Why is it some businesses scale at pace, while others who have brilliant products, great propositions often struggle to achieve scale and then wither and die on the vine.
What is the reason some mediocre products and services seems to thrive and attract huge volumes of users? Is it the price? The customer experience? The perceived value for money? Or are there more hidden factors that are not obvious that can take the brakes of a business model, so that it prosper and will ‘scale at pace’.
One has to remember of course that the average longevity of a business model is defined in a few decades. Think Blockbuster that went from top spot to gone in a couple of years, longevity less than two decades, or Motorola that was like Nokia, the market leader in mobile phones, dropped away because they didn’t recognise what was coming down the pipe. They didn’t read the signs, pay attention to technology shifts and consumer (customers) changing habits and behaviours, or the new entrants that saw the world differently. That engineered their approach to doing business entirely different.
As Steve Jobs once said “customers don’t know what they want until they see it” as he redefined how the music industry consumed songs through iPods and iTunes.
But then as we all now know with the rise of Tencent, We Chat and the Asian markets exploding to 60% of the worlds mobile phones use, little did we know that primary channel for business these days in the ‘smart phone’ Makes you mad to think what could of been for Motorola.
So why do organisations go bust or into decline?
And yes decline and into oblivion is getting faster. It normally comes down to organisational malaise and arrogance. Management tell themselves as market leader, as the big 600lb dominant player in the market they are invisible. They sit back, stop innovating, their behaviours become complacent, and yes many books written by consultants and strategists spell out the reasons business models break, go out of favour and simply stop working.
For me it comes down to how organisations deal with and embrace new technologies. Technologies that are so pervasive they can within a short period of time entirely change the rules of engagement for a product or services. Rendering the incumbents stranded and dumbstruck.
Businesses are now mostly technology led, enabled and driven businesses on so many levels. They are reliant upon and wedded to technology, in this case classical computing, that provides the core infrastructure on which everything appears to function, apparently engineered to deal with how the business supports its core propositions and engages with the end customer. But the reality is different, the underlying technology base is not engineered for a specific proposition, product or purpose, it is a patchwork of inappropriate legacy systems, inherited and not fit for purpose, with most of it supporting non value added services, administrative functions and a level of bureaucracy that is deemed necessary to satisfy rules, regulation and yes compliance, the most destructive of any functional department.
“Your technology infrastructure is not designed to support your business today or meet the needs of the future. FACT. The emerging technologies will renewer what you have useless in an instant. Technologies that are already here and then we have new ones that are coming out of stealth mode. Technologies that redefine what we know about how the world around us works and our role as humans in it.
The reality is the technology you have will very soon not help you to compete, let alone survive.
Its a State of Mind
Most management teams appear oblivious, apathetic and uninterested, partially engaging and will not doing anything very often until they are hurting so bad they are forced to do something. What I have described is the situation when you and your business is passed its “Sell By Date”…
Knee jerk is the wrong thing. Making changes because of the latest trends or fad, like Digital Transformation, or establishing a digital garage because it sounds like and looks like progress. So what exactly does Digital Transformation mean. I remember speaking in 2015 at the height of the Chief Digital Officer craze, at their industry conference in London.
Unfortunately my talk was on Why Digital Transformation is impossible, and I gave the following reasons why.
Firstly you cannot change behaviours in companies, near impossible at best. A department with people that have worked in the business 20 years, average age 45 – 55 years old, do you think they will change, do you think they can? Forget it. A room full of millennials yes. Secondly, board of management will never place existing revenues at risk. And for these two reasons alone Digital Transformation is a consulting myth.
To achieve real transformation of any kind you cannot simple put ‘lipstick on the pig’. An overlay or addendum to what is already happening in the business. Transformation is just a bad word, sounds softer than CHANGE which is a very hard word for many to swallow. Real change in any business, industry is made harder by being reliant on an antiquated ‘system of record’ propagated by Big Tech first that sell old tech to organisations as new tech. To milk every last drop of licensing money for systems that make marginal improvements in performance and productivity.
Classical computing, corporate infrastructure design, finance and accounting models are directly linked and built around the inefficiencies of industry models. Models designed for a different era but also industry models, such as Asset Management, Banking, Pharmaceuticals, TV and Entertainment, Chemicals, Manufacturing of most things, Travel and Transport, all industries had they inefficiencies hard wired by ERP systems, rubbish databases. Responding to a set of centralised rules driven by an association, a professional body, a central institution like a regulator, or central bank, a clearing house, the list of unhelpful and unnecessary part of an industry that adds yet another layer of friction, time and cost.
As System of Record is designed to measure and thereby hold costs, designed to slow things down and be able to defend decisions in court if sued. The very basis of this draconian approach is slow down cycle times, requiring every participant in an industry to hold perceived same information about everything as everyone else, customers, suppliers, purchases, sales, invoices. Without a care the information is not the same as everyone else, and then policy overlays GDPR the most overt piece of legislation in decades.
Information held on different computer systems, operating systems and data structures, each with different inaccuracies and errors, and why most companies don’t trust their own data let alone data received from outside. It is farcical. It is bad. It is inefficient. And why old business models die a slow death, and only those with regulators survive to fight another day, protected from CHANGE that creates employment.
So how do you create new Operating Models?
If you come from the rather excellent camp of Richard Koch, strategist and consultant extraordinaire, he would recommend Simplicity itself. Focusing on improving the customer experience by a factor of 10X while more than halving the costs. Offering us examples of Easyjet, Uber and other business models such as Ikea that broke the mould and did something very different. But they were new businesses from the outset. While many will say the customer services at Easyjet is pretty poor at best, he reminds us that it is good for the £35.00 ticket you end up paying, as the operating model of the business redefined the cost base for airlines (now the standard model), allowing the company to sell cheaper and cheaper seats, and lowering fares for everyone.
We look at UBER that merely joined the dots, linking demand that was not being served by expensive taxis, with convenience, with delivery from a new labour force (you and me) that uses the second biggest asset they own, (a car) to make some additional income. A game changer yes, and yet platforms do have great impact, Amazon, Airbnb, Apple, Netflix, and they have redefined how services and experiences are consumed, but Uber own no cars, Airbnb own no rooms and Apple dont have any bands signed to them.
Although I love what Richard does and talks about ,and I keep faith with his 10x customer experience and more than half the costs (paraphrasing his entire works), my focus looks at designing and creating new kinds of operating models that start at 50% or more lower cost, and 10x to 50x the customer experience. But also focuses on the supplier and partner and the social impact and experience. As it is possible to deliver social reform, impact and returns for stakeholders, while changing attitudes and behaviours.
Why decentralisation works far better…
Let the games begin. The first thing to say is it is impossible to re-engineer an existing centralised business model, any more you can transform it digitally. Digital Transformation remains one of the biggest ‘con jobs’ of the decade. So next time you speak to a consultant, director or CDO, ask to see their ‘lipstick’. I bet it’s shocking pink.
The second thing to mention is the organisation, directors, board or lone CEO must let go of the past and rely on new thinking, new approaches, and yes entirely new technology landscape and infrastructure to deliver a new future. For no other reason you cannot build a new business model atop of dated technology infrastructure, siloed data and business rules that mirror a different era and time.
This is also because decentralised thinking is not about the product and service journey, or how the customer is so happy they keep ordering more. Its not about knowing everything about the customer so that you can design products better, or improving the supply chain, your ability to purchase materials better, or hire the right talent. Asin this scenario procurement and HR functions tend to be the kiss of death (along with compliance) when trying to re-invent things, create real change and do things better, as their entire purpose relies of inefficiencies and to dictate terms to the business, although they are meant to be service providers to it.
Beware the IT department that wants new toys to play with, more tech, the fastest machines and newest databases. Because its now about analysing all that valuable client data to second guess the customer, right? IT functions want more or everything, more programmers, more geeks and yes they want to spend gazillions defending the with the latest cyberwar, security and encrypted systems. Yes defending the valuable data your own back offices don’t trust. overlaying yet another layer and more of the same infrastructure that is actually holding back or even destroying your company.
Do not assume as technologists your IT function understands technology, few do. Also do not assume all technologies drive efficiency and improve productivity, most do neither.
Decentralised business models are designed alongside growth models and growth thinking, they are separate from what is already there. They are unencumbered by the past, and empowered by the future.
How to design a decentralised operating model
The very start of the journey is to understand decentralised thinking. Here is a brief snipped of an entire methodology I have designed that helps businesses design, build and deploy a complete decentralised operating model, with products, services and in some cases an entirely new economy to boot.
Ask yourself the following:
* What will be the mantra of the operating model?
* What is its purpose?
* How is created and value exchanged between the participants?
* What governance will be used?
* What outcomes should be expected?
* How th rights and status of those participating are protected?
* How does everyone earn incomes as part of the operating model?
* How are decisions made and disputes handled?
* What are the logical, physical and implied rules of engagement?
* The technology infrastructure layer to support everything?
And then the difficult part, being reliant upon everyone to play nicely in the playground, to add value, to behave and grow the model for mutual benefits, and then watch the new economy you have built scale at pace.
Some of the decentralised models we have work on, touched and work alongside scale at enormous pace, to 20million or even 50m customers in less than 36 months. Presenting entirely different challenges in capital terms and scaling and sizing the infrastructure to support rapid growth. And when you look further east, new operating models now boast 500m users, a completely new measure of addressable markets, market penetration and success.
“Ignorance is Strengthened”…if you dont pay attention to what is coming over the horizon, you may miss the sunset and the sun coming up the next day.
Copyright (c) Nick Ayton 2019