Since the beginning of Internet time, companies that have outperformed their rivals have typically done so by competing on code and deriving meaning from Code Halo™, the digital information that surrounds people, organizations and devices.
To better understand this phenomenon, we conducted research into what happened to companies' performance when they embraced, refined and applied Code Halo thinking. Our findings revealed similar patterns of abrupt market shifts and soaring valuations among companies that focused on the Code Halos of customers, employees, partners and brands as a focal point of their business strategy. We also saw companies – even industry stalwarts–falter and even disappear when they failed to realize the way Code Halos have forever altered the competitive landscape.
We call this the Crossroads Model, and it has played out time and again across industries as varied as books, movie rentals, telecommunications, insurance, retail, financial services, consumer goods, newspapers, pharmaceuticals, hospitality and travel services.
As noted in our previous installment, Code Rules: A Playbook for Managing at the Crossroads, while the details may differ for each industry, we've seen the same five discrete phases repetitively unfold:
Ionization: In this first stage, Code Halos begin to form, creating a fertile context for innovation.
Spark: This is where Code Halos begin to intersect, causing business shifts.
Enrichment: The Spark now becomes a blaze as Code Halos – if created and managed correctly – grow by orders of magnitude as both the number of users and the value of data increases.
The Crossroads: At this point, corporate fates are determined; Code Halos reach critical mass and create new customer expectations and economic models.
The New Code Rush or Extinction Event: After reaching the Crossroads, companies face two widely divergent paths: Either they recognize and respond to the signposts of the preceding phases and ascend rapidly (soaring toward market prosperity), or – unprepared for the rapid market shift – they head painfully and dramatically toward stagnation or an Extinction Event.
In studying companies across industries, three events typically occurred in the Crossroads Model:
The winners built Code Halos at an "atomic" level – oriented around people, processes, products and organizations – to create new value and experiences. The losers largely ignored the possibilities of deriving meaning from data, customer intimacy and the value of code, and instead continued to work on creating economic value, primarily by leveraging physical assets.
Once Code Halos formed and grew in value with more data, they led to industry transformations that followed a very consistent pattern. Each industry shift has particular distinctions – whether in timing or the formation of particular Code Halos – but in each case, roughly 80% of the model has remained consistent.
The shift happened quickly. Once these trends were underway, the industry landscape shifted very quickly; there was almost no way back for companies that overlooked opportunities leading up to their particular Crossroads decision.
We will look at each of the model's stages in five installments. This installment covers Ionization.
Ionization: Constant Innovation and Emergence of Code Halos
Ionization is the nascent yet defining stage of the Crossroads Model. Think of what the air feels and smells like before a storm arrives, just prior to a lightning strike. The air is charged. You sense it before seeing it or being able to describe it. Your hair may stand on end. The conditions – climate, humidity, static buildup – create the context for the release of an electrical charge.
The same electrified sensation can be sensed by switched–on business leaders when something – a challenge or – is imminent. From our research and client work, we know that companies everywhere are grappling with the challenges and opportunities of accelerating globalization, economic volatility, a new mindset for problem–solving and new technologies for social collaboration, mobility and business analytics. These forces are creating a charged – or ionized – context for many businesses.
Many business leaders with whom we work recognize the signs of Ionization. On the surface, it might seem like the subtlest phase of the Crossroads Model. But Ionization begins with telltale signs – signs that promise market prosperity is just around the corner.
With no apparent indication or jarring signals, Ionization springs up in a company when market researchers land on an idea that creates a buzz in the market. True to its name, Ionization is a period when companies are "charged" with innovation, creating a market shift, a product or service.
Companies introduce products or craft new business models that, to competitors, look ambitious, even bizarre.Business entities attract the attention of their counterparts with their unusual investments. Some classic cases in point are Disney's MagicBand and Allstate's DriveWise device.
- At a time when Disney's visitors were stuffing their wallets or pockets with stacks of tickets, passes and cards, MagicBand introduced a transformative change. A solitary band acts as a guide to enter the parks, unlock a Disney Resort hotel room and buy food.
- Allstate's DriveWise, for its part, logs information about mileage, speed, hours and stops, and rewards scrupulous drivers with savings. These models were under–hyped and misunderstood initially but now have become an integral part of companies and their customers.
Customer experiences hits the Crossroads. Customers, partners and employees find their expectations met with innovative capabilities. If your customers think, "This is exactly what I was looking for. The company has read my mind," then Ionization is well entrenched in your market. This is a stage when consumers begin to shift loyalty from traditional companies to those that offer customer–friendly innovation.
While these indicators can prove helpful, they are subtle enough to go unnoticed. But there is a fail–proof way to know if you or your competitors are experiencing Ionization, which is the emergence of Code Halos.
At first, Code Halos might seem like an insignificant bunch of data about customers, partners or employees. The data might not be voluminous enough to make a sweeping change in a company's business model. But the presence and growth of Code Halos symbolizes that the company has stepped into the first stage of the Crossroads Model and is taking notice of other entities' creation of Code Halos.
When the atmosphere is ionized for change, close competitors find themselves arriving at an idea in concert. For example, a slew of pharmaceutical companies, almost precisely at the same time, began to shift their focus to wellness pills rather than remedial pills. Companies identify a change in pattern in consumer needs and gear up to clinch the market advantage at the earliest stage possible.
Long–established leaders are in the thick of long–term change, stepping up their analytics and algorithms to track the emergence of Code Halos. With burgeoning high–net–worth individuals and high–investment businesses, traditional banks are changing course and investing in financial services to bring about the best possible wealth management plans for prospective customers. Roping in strategic wealth professionals, the banks and investment advisory boutiques offer advice on stock–option planning, business successions and more.
Leaders in the industry that understand the power of data do not focus on short–term advantage. They look for massive industry transformation that, though slow–paced, will lead them toward the path of sustainable market prosperity.
Our next installment covers the Spark stage.
To learn more about the Crossroads Model and how Code Halos transform companies – and entire industries – read our white paper Code Rules: A Playbook for Managing at the Crossroads, available on our Code Halos and Unevenlydistributed.com Web sites. Once you understand Code Halos and the Crossroads Model, you can begin crafting a strategy for winning the new "code rush."
In addition, check out our book, "Code Halos ... How the Digital Lives of People,Things and Organizations are Changing the Rules of Business," recently published by John Wiley & Sons.