Cultivating New Business Models In The Wake Of Digitization

Innovation in the Fourth Industrial Revolution (4IR) requires understanding (1) the business context and (2) the new business models, as well as building (3) intangible assets like a conducive company culture, capacity, and the ability to co-create – to be able to quickly and effectively respond to change as well as to build new solutions together with members across the ecosystem.

The Business Context

The context of business has radically changed over the last decade. The Fourth Industrial Revolution has arrived. Brought about and characterized by the accelerated development of old and new technologies and their aggregation into very new solutions.

In the 4IR, opportunities and risks have been growing exponentially, while the time available to companies to respond is declining rapidly. This dilemma requires new structures and tools for accelerated decision-making and execution. An example of aggregated technology at work is the Adidas speed-factory, very often cited as a large-scale 3D-printing use case. However, what is really at play is a bundle of different technologies that are made not only of 3D-printing, but also robotics, the Internet of Things (IoT) and artificial intelligence.

New Business Models

The first wave of 4IR technology startups benefited from the spread of smartphones and affordable cloud computing. Uber and Airbnb took taxis and hotels mobile. They leveraged the digitization of location and customer experience. This easy way of disrupting traditional industries is drying up.

The up-and-coming second wave of 4IR technology startups is largely focused on software for specific industries like agriculture and financial services. They will support the modernization of the economy or serve the first wave of unicorns. Checkr, for example, is a digital service to expedite background checks for drivers. The company works with Uber, Lyft and Instacart but also for other types of customers like the insurance company Allstate.

Building Intangible Assets

Startups and new breed of technology companies threaten their established incumbents. These are under pressure to find ways to respond and transform themselves into technology players as well. Their leaders need to instill a conducive culture and to right-skill their workforce to make their businesses learn how to co-create across the ecosystem. In addition, many need to find ways to reconfigure their boards.

Conducive Culture

Most established companies are designed for efficient delivery of their existing products and services. Therefore, most corporations focus on continuous improvement of processes and practices. Whereas digital champions are constantly changing them.

Organizations will have to unlearn what they learned and relearn – as pointed out by futurist Alvin Toffler. Or at the very least, embrace change partially: they will have to learn to run parallel tracks. The digital age requires companies to accept some level of creative chaos. Enhancing culture by a layer of entrepreneurship is no longer a nice-to-have but a question-of-survival. I know this is a very hard thing to do as it touches on our identity and “who-we-are”. But yesterday’s identity can be tomorrow’s calamity!

Capacity

Research of the Operations and Technology Knowledge Group of SDA Bocconi School of Management shows that 70% of the 108 companies analyzed in the supply chain have invested in digitalization in the last three years. Vincenzo Baglieri, Project Director, says, “Many companies have underestimated the need to redesign their processes and invest in new skills.” It is people that think, design, operate and maintain new solutions. If the investment in skilling falls short, the digital transformation falls flat.

Innovation needs creativity. Unfortunately, creative talent regularly leaves the corporate world. Reasons range from cumbersome administration and bureaucracy, resistance to change, tight financial controls and quality of leadership and management, to risk adversity and penalization after failure.

Patrice Caine, chairman and CEO, Thales, is convinced that corporates need to learn from startups. He writes, “Yes, you may have the capacity to invest massively in research and development (R&D) and to hire the best engineers in your field. But it is not enough, for one simple, statistical reason: there will always be more groundbreakers outside of your company than within.” He sees two ways to benefit from startups as force of innovation and transformation. The first is incubating internal startups, with a degree of liberty towards the central hierarchical structure. The second is partnering, i.e. identifying the most promising startups in your field and finding ways to work with them.

Co-creation Ability

The ecosystem has everything businesses need: resources, assets, warehouses, transport vehicles, etc.; even the talent to drive digital transformation. Digital platforms provide visibility and access to the available capacity. These platforms have opened up very new dimensions in which to collaborate and co-create value.

Configuration of Boards

Harvard Business School professor Boris Groysberg and doctoral student Yo-Jud Cheng surveyed some 5,000 board members around the world. Only 30 percent of board members ranked innovation among their top three concerns, and only 21 percent cited technology. 42 percent of board members listed their ability to handle those topics as above average. Notably, compliance, financial planning and staying current on the company scored above 60 percent. Reversing the trend requires diversification of boards. This will inject a range of new ideas into the strategic debate. Board members may also need to support short-term hits in revenue and profit and be able to explain the need for doing so to shareholders and analysts.

Over the next 10 years, platform-driven interactions are expected to enable approximately two-thirds of the value for business and society – according to the Digital Transformation Initiative of the World Economic Forum. The train of digitization has left the station. The second wave of technology startups is capitalizing on the data, digital economy and society is generating. They leverage the full potential of the talent, technology and platforms these ecosystems are offering to us. Next-generation businesses will be applications on top of the ecosystem they have built, leveraged and nourished.