Welcome to the Coherence Economy

Technology has laid the groundwork for a major economic shift.

Nearly 20 years ago, there was a major economic shift — from a services economy to an experience economy. Since then, the accelerating pace of technology, fueled by hyperspecialization, digitization, and the ability to programmatically control these new environments, has been quietly ushering in a new economy set to challenge every industry — the coherence economy.

Creating Magic Through the Coherence of Technology

Think of the evolution of travel. In the agrarian economy, you would start walking; perhaps you could upgrade to a horse. In the industrial economy, mass production of cars and boats made those options practical for a broad range of people. The services economy brought airlines and taxis. Some airlines and a few ground transport providers have attempted to elevate their offerings into full-on experiences, with mixed success. But in the coherence economy, your travel needs will be automatically aligned across transportation, lodging, dining, and entertainment services, so you can be anywhere at any time and live your life or conduct your business seamlessly.

Imagine an automatic concierge, a really smart virtual assistant, that constantly aligns your needs with the numerous offerings available. Although each element in your travel itinerary will still be offered separately, the coherence of technology will enable the elements to work in concert so that your global lifestyle is not just possible but practically effortless.

Examples of coherence are already all around us: Think of rowing teams that act as one to propel a racing shell forward. Coherence is also abundant in nature, such as termite colonies that construct fabulous structures through emergent, cooperative behaviors. Technology is now enabling a whole new plane of coherence in our lives and in the economy.

Once we get used to this coherence, there’s no turning back. Just as fewer and fewer of us drive to new locations without the safety net of GPS, or deposit checks at the bank, or buy items at a physical store instead of having them delivered more cheaply on demand, so will fewer and fewer of us put up with experiences that must be manually orchestrated. We want magic.

The Characteristics of Coherence

The main differences between the experience and the coherence economy are scope, dynamics, and layers. Consider health care: Your ultimate aim is to become and stay as healthy as possible. In the coherence economy, health care providers will be in business to provide that outcome. In a deep sense, they will sell health itself, much as GE Aviation Systems LLC is already selling its aircraft engines per operating hour via its data- and analytics-based TrueChoice Flight Hour services.

To enable this outcome, health care companies will need to change quite deeply, with a considerable rethinking and expansion of their scope, their ability to respond to dynamic information, and their openness to participate in a layered ecosystem.

Scope

Numerous factors affect health, including exercise, diet, genetics, and biometrics. Caring for your health is much broader than a single experience: When your doctor asks if you’ve been exercising, you wish he or she could access the by-the-minute record on your Apple Watch to get a full picture. Achieving healthy outcomes will mean revealing more information about all aspects of life, from your exercise to diet to emotional stability to how you respond to whatever life tosses at you — a 24/7 stress test, if you like. And if your doctor isn’t directly collecting all of this — in most cases, she won’t be — then she’ll need to know how to access it.

Dynamics

The broader the scope, the more dynamic the information becomes. Your biometrics are constantly changing, and in some cases, those changes may require urgent attention. Scheduling tests, office visits, treatments, and follow-up appointments requires synchronizing multiple calendars, accessing transportation, tracking results, and more. If the health care provider is in the business of selling health, it’ll need to get good at providing all this coordination, and doing so at scale; indeed, this will become as core to the provider’s value proposition as handling benefits and bills. Unlike a single experience localized to a specific time and a place, the coherence economy includes a broad spectrum of timescales (What’s changing every minute? What’s changing every week?) and time spans (How’s your weight loss this week? What B12 level are you trying to achieve over the next year?) as well as locations. For example, to lower your incidence of skin cancer, your health care company could keep track of your cumulative sun exposure and automatically suggest times when you should limit exposure or apply more sunscreen, based on what it infers from your calendar (Are you traveling to Jakarta, or Edinburgh?) or weather data.

Layers

In the experience economy, experiences are usually owned by a single provider. Companies such as San Francisco-based One Medical Group Inc., for example, aim to allow consumers to control their medical experience at any time from the convenience of their mobile phones. In the coherence economy, on the other hand, choreography happens in layers. For example, wearables provide raw feeds of heart rate, temperature, pace, and more; health apps synthesize those into trends; prescription and medication intake information add to the picture; physicians reference electronic medical record systems to assemble plans for improving health, increasingly aided by machine learning; and insurance providers finance the entire landscape in economical ways (for example, incentivizing prevention and positive feedback loops). At every layer, the building blocks in the layer below are cohered into more useful, higher-value capabilities; and there are multiple vectors along which to achieve coherence. For example, one set of symptoms may be analyzed by multiple physicians to address different aspects of your health, one focusing on weight loss goals and another on building up the immune system. The next layer offers ways to coordinate those treatment plans, such as integrating the two schedules into one while ensuring medications don’t adversely interact with each other.

Coherence: The New Battleground

Every economic shift causes major upheavals, and businesses that do not adjust to consumer expectations will fall behind — just look at Sears, Roebuck and Co. and Blockbuster Inc. The upheaval from the coherence economy will be rapid and profound. Businesses need to be armed with speed, alignment, and customization.

Speed

Consider Amazon.com Inc. While it can certainly be viewed as a monolith, it’s more insightful to view it as a coherence machine powered by software and connectivity. Amazon aligns numerous suppliers, logistics, and transportation providers, communication mechanisms and digital services (for example, music, movies, books) into an ever-evolving marketplace that is taking the retail sector by storm. Amazon is redefining the speed at which businesses are expected to innovate to meet consumer expectations.

Alignment

There has always been a battle between best-of-breed products and all-in-one products. Today’s technologies allow for efficient integration of best-of-breed offerings to provide all-in-one offerings. An early example is marketing technology. There are hundreds of highly specialized software-as-a-service offerings to optimize every granular activity in marketing, creating the need for constant adjustments so they align with campaigns and evolve with competitive threats like price wars. If a business ignores these capabilities, it stands to die by a thousand cuts. To take advantage of these numerous, narrowly focused capabilities and evolve as they change, businesses require services that align these capabilities intelligently and automatically. They will combine data feeds from their multiple channels using aggregators, measure ROI using marketing performance-management software, and integrate and automate ongoing marketing campaigns using integration platforms. Companies that provide such alignment offer both breadth and depth and will have a competitive advantage over traditional businesses.

Customization

Since at least the Industrial Revolution, so much of our business thinking has been shaped by the simple principle of economies of scale: When you do something many times the same way, each instance becomes cheaper. Make a million T-shirts and the cost of each should be lower; hence you can offer it for less and win in the marketplace. But what happens when it’s the same cost to make one T-shirt as a million? What happens when the costs of individualization diminish to zero, or at least to below the benefits you get from them? With technologies such as 3D printing, fully automated and programmable manufacturing lines, and dynamic logistics systems, the coherence economy can thrive without needing economies of scale. New York-based Ziel Inc. PBC, for example, offers on-demand manufacturing of apparel with quantities as low as one item and lead times measured in days. Businesses that take advantage of these new possibilities need not invest in inventories or miss short-term trends. Instead, they can create as well as fulfill demand spikes, cater to long-tail needs, and experiment without breaking the bank. They become formidable competitors.

Source: MIT Sloan Management Review

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