“When you’re finished changing, you’re finished,” said the wise Benjamin Franklin. The trick is, how to decide when change should happen?
It’s a topic that makes business leaders nervous. Change is good, but so is stability. The world does not comprise of only mavericks and trailblazers – and even those often reach their stature through steady determination, not constantly rocking the boat.
As the world builds on the tectonic shift of technology that was the Internet 1.0 era, we move into Industry 4.0, also called the Fourth Industrial Revolution. The radical impact that technologies such as the internet, email and business applications created is now reaching beyond our computer screens and into the world around us.
Breakthroughs such as the Internet of Things, blockchain, artificial intelligence, connected cars, and smart cities are not just shaking things up – they are rewriting the rules.
History repeating itself?
Radically changing business models is not a new phenomenon. By 2027, three quarters of S&P 500 companies will be replaced. Over the last 60 years nearly 90 percent of Fortune 500 companies ceased to exist as independent entities.
The last time business experienced such upheaval was in the late 1970s, when new technologies sparked a massive shakeup of incumbents, leading into the consolidation-crazy 1980s.
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Hasbro, a multinational toy giant, previously sold textiles. So did Berkshire Hathaway, now an investment titan. Western Union was once the leader of telegraph systems, today it is a leader in cash transfers. Fujifilm has shifted its vast skills in chemicals from photography to making high-end cosmetics.
The six business models for change
Although we can’t see the future, we can look at what is working so far. And from these learnings, six distinct business models show promising resilience:
- The Outcomes Based Model – Instead of selling just products or services, a company’s revenue is determined by the outcomes their customers experience. Insurance companies favouring a usage-based model are good examples of this.
- The Expansion Into New Territories Model – This is the most popular example of disruption, with cases that include banks moving into telecommunications and telecommunication moving into banking. Amazon – a major freight customer – is now expanding into that very business.
- The Digitisation of Products and Services Model – Here companies use digitisation to improve the entire value chain and reduce costs. Think Apple’s music empire, or the efforts by banks to convince customers to swipe cards instead of exchanging cash.
- The Companies that Compete as an Ecosystem Model – This involves using complementary partners to build richer products. One could argue that car companies have been doing this for decades, but the connected car is reshaping even that stoic sector through new and radical partnerships.
- The Shared Economy Model – These businesses thrive on exploiting under-utilised assets sourced from third parties. AirBnB owns no hotels. Facebook creates no content. Yet both grow on those elements, all coming from the outside.
- The Digital Platform – The sixth and final model, this could be an online marketplace such as New Zealand’s Powershop; a networking space like SAP Ariba or the business tools found in Microsoft’s Office 365. Digital Platforms not only offer more for less, but create new and exotic ways of monetisation.
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Even the most conservative and largest companies have shifted their business models, extracting most of their revenue from streams that didn’t even exist a decade ago.
You may feel your business is still in calm seas, or perhaps it already feels the waves smacking its hull. But it’s critical that you see the winds of change blowing, and prepare to chart a new course for success in your business.