Design For Digital #7 – Hack My Business Model
New technology is the engine behind radically reinvented business models. Undeniably, it is the age of digital disruption; it comes in two flavors, depending on whether enterprises choose to thrive on disruption or are simply confronted with it. Creating disruption needs an open mindset, bypassing what is established, and thinking the unthinkable. Although it seems to be an oxymoron, there is actually a system behind digital disruption. Dealing with disruption, whether it comes from the outside or not, requires a responsive digital platform and an agile organization. A Black Swan world asks for Black Swan measures.
Nassim Taleb’s equally relevant and amusing The Black Swan describes the phenomenon of the black swan as a metaphor for unpredictability and disruption. You see, until the end of the 17th century the inhabited western world presumed that there were only white swans. This insight was based on observation and a bit of extrapolation: as far as the eye could see, only white swans were present. Furthermore, this always had been the case. Therefore, everything indicated that in the future the situation would be the same. Until 1697, when Dutch explorer Willem de Vlamingh sailed into the still unknown continent of Australia and bumped into flocks of black swans on the very first river he took.
Black swans occur when we least expect them and they cannot be predicted based on what we know and see. Clearly, the new wave of digital technologies – cloud, Big Data, social, mobile, 3D printing, the Internet Of Things – is creating a whole new bunch of black swans; especially when these technologies are combined to create products, services and business models that have never been seen before or were simply deemed impossible.
Guess we all know the striking examples by now of digital newcomers that are shaking the core of incumbents with compelling products, low prices and lightning-fast delivery. Not constrained by the usual obstacles, they can offer propositions in new and unique ways. Ask taxi companies, travel agencies, bookstores, record companies, hotel chains and newspaper publishers. It’s easy – and tempting too – to envision a valley of doom in which enterprises will end up if they don’t take immediate action.
The good news: digital disruption (see our dedicated Beyond The Buzz episode on this) can bring phenomenal opportunities to established enterprises as well, as long as they choose to thrive on it and leverage their corporate assets and qualities at the same time.
Even better, creating disruption is not just a matter of unleashing raw creativity, hoping that a decisive moment of epiphany magically occurs. There’s actually a system to it.
In Leading Digital, 5 archetypes of digital business model reinvention are described:
(1) Reinventing industries involves a substantial reshaping of an industry structure, as Uber did for the taxi market, Airbnb for lodging and iTunes and Spotify for music. In all cases, this involves introducing a business platform that equally attracts buyers and suppliers, leveraging economies of scale to an extent that is very difficult to match by existing businesses. Yes, software and platforms are eating the world. And that’s great for a business. If it’s part of it.
(2) Substituting products or services directly replaces core products or services with a new digital format. As technology is virtually unconstrained, there is no reason why products and services that can be digitized are sooner or later replaced by their digital instances. Whether it is in books, music, snail mail or 3D printing, in many cases organizations must cannibalize part of the existing business in order to embrace the new format. Look at Netflix for how it’s done, or at Post Danmark.
(3) Creating new digital businesses involves the creation of new products and services that generate additional revenues. Established enterprises are at the advantage of here, as they have the phenomenal opportunity of leveraging their existing assets and brand with digital augmentation. The Internet Of Things brings lots of inspiration here and brands such as Nike, New Balance and L’Oreal lead the way.
(4) Reconfiguring value delivery models means recombining products, services and data to change the way an enterprise plays in the value chain. Using technology to connect products, services, and information in a different way can build new stickiness with customers and competitive advantage. It may often involve cutting out the middle man - clearly demonstrated in insurance, retail and travel – but companies such as Volvo prove that it is possible to open new, direct channels to the client while enrich existing (dealer) channels at the same time.
(5) Rethinking value propositions uses new digital capabilities to target unmet needs for existing or new customers. Reinventing business models is not always a matter of being disruptive: it can also mean taking a fresh, repositioning perspective on existing products, services and assets and simply use the next wave of technology for renewal. Insurance company Tokio Marine used mobility and real-time data to create ‘one-time’ insurance for very specific purposes and circumstances and media company Entravision used the fine-grained customer behavior data it was collecting to set up Luminar: an entirely new analytics business.
And there are many more ways to design for disruption. TechnoVision describes numerous technology trends that hold disruptive potential, particularly the last ones in each ‘cluster’. Have a look for example at What Would Amazon Do, Cognito Ergo Sum, Digital Self and Friend That Machine for fresh inspiration.
No matter if an enterprise finds itself at the sending or receiving end of disruption – an open, digital platform (or Platform No. 3) is a prerequisite for agility and responsiveness. The API Economy provides essential reading, just like End User, End Producer and Data Apart Together. Clearly, businesses need to at least understand the mindset of a start-up – if not mastering it - and Train to Scooter dynamics provides an introduction to it. Have a look at our 10 principles for platform design for another, complementing perspective on this.
It often takes a radical outside-in perspective to find true disruption and design thinking can come to the aid here, just as much as reaching out to the ecosystem of startups (guided or not) - as innovation tends to happen elsewhere. In our network of Applied Innovation Exchange labs, the focus is not only on practically applying innovative technology to business issues, it's also about continuously curating the ever expanding network of potentially disruptive solutions and ideas. Sometimes, this is done in a very systematic way; just as often it may be a matter of trusting on the power of serendipity.
In any case, it’s going to be an exciting roller coaster ride and we may equally enjoy the views of valleys of doom and mountains of growth.
Oh, and if you bump into them: say hello to the black swans.
Part of Capgemini's TechnoVision 2016 update series. See the overview here.