Cultivating new business models in the wake of digitization

On 19 February 2019, I spoke at the Smart Ports Summit in London to share and discuss my thoughts on the topic of new business model cultivation.

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 the 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 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 start-ups are 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

The start-ups 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 right-skill workforce to make their businesses learn how to co-create across the ecosystem. In addition, many need to find ways to reconfigure their boards to bring new ideas and knowledge to the strategic debate.

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 the 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 ground breakers 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 start-ups, with a degree of liberty towards the central hierarchical structure. The second is partnering, i.e. identifying the most promising start-ups in a respective 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.

Hyperloop Transportation Technologies (HTT), a production and design company with the vision to revolutionize transportation has found a way to accelerate innovation. Based on a shared vision, effective collaboration mechanisms and incentives, HTT has set up a network of 900 professionals, including designers and engineers, and 50 partners, ranging from startups to Fortune 500 companies.

This network can be activated instantly to solve any kind of problem. This way of rapid innovation can disrupt any manufacturing-based business. But it does not stop there. The “crowd-powered” firm can bring new solutions and disruption to any industry. Or even to the economy as a whole. Tomorrow’s businesses might not anymore be defined or owned by organizations but by the community of stakeholders that creates and delivers.

Cross-disciplinary 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. 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 this 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.

All intangible assets are human based. The way we select and treat human capital is critical for the success of new business model cultivation. It is about change and transition, which we have to manage well.

Interesting to note is the outcome of the very recent studyAutomatic Reaction – What Happens to Workers at Firms that Automate? The research found that “0.7% of all workers on average leave their employers each year due to automation. In contrast, in the Netherlands, about 3.5%-7.2% lose their jobs each year in mass layoffs, typically defined as a layoff of 30% or more of the workforce”.

While the data shows that workers do experience loss of both earnings and work following a spike in automation investment, these losses are substantially lower than those experienced by workers following a mass layoff. Finally, highly-paid workers are more commonly affected and are more likely to leave as a result of automation, but effects are more severe for less well-paid workers.

Leadership, one of the most important intangible asset and its quality determines the positive and negative impact technology might have on the people and the organization.

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 start-ups is capitalizing on the data the 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.

This article was originally published at KNect365 Maritime.

Wolfgang Lehmacher

Industry and technology evangelist and polymath, assisting stakeholders across the global supply chain ecosystem – from start-ups, to asset owners, to Fortune 50 companies – in upscaling and transforming their organizations: envisioning system change, what it means, and how to stay/get ahead of the curve. Engaged in think tanks, awards committees and expert groups, including the IATA Air Cargo Innovation Awards Jury, and the World Economic Forum Expert Community, supporting projects such as the Blockchain for Supply Chain initiative