Are eroding barriers to entry hurting your business models?
Just 7 years ago, Motorola introduced the first thin cell phone to rave reviews and industry dominance. Yet, in a flash, it faced a flood of lower cost Asian knock-offs then lost its position to smart phones only to be bought by Google. Motorola’s engineering skills, supply chain excellence, and brand name strength were of little use in a massive industry upheaval enabled by new information technology.
Google, meanwhile, moves from a once-distant competitor to posing a huge threat to Apple, RIM and Microsoft Windows. Google built mobile operating system leadership by acquiring and freely distributing Android. With its acquisition of Motorola, Google will likely become a device leader. No wonder Samsung’s reducing its reliance on Google’s Android system.
In the Motorola story is the story of how the information age is making it harder and harder to win at business in the same old ways. Yet, at the same time, the information age is opening more opportunities for wealth creation – like Google’s mobile computing position – than ever before.
Here’s how the information age has transformed our economy:
- From closed markets in which companies self-performed most functions to open markets in which we depend on a host of others. Today there is no end to outside service companies to assist in starting up or running a company – for information technology, talent recruitment and development, design and manufacturing, logistics and selling, servicing and disposing of final products. All a company really needs is a winning business concept and the ability to align outsiders to deliver on that concept.
For example, start-ups are employing far fewer workers, from 7.5 in the 1990s to 4.9 today, according to a recent Wall Street Journal article. I read the statistic not as a statement about entrepreneurs’ desire to be lean (the journalist’s story line) but as a statement about today’s open markets.
- From closed markets through which there was protection for leaders and leading products to open markets in which it’s easy to copy other companies offerings because of the host of businesses poised to help. The Fashion market is a great example. Couture runway creations morph into Zara ready-to-wear lines in a matter of days.
- From expected competitors to competition seemingly from out of nowhere. Sticking with the fashion scene, a new on-line company lets couture designers sell originals directly to consumers, an alternative channel to high-end department stores. Saks and its competitors should be worried.
- From closed markets in which prices were hidden to open markets in which prices are transparent allowing customers to force price competitions. Businesses host auctions for their suppliers and consumers use search engines like Kayak to locate the lowest prices.
- From local markets to global markets. The information age enabled industries to consolidate, giving national and global players efficiency advantages over locally- and regionally-focused competitors in most markets. The information age enabled Starbucks, Walmart and too-big-to-fail global banking.
In this world, the old strategies of protecting positions through cost cutting, innovating products, branding and marketing just don’t cut it anymore. They do nothing to offset the massive forces creating commoditization. Nor do they guarantee access to the opportunities in our digitized world.
But traditional strategies are still essential, just no longer sufficient. The situation is like quality – it used to be a differentiator. Now it’s a requirement to be even considered as an alternative by your customers.
In today’s economy you need hard-to-copy, benefit-creating capabilities to keep you in the game, or better still, to shape the game. Evolve the ones you have and add new ones regularly in reaction to others, to adapt to emergent trends and to proactively create tomorrow’s trends. The strategy literature is full of ideas for how to do just this, helping you build the strategic agility your enterprise needs to thrive.
This list is a sampling of topics filling strategy journals.
- Dynamic capabilities
- Business model innovation
- Revenue model innovation
- Platforms and ecosystems
- Seizing the white space
- Blue ocean strategies
- Fast-follower/imitation capabilities
- Modular organizational forms
- New methods for customer insight
- Open innovation processes
If there’s one message from the list it’s the following: Leaders will grow organizational value only to the extent that they continue to grow their strategy-setting skills. If you are not taking time to learn about strategies for today’s turbulent, information age economy – you won’t like what markets do to your business.