This future series continues with a look at a Deloitte report titled “The hero’s journey through the landscape of the future”. The report focuses on the organizational journey required to re-position for viability in the future landscape. As the landscape simultaneously fragments and consolidates, the authors see these forces and others changing the nature of relationships among businesses. A very good framework for this re-positioning is presented, along with great descriptions of the big shifts that are driving the need. The report sets the stage by identifying the main drivers of this future business landscape:
- Pressures on companies
- Pressures on individuals
- Eroding barriers: Lowered barriers to entry, commercialization, and learning
- Fragmentation: Staying niche, nimble, and small is the new goal for many
- Concentration: Emerging scale-and-scope operators will fuel and benefit fragmentation
- The need for mobilizers to connect and mobilize the ecosystem
As the big shifts accelerate, the authors believe companies will refocus from maximizing operational efficiency to accelerating learning. They suggest that most companies operate multiple business types within a single organization, driving a lack of focus and friction across diverse groups that compete for resources. There is an inherent cultural clash, as three business types tightly bundled into large enterprises have very different economics, skill sets, and cultures. In addition, the capacity to learn is sub-optimal. The three business types are:
Infrastructure businesses compete on scale, providing high-volume, routine processes, or products. These businesses are driven by powerful scale economics, require skills to manage high-volume, routine processing activities, and have cultures that prioritize standardization, cost control, and predictability. The facility or asset trumps the human being.
Customer relationship businesses act as trusted advisors; bringing offerings to individuals based on what best meets a particular need. The customer relationship business competes on its scope of relationships, driven by economies of scope that build broader relationships with a growing number of customers. Advanced analytic skills are critical for this business type, enabling a deep understanding of the evolving context of each customer. The culture of this business type is customer-obsessed; no matter what internal issues arise as a result of meeting customer requirements. Trust comes from a willingness to satisfy individual needs, even if it requires offerings developed by other companies. The obvious tension comes from the product/service business type within the company wanting to restrict customer choice to only the products and services developed by that company.
Product and services businesses increasingly compete on speed and creativity. They will need to be emergent; anticipating evolving customer needs and quickly meeting those needs. This business type is driven by economies of time, ensuring that market opportunities can be quickly identified and addressed through rapid iteration in design and development (critical skill set). The culture prioritizes creative talent, and everything is oriented toward supporting that talent. The challenge for this business type is securing this talent. Large companies pursuing this business type are disadvantaged, as the competencies required will increasingly reside with smaller, fragmented players. These players are closer to the consumer and can provide personalized service due to a deeper understanding of customer needs. In addition, the nimbleness required by this business type lies with smaller players. Mutually beneficial relationships with niche product/service businesses are the likely path to innovative products and services for large enterprises.
Going back to an underlying premise that speed of learning replaces efficiency as a key driver, focus is many times a prerequisite for learning. For this reason, the authors believe that over time, it becomes difficult to sustain a company pursuing all three business types concurrently. They envision large enterprises increasingly choosing a single business type to pursue, thereby dictating their position in the new business landscape. Their advice for effective large enterprise participation in the future of business is:
- Understand the business types your company participates in today
- Where possible, focus more tightly on either the infrastructure or customer relationship business
- Re-frame interactions with fragmented players from competition to collaboration
There are two distinct paths identified in the report (I would add a third that is maintaining the status quo):
Path 1: understand what types of businesses you operate today and separate those businesses operationally and organizationally so that each unit is focused around a single business type: product/service, infrastructure, or customer relationship. By consolidating business types with similar cultures and economic drivers, companies can reduce distractions and start gaining focus. For example, all infrastructure business activities, such as manufacturing, logistics, and finance, could be grouped together into a business unit that administers high-volume routine processes.
Path 2: Eventually, many companies will realize that creating separate units around each business type while helpful in the short run, is not sustainable in the long run. Competition will force them to become more focused, driving an unbundling of the different types of businesses, and choosing one of the core business types to pursue. The ecosystem (a major piece of the future landscape in my opinion) is then leveraged to access services from leading players in the other two business types.
As the authors rightfully state, the rapidly changing future environment puts a premium on openness, maximizing learning, and accessing leading capabilities and resources wherever they reside. Performance improvement will not come from control and ownership in this future.
One key take away is the notion that structural change is coming. There are multiple emerging models on exactly how to change, with some key common themes among them:
- This Deloitte report suggests an emerging model for business to embrace. I like the approach, given my belief that ecosystems are the dominant future source of value creation and capture.
- Along the same ecosystem lines, MIT has developed a Model with an ultimate goal of achieving ecosystem driver status. At the end of the day, the number of viable ecosystems is a finite number – so this is aspirational, but provides a way to think about a transition path.
- Another model was recently introduced in a new book by Geoffrey Moore titled Zone to Win: Organizing to Compete in an Age of Disruption. This model was embraced by SalesForce.com and Microsoft. I’ll summarize this model in a new post shortly.
- Still another point of view is articulated by Singularity University in their work on Exponential Organizations.
Clearly, organizational leaders have work to do. You can find links to the other posts in this Futures Series below: