The Few Keep Winning More; The Rest Make Up The Numbers - –


Market concentration in most markets has increased: The few organizations that already dominate a market have tended to pull ahead of those that follow.  In economic parlance of the OECD, the “frontier firms” have taken an ever greater market share and so market concentration has increased.  The result is less competition, and to any economist, this implies numerous bad things.  Though to be fair, some have researched that ever-larger firms can also lead to positive things.

Unless you work or lead the first or second placed organization in one of these markets, you have known this intuitively.  Here is some research to help give you some data to argue for what you have known: Are US Industries Becoming More Concentrated?.  From the article that references a research paper:

“Gustavo, Yelena, and Roni start by documenting trends in the Herfindahl Index (a concentration measure based on industry sales) in the US. The results are striking – while concentration fell dramatically in the early 1980s, and stayed low for over a decade, it’s risen by 70% since 1997. Moreover, the increase has occurred almost every year, suggesting that it’s a secular trend.”

We don’t need to ponder by what means the frontier firms have powered ahead:

M&A of small, innovator or start-up firms before they become a threat
Ability to invest in Washington lobbyists to further their big-business-big government partnership (the Milton Friedman put)
Use of pricing power and size to under-cut or out-perform competitors etc.

What we can evaluate is this: In a number of cases those winners who continue to win in the digital business have changed how they decide where and in what form they compete.  Winning in digital business is not easy, nor is it assured just because you completed a pilot.  Digital business at scale is something else.  But how can it be explained?  How can a everyone develop the acumen and knowledge in order to drive progress given you can’t all hire the same specialists?  And that assumes everyone – all followers – could hire the leaders.
From Digital Business to Intangible Economy
Where the frontier firms have succeeded, what can others who follow learn from those ahead of them?  This is an old question that economists and researchers have struggled with.  It precedes the digital business era and it touches on many things related to how ideas, IP and people diffuse across industries.

Building on this recognition is the idea that the modern the digital economy is more accurately defined as the intangible economy.  More value is now created from investing in intangibles versus tangibles and spending has shifted accordingly.  Intangibles include digital, people, ideas, software, IP, and brand.  Tangibles include plant, equipment, cloud infrastructure, and physical things.  In effect, data is more valuable than disc drives.

2021: Have you identified your business’s intangible assets? (this is from a different Andrew White!)
2021: McKinsey discussion paper 
2020: The Value of Data (another of my blogs)
2018: Book Review: Capitalism without Capital – The Rise of the Intangible Economy

So, how can you emulate the leaders actions and decision making capabilities while there is still time and a chance you can close the gap to them?  This conversation is what we call digital economic architecture.  A digital economic architecture should should help you and your organization change how it invests its capital.  This should support investments that will provide differentiated and sustainable advantage, not just follow-the-leader improvements.  A digital economic architecture can help distill several things:

Who are the newly formed set of stake-holders for which organizations need to consider?
Over what time frame is a return sought?
How is “return” now defined, given the new goals and desires that have emerged with DEI, ESG, and other ideas and movements?  How is value being redefined?
How does the agency challenge evolve, between owners of capital and those that run and operate organizations?
What assumptions change in the decision making process for capital allocation?

The list of question we have are endless.  But we are on a mission to understand what it is about the innovators that works more than once, and how can that knowledge be explained so that others can follow.  This is the kind of challenge Gartner relishes and we are in the best place to expose it.  Hopefully you will see some fascinating research and advice in 2022.