Category Archives: Business model

A digital paradox

We human beings are very adaptable and resilient especially when it comes to the use of technology. Think back to the introduction of new technologies such as telephony or the personal computer. To add to the picture, technology adoption rates are also getting faster. A recent Flurry Report suggests that adoption rates for smartphones are 10x the adoption rates for PCs in the 1980s, and 3x faster than the recent adoption of social media. Flexibility, ease of use and perceived real benefits are major drivers in this explosion of speed for technology adoption.

Enterprises have also taken to the technology revolution, and we see this in day-to-day activity. Our lives have changed dramatically with features like internet and mobile banking, online shopping and so on. Many enterprises have embraced the technology revolution in so many ways, and provided consumers with much greater utility and convenience.

The report card for enterprises

Yet on closer examination, the report card for enterprises in both government and private sector is not as rosy as it may seem, with digital transformation still needing a long way to go. Many enterprises are still organized in vertical towers that don’t easily communicate yet alone collaborate with each other. Their technology platforms are geared to support this orientation and are inflexible to change and response to the market. Many cultures are still built around traditional organization structures and environment, and capabilities are still shaped by this thinking. These are not just impediments to doing things better and smarter, but are also compromising value that can be added to customers, citizens, employees and shareholders.

Consider the struggle that some retailers have in re-aligning their strategies to be focused around omni-channel than simply multi-channel. Financial services enterprises are still challenged to fully gear themselves both organisationally and culturally to the concept of the customer segment of one. Many service organisations still have a so-called “online” division that is separate from the rest of the enterprise. In many instances, we have a long way to go to embrace the mantra that digital business is the business.

The gap between industry leaders and laggards in digital transformation will grow rapidly over the next decade with major implications for shareholder value. This is a key finding from the recent compelling report from IBM entitled “Reinventing Australian enterprises for the digital economy”.

So what can enterprises do? There are three things that enterprises need to consider differently.

1. Treat digital as the business not just a part of the business

Digital transformation is about the entire enterprise embracing all elements of the value chain – customers, employees, suppliers and stakeholders. It is not about an online division that might be considered a somewhat quaint part of the enterprise. Digital needs to underpin all aspects of the enterprise, and there should be a mindset that embeds this thinking in everything the enterprise does.

2. Frame a different starting point

Typically, there is a natural inclination for enterprises to start with what they have today and apply a “projection” mentality. This is understandable given the information that they have available. But if organisations started with a point in the future (say ten years out) and work backwards, they will see their challenges and opportunities in digital transformation in a totally different frame.

3. Embolden the narrative

In one of my recent blogs, I spoke of the need to create a digital transformation narrative. This is not a plan, but rather a view of what digital transformation would look like for an enterprise in 10-15 years time. This needs to challenge the thinking of the enterprise to make a real difference in this space, and drive a clear departure from incremental thinking.

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Digital transformation – will CEOs ask the right questions?

When the motorcar was new, people watched with amazement initially and many could only yearn to own one. But after several decades, the car became the norm and most people could either own a car or have access to one.  Likewise, when the mobile phone first appeared in the late 1980s, people looked on with amazement, but within a 20-year period, the mobile phone became an essential accessory for a big percentage of the world’s population.

Next wave of change

We are now at the cusp of a similar quantum change, namely the digital transformation of enterprises in both private sector and government. Some of this has been emerging over the past several years, but recent developments have now placed this opportunity front and centre for enterprises. These include the explosive growth of mobile devices, the rise of big data and the rapidly emerging focus of analytics for radically improved decision making. Many enterprises are still looking on with interest, but to stay competitive or to create a sustainable model, enterprises need to act now and elevate digital transformation to a new level of urgency.

Technology itself has made extraordinary strides in the past five years and technology change over the next 10-15 years will have a profound impact for enterprises at many levels. A McKinsey report  earlier this year called “Disruptive technologies: Advances that will transform life, business, and the global economy” highlights some of the developments we can expect. By 2025, the report anticipates that some 2-3 billion more people will have access to the internet, and the automation of knowledge work will drive additional economic value of over $5 trillion. These stunning macro trends will continue to shape and re-shape the global economy

Re-inventing enterprises

But how will this impact various industries and enterprises across the economy at a more local level? In Australia, a report has just been released by IBM / NIEIR titled “Reinventing Australian
Enterprises for the
Digital Economy”. Through economic modeling to 2025, this excellent piece of analysis highlights the impact of digital transformation across the Australian economy, and across seven industry segments in particular.

It shows quite dramatically the difference between enterprises that invest and drive a strong digital transformation agenda versus those in the same industry who stand back from such investment, and take a more measured approach over the next 12 years or so. It highlights that in four industries alone the total market capitalisation gap between these “leaders” and “laggards” is some $270 billion to 2025.

The analysis of “leaders” and “laggards” in this report provides two underlying messages that are critical to enterprises going forward. One is that if enterprises don’t invest in digital transformation now, they will significantly fall behind competitors in the next 12-year period to 2025. But more importantly is the message that if enterprises don’t invest now, it may be difficult if not impossible to catch-up with industry leaders in this space even if they were determined to do so. In other words, the compounding lag with industry leaders may cause long-term damage or possible demise of the lagging enterprise.

CEOs response

CEOs have thought about the digital economy in some form, and they will rightly ask questions of their C-suite executives around the plan to address the digital economy, the timescale required and the best investment profile going forward.

But are these the right questions? Are these sufficient to shape different behaviours around digital transformation, and to inject greater urgency and focus into the debate and subsequent actions for the enterprise? CEOs will need to engage actively in the digital transformation dialogue in their enterprise, and drive three questions in particular:

1. What is the digital transformation narrative for the enterprise?

The narrative is not a plan, but rather an expression of the look and shape of the enterprise in say 2025 underpinned by digital transformation. It would typically be no more than say two pages embracing language and sentiment such as “imagine our enterprise if we reduced our customer churn by 50%” or “…imagine our enterprise if we moved from 5th position in market share to 1st position”. This is about stretching the thinking and taking the conversation to a totally new level, and challenging the existing organisation capabilities. It is envisioning how digital transformation can take the enterprise to a new level of value to customers, employees and stakeholders.

2. What is the cost of not doing digital transformation?

This is at the heart of the competitive landscape. Opportunities lost can be not only costly in a direct sense, but also create a challenge in terms of catching up with competition. How are competitors setup to undertake digital transformation that can change the way the industry competes? It only needs one competitor to change the way business is done, such as Amazon setting up and operating a model that ultimately created terminal problems for groups like Borders.

3. What should the enterprise stop doing?

Enterprises find plenty of initiatives and projects to undertake. Even in difficult economic times, there is usually a long list of initiatives on the table competing for funds, resources and management attention. But how do they line-up against the digital transformation narrative? How do they add real value for customers, employees and stakeholders in the future? If the answer is they don’t add value or it is marginal, they should be stopped. Deciding what not to do is an important management capability so the focus can be on the items that will drive value in line with the digital transformation narrative.

The value around digital transformation needs to be clearly articulated. Enterprises will need to invest, but it is worth heeding a comment from Warren Buffett, namely “Price is what you pay – but value is what you get.”

 

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Are you in the transactions or the solutions business – or both?

For many businesses especially in the business-to-consumer space, the volume of transactions is a key determinant of underlying performance. Whether it be the volume of items sold in a department store, or the number of new loans for a bank, or the number of tickets sold to passengers for an airline, but the common factor is the need for a base load of transactional activity. This is typically the bread and butter of the organisation, and managing these fundamentals underpins its success.

At the other end of the scale are typically business-to-business organisations whose offers are tailored solutions that are unique to each of their customers. Many project based businesses in engineering and consulting for example fit this model.

But transactional businesses can find themselves in the commodity trap. That is, they can do the transactional activity very well, but this may not be enough to be competitive or to maintain margins at a healthy level.

Enter the solutions business, or at least the business that places a strong emphasis on solutions to provide differentiation in the market. Many industries are experiencing a surge in activity around business solutions.

Solutions business in different industries

Take travel agencies as an example. This industry was challenged from the very early days of the internet. Over the past ten years in particular, the traditional lifeblood of the industry, namely sales of airline tickets, shifted heavily online and became commoditized.  Whilst this is still very much the case, we also see a growing emphasis on more of a solutions approach. As the global economy has grown and as the cost of airline travel has fallen dramatically in real terms, key players in the industry are bundling, shaping and delivering broader based offerings or solutions to customers. For instance, specialized tours or packaged adventures are in demand. Their point of difference is in bringing the component parts together easier and cheaper than a customer can do alone, and in different configurations.

Retail is also an interesting case in point. The so-called “big box” retailers in the home improvement segment do much more than sell hammers and nails. They provide solutions to many different facets of their business. For example, they might provide an offer of how to use their products to build a whole new patio or how to landscape the garden. In other words, they are not just selling the component pieces, but they are providing a broader solution to meet a bigger customer need.

Even supermarkets have quietly ventured into this space. Whilst their business is highly transactional, some organisations have leveraged the whole recipe approach including the mix and match of beverages. In other words, the customer can participate in a broader offering than simply the same old shopping list week to week.

Banks, law firms, technology organisations and many firms in the services sector have attempted to re-shape their offers to become more solutions based. The aim is to provide customers greater value and to expand market share.

The challenge of driving harder in solutions

But why is the solutions approach not more prevalent and why don’t we hear of more widespread success stories on this front? Indeed, all organizations profess to seek differentiation in some form, and to provide even better value to their customers. Moving to more of a solutions focus makes intuitive sense and has some very obvious benefits, including customer satisfaction and loyalty.

However, it is not as simple as it sounds, and there are two significant challenges to be addressed.

Brand

Any organization is seen in the eyes if its customers as having a certain brand image and profile. There is a whole science around brand management which we will not be going into here, but suffice to say that moving into a higher value space such as broader solutions can create some real questions in the eyes of customers. Indeed, it can be confusing in their eyes.

For instance, a firm that specialises in the routine preparation of tax statements for individuals and small businesses may struggle to introduce a broader solution around say tax strategy and planning. In the eyes of its clients, its core competency is very much in the transactional business of preparing tax statements. Dealing with tax planning and strategy is a different positioning in the eyes of the customer. This shift can be achieved of course, but there are challenges in how the brand is perceived and therefore how the client base will respond.

Internal management

The other factor is how the internal organization and management of the business is calibrated to accommodate both the transactional and the solutions approach. Things such as culture, performance measures and organization may well be very different.

Using the example of the tax business from above, the skills and capabilities needed to run the transaction side of the business are totally different from running the client strategy and planning side. It is very much a production line focus vs a project focus.  In addition, the performance measures would be very different as well as the type of people needed to undertake the work. In other words, the organisation in this instance would need to take re-shape the way it is structured and managed.

Value to customers is a key driver of strategy. But organisations that have a strong transactional base in their business have a challenge in how they move into more of a solutions approach, and how they can really deliver that expanded value proposition to their customers. Mixing the transactions and the solutions needs some clear thinking on the right business model and how it can be achieved.

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How well are we developing our executives for the future?

Executive development takes a high-profile in most organizations, and is given significant attention at board level. Succession planning, mentoring, role rotation and training are all part of this mix.

One aspect that receives particular focus is external executive education. This is due to both the out-of-pocket costs and the issue of “time away from the business”. This area is typically about developing the strategic and softer skills rather than technical skills such as accounting for example. External executive education is a major industry in its own right with many hundreds of universities and other organizations competing for the corporate dollar in this area.

Take the Harvard Business School for example. In 2011, it provided open enrollment courses for some 6,700 participants. In addition, it provided 62 custom programmes for some 3,200 participants, and these custom programmes were delivered to 31 separate companies. Whilst the specific numbers will differ, there is a similar pattern across hundreds of business schools across the globe. This is lucrative business for the providers of these programmes. In graduate schools of business, it is generally acknowledged that the executive programmes provide significant profitability compared to the flagship MBA classes.

But how effective are external executive education programmes? The answer is often  “it depends.”  Indeed, the same can be said for internally developed and delivered education programmes.

On one level, we can look at overall corporate results. Assuming we accept the principle that executive education is ultimately about helping to achieve better corporate outcomes, we can use corporate results to some extent as a proxy of its effectiveness.

Well, maybe. There are many factors that impact corporate results, and we need to be careful to avoid jumping to conclusions on cause and effect. But having said that, CNN Money shows some interesting statistics regarding the performance of Fortune 500 organizations. In the period 2000 – 2010, 50 of the Fortune 500 showed total return to shareholders of between 17% and 46% annually. The top 50 in EPS (earnings per share) growth also demonstrated similar performance. These numbers are strong by any basis of comparison, and don’t forget this includes the period of the GFC in 2008/2009.

Whilst we can argue that executive education may have played a part in helping to deliver these results, that is probably as far as we can go. Drawing any stronger connection would be way too tenuous at such a macro level.

But individual corporations also face a similar challenge. How do they link and track the delivery of executive education with actual outcomes and results? This is partially overcome by participants agreeing some form of objectives upfront that can be measured both at the end of the programme and with some ongoing tracking. The key is to ensure the right issues are identified that will derive benefit from the executive education, and that the appropriate measures are agreed to drive the right outcomes. This is an important part of the value proposition for executive education. There needs to be a win-win for the organization and the individual participants.

This linkage is highlighted in an article for Bloomberg Business Week where Stephen Burnett the associate dean of executive education and professor of strategic management at the Kellogg School of Management said, “…….there should be a direct and measurable connection between executive education and business results”.

But what of the future, and how can executive education maximize real value? Four areas of emphasis are needed to deliver that value:

1. Focus executive education on the big strategic shifts

Some industries will face major strategic shifts that create the need for urgent change – for example, technology and the changes in the media industry. Other changes are at a broader level. For example, one of my previous blogs discussed business models and the future of work. These aspects are fundamental to the way organizations will function in the future. It is essential that the focus of executive education is shaped around these strategic shifts.

2. Rethink speed and flexibility in executive education

The speed of change is a much quoted challenge for executives – in their organizations, in their markets and in the global economy. Social media is a case in point, and this phenomenon is rapidly changing the consumer landscape and how buying decisions are made. Executive education needs to be very nimble to be on top of such issues with timely and relevant content.

3. Exploit the online component

The online environment provides a great opportunity to develop foundational skills in some areas so that face-to-face education can be used to build more significant capabilities. For example, online learning could be used to highlight the general fundamentals of say collaboration together with case examples to illustrate. But the specific application in the work environment and what needs to be done differently is far more suited to the face-to-face experience.

4. Lets get smarter about measures

It is very satisfying to hear someone say that the education course they just attended at some cost to the business was very useful or that it was excellent. It feels like a real value for money moment. But how will it impact the business and the individual? What will be different, why is that important and how will it be sustained? Measures need to be built into the performance management system for both the business and the individual participants, and must be assessed regularly to ensure outcomes are delivered.

Robert Louis Stevenson talked about travel being more about the journey rather than the destination. Executive education is also about a leadership journey, but it is one that needs to closely tied to clear milestones along that journey.

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Crash or crash through – business models and future work

When two large bodies in the cosmos collide, there is not only a massive impact, but the effect reverberates across space in many ways, and with consequences that can be felt over a very long time.

In the world of organisations, we see similar situations, albeit without the same physical drama. Major business trends meet head-to-head creating opportunities for significant change or forcing some organisations to retreat or fail in the market place.

We see one of these seismic events unfolding right now with organisations across the globe. The business model is rapidly changing in many industries. The changes are characterised by the need to be flexible, responsive and collaborative. In a previous blog “The end of the organisation as we know it?”, I spoke of the four urgent changes needed in the business model, namely:

1. Moving from customer management to customer responsiveness

2. Shifting from hierarchical organisation to horizontal organisation

3. Re-aligning from product and service development to product and service collaboration

4. Being data rich to being more decision support.

But in addition, we see the nature of work changing as well. Indeed, work in organisations in the future will be vastly different from what we see today. Work in the future will be different for many reasons including technology, continuing globalisation and demographic shifts. But fundamentally, work will change because different capabilities will be needed – and indeed demanded – by organisations. These can be summarized in four organisation capabilities:

1. Delivering work outputs that are not dependent on the fixed location of the work

2. Collaborating across and beyond the organization to create value

3. Interacting and communicating across and beyond the organization, including social media

4. Integrating skills, information and resources to deliver better outcomes and value.

So what happens when changing business models meet head-to-head with the changing work environment and the re-shaping of capabilities?

There are three broad tracks that organisations can pursue, and we already see examples of these occurring in many industries:

Track 1 – the denial track

Some organisations will try to hold onto the old world thinking as long as possible. Change can be hard and confusing, and shifting the business strategy to embrace change can be a real challenge. Look at the way the print media industry in the past decade has been slow to re-invent itself, and adopt new business models. Some retail organisations have also been slow to embrace online business models.

Track 2 – the token track

This track takes on the appearance of making significant changes, but falls well short of delivering any major difference from competitors or in the market place. For instance, some organisations have embraced so-called teleworking to allow employees to undertake some work from home or other locations. But if this is done on a sporadic or ad hoc basis and for some clerical tasks only, it is missing the strategic opportunity to shift the work focus to the delivery of outcomes rather than where work is actually done.

Track 3 – the heroic track

This track brings together the notions of business model change and the changes in work of the future. Embracing and managing the collision (or hopefully more of a fusion) between these two forces is the opportunity. Tackling the above head-on is indeed heroic, but it also provides the maximum potential benefit for the organization. Some technology-based industries are moving in this space as are many organisations with a strong online presence. But there is a long way to go for many industries such as retail and banking to achieve their full potential in this regard.

What track will your organisation embrace and how will you shape that decision? Will it be a deliberate decision process or will it happen by default?

For many organisations, this will represent a major challenge. It does require the discipline to take a reality check on future directions and priorities. As French author and Nobel Prize winner Andre Gide once said, “One cannot discover new oceans without the courage to lose sight of the shore.”

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Catching the wave of the new consumerism

Catching the wave of the new consumerism
– by Matt English

Surfers know that catching a good wave requires keen judgment around three things, namely positioning, timing and agility. Each of these needs to be well executed for success. In this context, positioning means not being too far out to miss the wave, and not to close in to be dumped in the churn near the shore. Timing works to support this by moving at exactly the right moment to capture the wave. Agility is needed to respond to a whole range of changing and variable conditions such as currents.

The big wave for business today is the rapid growth and change in consumerism, which is occurring globally and across all industry groups. The term consumerism only gathered common use back in the 1960s and 70s. Consumerism as we know it today has come about through the convergence of three factors:

  1. The choice of products and services for consumers – do you remember the excitement when that new supermarket or department store came to your neighbourhood providing all that extra choice?
  2. The growth of channels to supply those products and services – think of the impact of the online channel in the way we shop and the opportunities it has created for consumers
  3. The expanding purchasing power of consumers and the expansion of individual wealth over the past 50 years – notwithstanding economic challenges such as oil shocks and the GFC.

But more recently, another major factor has joined this list and skyrocketed to prominence, namely direct consumer influence.

This factor has always existed in some form or another. For example, consumers have been involved in focus groups or product discussion forums for a long time. But technology has changed this dramatically, and today we now have instant and global communications and connectivity. This has enabled a more profound change by placing enormous power in the hands of consumers, thus creating a new wave of direct consumer influence.

Consumers today have never had it so lucky. Not only do they have seemingly endless choices and channels from which to buy, but they also can access significant volumes of advice from their fellow consumers via a raft of online sources such as social media, chat rooms, blogs and so on. Consumer to consumer dialogue is now a game changer.

A report from the Boston Consulting Group called Harnessing the Power of Advocacy Marketing highlights the snowballing effect of consumer sentiment and commentary. Consumers are also delivering a message that is loud and clear regarding their purchasing decisions. Various studies from Nielsen and recent IBM research on the smarter consumer show that consumers place far more reliance on the opinions of family, friends and commentators than on the providers of the products or services. Much of that information is provided through online channels such as Facebook and chat rooms.

Now we are also seeing a big shift in the way organisations are responding in very targetted ways. A recent report from Burson-Marsteller on social media in the Fortune Global 100 shows a major increase in the variety of social media channels being used by organisations. For instance, in 2010 there were 4.2 Twitter accounts per organisation compared to 10.1 Twitter accounts in 2012. This reflects the growing trend to target the customer dialogue around very specific market segments.

So what can organisations do to ensure they not only catch this wave but also to ride it well? What are the right questions to ask?

Positioning

  1. Where is the consumer’s place in the business model? An organisation facing consumers directly such as a retail bank will face a very different set of issues compared to say a mining business that sells to industrial customers
  2. How can the organisations be pro-active regarding direct consumer influence? For instance, how can consumer dialogue via social media be effectively tapped for product development ideas and opportunities?

Timing

  1. What can organisations do right now to understand the true impact of direct consumer influence, both currently and in the future?
  2. How and when can the business model be re-shaped to drive value in the light of direct consumer influence?

Agility

  1. How quickly can organisations respond to changing market conditions?
  2. What plans do organisations have to effectively deal with moves in consumer sentiment?

So how many organisations will ride this wave successfully? Or how many will see the wave pass by as a missed opportunity or else be caught up in the churn by the shore?

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