In 2002, John Hagel, co-chair at the Deloitte Center for the Edge, penned the classic Leveraged Growth: Expanding Sales Without Sacrificing Profits in theHarvard Business Review. Now, we catch up with him to discuss what’s changed.

John, you talked about a strategy called “leveraged growth” – what’s happened?  Has leveraged growth taken off?

Leveraged growth, as I described in the article, begins with the realization that it is not always necessary to own the assets required to expand.

So, if the needed assets exist within other companies, and you can mobilize them to support your own growth initiatives, you can capture the economic benefits of growth while avoiding the economic burdens of asset ownership.

That was the principal idea.  We can argue that this approach is no longer a novel approach, but rather one used by most global enterprises.

We framed a number of questions that still apply for smart executives to think about the different roles their companies might play in leveraging growth:

• Do we have opportunities to form a process network, perhaps, so as to orchestrate a supply chain or orchestrate a group of distributors or service providers?
• Should we build a network to sell our own products, or should we become a pure-play orchestrator operating an open network?
• Can we provide greater value to customers by aggregating services supplied by other companies?
• Do we have robust product or process specifications that might be turned into standards for a broad economic web?
• Can we orchestrate a network within another company’s web?

So it was and still is about business processes – within and outside – your company?

It’s about collaboration.

JSB and I have argued that for managers to realize real economic value from collaboration, they must focus on business processes, especially business processes that span multiple enterprises and drive the economic performance of the participants. Three core business processes meet this requirement: supply chain management, customer relationship management, and product innovation and commercialization. By systematically enhancing the coordination of activities across these business processes, managers can deliver significant performance improvement. If done properly, this performance improvement is not just a one-time event. Instead, it grows over time.

Does this collaborative approach apply to customers? To sales?

Yes it does.  It goes back to an idea, a type of business – an infomediary– which could address significant unmet customer needs.

As concern grows over the increasing amount of information that is being captured about us and our activities, and as trust in existing institutions continues to erode, there is an expanding opportunity for a new form of business to emerge and address our unmet needs.

It will require a very different business model that will make it challenging for incumbents to address this opportunity, leaving a significant white space for new entrants to address. Those who understand the real opportunity and move quickly to address it will reap very substantial rewards. This is not an opportunity that will be accessible to fast followers.

There are three forces that have gathered steam over the past twenty years:

First, we, as customers are gaining power as we gain visibility into more and more options and we are becoming more demanding in terms of services received from vendors. We as customers want more personalized value at much lower cost, but to get that personalized value we understand that we would need to share information about ourselves.

Second, digital technology is making it far easier to capture and share information about ourselves. A growing number of third parties are capturing this information withoutour permission and there is an increasing concern about how that information might be used, hence an erosion of trust in the third parties capturing this information.

Third, we as customers are facing more and more choices in terms of products and services that are rapidly evolving. We increasingly value someone who knows us extremely well as an individual and whom we trust to connect us with the resources that will be most valuable to us given our aspirations.

These three forces have continued to accelerate over the past 20 years, creating even more opportunity for the emergence of very large and profitable infomediaries.

So, what happened? Why haven’t infomediaries taken off?

From my perspective, the key reason is a failure to understand the real unmet need of customers.

One of the reasons that so few trusted advisor infomediaries have yet to emerge is that addressing this opportunity requires a very different business modelrelative to the ones that we see around us today. The rise of the big Internet businesses over the past twenty years has been driven by two business models – advertisingand commission-basedmodels.

The key assumption is that customers are unwilling to pay for value received and someone else needs to foot the bill.

But, here’s the problem. If someone else is paying the bill, do we really trust the business to be loyal to us and to serve our needs? On the contrary, the fact that someone else is paying the bills is a key factor in the erosion of trust that we are witnessing on the Internet, especially when we realize how much data about us is becoming available to Internet-based businesses. Who knows what they’re going to use this data for and who will have access to the data?

To truly build a trusted relationship with customers, infomediaries will need to be paid by the customers themselves, rather than accepting payments from third parties. The good news is that digital technology is making the cost of providing infomediary services less and less expensive, so the infomediary can provide a rich set of services at a very low price.

But this represents a challenge for large, established companies who have become hooked on advertising and commission revenue – it’s very painful for them to walk away from these established revenue services and target a different, and more speculative, revenue source.

That creates a window of opportunity for new entrants who can target a growing unmet need of customers without worrying about intense competition from large incumbents. The key is to pick the right entry point and to build trust and scale as rapidly as possible.

What should companies be doing?

Rather than focusing on data management as the primary value to the customer at the outset, my advice to aspiring infomediaries is to start by concentrating on building trust through advice that is valuable to the customer. As I’ve explored elsewhere, building trust is an incremental process that involves asking some targeted questions at the outset and providing tangible value in return to customer based on the answers provided. That sets the stage for the ability to ask some more questions and provide even more value in return, rapidly building trust that increases the willingness of the customers to share more and more data about themselves.

It’s also important to start in a relatively narrowly defined arena that is meaningful to customers. One area that is emerging as a potential launchpad for trusted advisors/infomediaries is the wellness domain, addressing a growing interest in finding ways to maintain or improve wellness. Other, largely untapped, areas would involve needs like raising small children, pursuing lifelong learning, or remaining productive and fulfilled post-retirement.

With sensors and other Internet of Things technologies being deployed everywhere, virtually all our activities are becoming visible, regardless of where we are, and not just when we are online. That becomes very scary at one level but, at another level, it increases the ability of the trusted advisor/infomediary to provide more value to each of us as customers because the business will have much more visibility into our activities in physical space as well as virtual space.

Finally, as these aspiring trusted advisor/infomediaries build trust that they in fact are committed to helping customers achieve more of their potential, they will create an opportunity to gain access to more and more of the data of the customers they are serving. This creates an opportunity on three fronts.

First, these businesses will be able to scale by leveraging powerful economies of scope.The more they know about an individual customer across more and more domains, the more helpful they can be to those customers in terms of providing them with advice and connecting them with the resources that matter the most to them. And the more customers they serve, the more helpful they can be to each customer, because they can start to see patterns, and become more proactive by suggesting things to a customer based on an observation that other people like them have derived significant value from some resource that the customer has not even asked about. In a world where significant parts of the economy will experience business fragmentation, the trusted advisor/infomediary businesses in contrast have potential to become very large and concentrated over time, as we explored in this research report.

Second, as the trusted advisor/infomediaries scale, they also have the potential to provide additional value to customers by bargaining for volume discounts given the amount of business they could potentially bring.Of course, this involves a balancing act to make sure that the infomediaries are connecting their customers with the products and services that are most relevant to them, even if they cannot obtain a deeper discount.

Third, these businesses will be able to provide additional services regarding management of the customer’s data, ensuring that vendors will only get access to data required to provide a product or service and managing restrictions on the use of that data by the vendors who are given access to it.They will help to ensure that the data is accessible in ways that benefit the customer but not abused in ways that might hurt the customer.

In the end, it is still about trust… What’s your thinking on the role if trust?

The Trust Paradoxis real. Everyone thinks that trust is important. Yet, at the same time, trust in individuals and institutions is eroding.

One way to think about trust is in terms of will and skill. In deciding whether to trust someone, we focus on two basic questions. First, do they have the values, conviction and courage to do the right thing? Second, do they have the capability and skills to do the right thing?

In more stable times, the balance of trust was on assessing capability and skills – it was clear what was required to deliver expected value and one could assess those capability and skills through track records of performance. As we move into more unstable times, the balance of trust shifts from skill to will.

Existing skills are less relevant; the key question is whether the person or institution has what it takes to embrace uncertainty and work together to find a way to continue to deliver value even when the skills of the past are called into question. This shift in the balance of trust has a number of profound implications.

Trust used to be largely backward looking – did the person or the institution have a track record indicating that they had the necessary skills to deliver results? In these more uncertain times where skills have a depreciating half-life, the focus shifts to a forward looking question – does the person or institution have the values and disposition required to learn faster by working together in times of increasing uncertainty and rapid change? Can they be relied upon even though their existing skills are increasingly challenged and undermined by rapid change?

Trust in business also used to be very domain specific. In a more stable world, I could trust my doctor or financial advisor based on an assessment of domain specific skills – did they have the right credentials and experience relevant to the specific domain? I didn’t invest as much time in trying to learn about them as people and explore the values and dispositions that drove them.

Now, trust is becoming less domain specific. There is a need to be able to quickly integrate new knowledge, coming often from quite distant and unexpected domains. Now the trust becomes much more general and personal – is this a person who can be trusted to respond appropriately to unexpected challenges and mobilize the personal and institutional resources required to come up with productive solutions even when the questions have never been seen before and require reaching far beyond the domain in question for answers. It becomes much more a question about personal attributes than impersonal skills.

Another way of framing the shifting balance of trust is from push to pull.In the past, trust was a matter of assessing whether the person had the skills already in place to push the right solution at the right time.

Now, the question is whether the person has what it takes to pull out innovative solutions to unexpected situations by drawing out whatever resources might be required whenever they might be needed.  This is trust in the age of ecosystems.

And that’s what the trusted advisor is all about!

Yes, and there’s one more important point.  In the shifting balance of trust, willingness to express vulnerability becomes much more central.People who do not express vulnerability either have little awareness that their existing strengths or skills are increasingly challenged or they are unwilling to share the vulnerabilities they know they have.  In either case, one begins to doubt whether they have the will to work together in developing creative new approaches to address unanticipated challenges and opportunities.

Think about any person you know who is deeply engaged in pursuing a passion. How do they present themselves? They have no time or patience for crafting a façade that showcases strengths and hides weaknesses. They present themselves as who they are, warts and all. What you see is what you get.

Even more importantly, they are quick to share vulnerability. Within a short period in any conversation, a passionate person is sharing with others the problems that are keeping them up at night, the questions that they have not been able to answer. They share these problems and questions because they find them exciting, not something to hide, but something to share to see if they can get help in pursuing them. As a result, people who have the passion of the explorerare quick to build trust – they express vulnerability and make it safer for you to express your own vulnerability.

They use vulnerability to amplify knowledge flows, rather than jealously guarding knowledge stocks. They are driven to learn as much as they can as fast they can by connecting to a larger and more diverse range of knowledge flows. How can they learn if they are unwilling to share the problems and questions that occupy their attention?

Finally, the masculine archetype is all about projecting strength and not sharing weakness. Machismo is the epitome of the masculine archetype.  In contrast, the feminine archetype expresses vulnerability much more readily.

As I have suggested before, the future belongs to the feminine archetype as we move from a world of knowledge stocks to knowledge flows.

There’s a lot for our readers to dig into here. Thanks for your time, John.  

INTERVIEW by Christian Sarkar