Posted on Harvard Business Review: March 22, 2010 6:12 PM
We believe in the power of edges. We even named our research outfit at Deloitte the Center for the Edge. It seems reasonable to ask, though: what is an edge? And how does it differ from a fringe?
Fringes are marginal, by definition. A political group with extreme views. An artistic movement without commercial ambition or potential. Most of us try to avoid the fringes, unless we're trying to make a point of some kind, because fringes rarely lead anywhere useful. They're dead ends, to mix metaphors. They neither grow big nor powerful enough to influence the center—which we call the core—of society and commerce.
Edges, like fringes, also exist on the periphery of a given domain or place. But that's where the similarities end. In business, edges are the places where the potential for innovation and growth is the highest. They are where unmet needs intersect with unexploited capabilities.
Let's consider an example: the wellness movement, which some think may challenge more traditional health care provision. Is wellness an edge, or a fringe? On the one hand, it's hard to imagine what's currently a highly fragmented group of diverse specialties—from acupuncture to unani—developing into a coherent force. If they stay fragmented, they'll likely stay on the fringe. But what if they were to come together in a more meaningful way?
What if, for example, somebody started a wellness advisory business that could become the equivalent of a personal financial advisor except, in this case, focused on integrating a broad range of wellness services and providing access to specialized wellness services, such as naturopathy or chiropractic? This advisor could get to know their clients in their entirety, becoming ever more helpful based on that understanding, and tailoring their service accordingly.
Such an approach could conceivably have a transformational effect on traditional health care provision, by accelerating the movement already under way to unbundle traditional health care providers into highly specialized providers, for example specialized cancer clinics, diabetes treatment centers and medical imaging services. The traditional general practitioner model might be marginalized by a wellness advisory front end.
More speculatively, the rise of wellness advisory businesses might also play a transformative role for the insurance industry. It's not so hard to imagine a wellness service combined with an insurance plan that gives lower insurance rates to those who, through the wellness service, are taking proactive action to minimize the risk of illness.
What we're getting at ties to the first criterion for differentiating edges and fringes: the scalability of both supply and demand. Right now, the supply side of the wellness movement doesn't scale—it's fragmented and disintegrated. By knitting together these existing but fragmentary services—and by using customer-focused health care records captured as part of its interactions with patients—a wellness advisory business could provide the integration needed to help build large, concentrated businesses. There are significant economies of scope in such a business that would drive significant consolidation of the front end advisory business over time.
Scalability also matters when it comes to investment. Are billions of dollars and five to ten years of development necessary before a particular offering can gain momentum? If so, it may stay on the fringe, caught in a Catch-22 wherein the offering can't prove itself because it costs too much and nobody wants to invest what's required until the offering is proven. Much better if you can bootstrap the innovations on a given edge so that they need very little financial investment from the core. In the case of the wellness opportunity described earlier, these businesses could begin with minimal investment, leveraging the fragmented providers of specialized wellness services already in operation.
Scalability also matters on the demand side. Is there a sufficiently big addressable market? Wellness, for example, has a hugely addressable market, particularly with the graying of many developed and developing economies. There would appear to be real value in knitting together highly fragmented services to help individuals figure out the right bundle of services to optimize their personal wellness.
A second criterion executives can use to discern edges from fringes is differentiation. This one requires hitting a middle ground. On the one hand, the edge in question can't merely be supplementary to the existing core or there will never be the opportunity to challenge and transform the core. The test is this: is the product or service (or behavior) something you could adopt and use without changing your relationship to the core? If so, you don't have an edge. (In fact, you may not even have a fringe as the offerings become integrated into core products and services.) If wellness services remain highly specialized and fragmented they might get integrated into core health care provider offerings, rather than representing a challenge in terms of a fundamentally different mindset regarding what healthcare means.
On the other hand, if the attractiveness of an offer depends on its opposition to the mainstream then it likely won't scale without losing the very thing that propels it. Some cultural fringes get their identity solely in opposition to what's in the mainstream. Think of punk music or the surrealist movement. Once they start to attract attention from the mass-market they lose their momentum. So, the second test is, can the offer scale and reach into the core without losing its fundamental appeal? Some non-traditional wellness providers have a deep hostility to anything that conventional medicine offers.
That kind of mindset is unlikely to be able to embrace and transform the core relative to one that views the opportunity as creating a much broader offering that effectively leads with wellness, but offers traditional medical procedures when appropriate.
The third criterion has to do with the sense of purpose, or the mission, that one finds on a given periphery. Edges that are destined to transform the core—rather than fade into obscurity—often consist of a cadre of people with an intense aspiration to scale their innovations in order to make a difference in the world. They are truly out to "change the world" and will settle for nothing less. (Certainly much of the wellness movement is populated by such people.) Without this cadre peripheries tend to remain fringes—simply because the difficulties of transforming the core are too stiff for those attracted to the fringe who lack the fortitude to persist in the fact of significant obstacles.
Edges face enormous obstacles in transforming the core. But if these three conditions are in place—scalability, compelling differentiation, and aspiration—edges have a fighting chance in their David and Goliath struggle.
As we've written about, the significance of edges is the speed with which they are now transforming the core. This rapid pace has an implication for executives: unless you go frequently to the edge you won't see what's coming at you, and you'll miss both opportunities and threats.
Sometimes these opportunities seem painfully obvious. Why wouldn't somebody grab the chance to help integrate the extremely promising but highly fragmentary wellness movement? Or a similar chance in a different industry? Are today's entrepreneurs, executives, and venture capitalists overly focused on products and services, and insufficiently aware of the opportunity to rise above these isolated offerings to provide an integrating service focused solely on customer need, without being partial to any one product? Or do the challenges go beyond the mindset of the people involved? We look forward to your thoughts.