While many established companies are feeling the effects of new digital businesses, other incumbents are responding well to the threats and opportunities of the digital age.
The old way of doing business is slowly vanishing, and any company that struggles to hold on to these old ways is likely to succumb to them as well.
Even though companies rely on people at all levels to transform the business, if the CEO does not have an entrepreneurial and transformational mindset, the company’s innovative talent could be wasted.
It’s because digital transformation isn’t just about products and technology. A digital transformation should enable new business models, since it is business models that either enable companies to thrive or fail today.
New disruptive business models are at the core of companies we pay attention to. In other companies that are in decline, antiquated business models are at the root of their problems.
Delivering value and capturing a portion of that value in the form of revenue and profits is the essence of a business model. Even though some business models have existed for a long time, others are new, and still others are awaiting discovery or discovery to occur.
So, the question every board should be asking its CEO is,
“Are we setting out to create the new normal in our industry or are we waiting for a known or unknown competitor to do it and erode our competitive edge, market share and profit?”
“Is our CEO thinking radically? Are they adjusting their governance rules for experimentation and creating an environment where innovation and new business models can thrive?”
In recent years, we have seen a fundamental shift in how companies compete. It is no longer about cheaper prices or better quality that determines success in business. Today, it is all about having an exceptional business model.
And while a successful business model is dependent on the right operating model, and the right operating model is dependent on the right people, processes and technology, etc. Put simply, it’s the business model that determines how a company creates value and makes money. And if that business model isn’t effective in a digital world, then eventually the company will find itself in trouble.
The problem in many firms right now is that they’re limited to digital sugar-coating projects and deluding uninformed executives that the company is transforming in an authentic way, simply because of its digital projects. Because the words digital and transformation are not the same, and the words often don’t belong in the same sentence.
People often associate transformation with the adoption of new technology, and while technology is one of the important enablers of transformation, it doesn’t transform a company or an industry on its own.
Put simply, too many companies are still relying on business models that were never designed to compete in the digital economy, because they were created in a very different era to the one we now live in.
However, some traditional managers and leaders struggle to give up their old beliefs, and if they are unable to do so, then that might be a sign that those managers and leaders are nearing the end of their careers as they know them.
And while many companies are doing their best to translate notions of digital transformation into a business reality, too many are relying on small improvements that only create a better version of the past. Their so-called digital transformation is often little more than a technology upgrade and a basic business change, which is often a world away from legitimate transformation.
When you think about where well-known new business models come from, it doesn’t take long to realize they originate from entrepreneurial thinkers – who started their own businesses.
CEOs first need to embrace the idea of creating a new business model that’s designed for the digital economy and not stay stuck with what worked well in the good old days. Because, like it or not, those good old days were part of another era. And while that might make for beautiful nostalgic stories of how it all used to be, it’s not the future.
Once CEOs are prepared to embrace an entrepreneurial and transformational mindset, they then need to do what it takes to ensure they have a senior leadership team that is aligned with that new way of thinking. And while that might not be easy or kind, it’s a job that needs to be done.
CEOs also need to ensure the company is equipped with leaders who know how to embed innovation into the organisation, who know how to nurture a digital economy workforce, and who know how to identify, acquire and get the most out of start-ups.
It’s also important CEOs recognise that business model innovation doesn’t need huge budgets and large teams. That’s the antiquated R&D approach. Many of the new business models of our era are created by innovative entrepreneurs in start-ups with no money.
So, while CEOs need to be clear about their offensive strategy and create new business models, they also need to protect their companies by strengthening the weak links in their organisation.
The reinvention of business models can and should happen in every size and type of company if it wants to capitalise on the digital economy.
There’s an abundance of innovative business transformations to get inspired by, and the staff and stakeholders of any company that isn’t on a journey of legitimate transformation should take steps to change that or face the inevitable.
But the reality is, regardless of what they achieved in the past, not every CEO is cut out to lead in the digital economy, and that’s something that every board needs to be mindful of.
Most established companies have a great deal of value. The challenge for the CEO is to move that value into a new form and build on that value in new and innovative ways.
This will inevitably mean leaving behind some elements of the old organisation, which could include products, processes, people and more.
The company needs to keep its traditional revenue and profits flowing until it can rely on a new business model that is fit for the digital age. As a result, companies must allocate adequate resources to both operations and transformation, as compromising on either can spell disaster.
The nostalgia of the past will not keep a company in business, and it needs to be replaced by foresight, re-invention, and a new future, which needs to emphasise the value proposition and capabilities necessary to create the future.
Changing from one business model type to a more effective one in order to defend or regain a company’s competitive advantage means managing a deep strategic renewal process that includes a shift in the firm’s dominant logic and mindset.
Innovation must be at the very core of every business model transformation, and this requires entrepreneurial leadership which should be intensely focused on exploiting new opportunities. And while there’s no magic formula to a successful business model, it’s plain to see that two of the common characteristics in many of the most successful companies of our time are now Personalisation and Platform.
Even after a successful transformation, companies need to continue to rejuvenate their business models to remain competitive in a world that’s now in a constant state of transformation.
While almost every company has technology projects underway, let’s understand what the real transformation for the company is, and how that will enable the company to thrive in the digital economy. Then we can appreciate the role different projects and parts play in the overall transformation.
The reality is that right now there are thousands of digital projects taking place, which are not contributing to an overarching strategic transformation of the business. And as cool as some of them might sound, many are nothing more than random acts of digital sugar coating. And while that might give some people immediate gratification, it does little for the long-term health of the company.