Joe Vanden Plas, of Madison’s InBusiness, summarized my keynote address kicking off WTN‘s highly informative FUSION 2012. FUSION is the annual Midwest conference to deepen understanding of the business implications and key success factors associated with new information technology. I’ll blog about what I learned at the conference next seek. For now, read my take on how the information age has transformed the economy and its implications for C-suite leaders and IT professionals. Thanks Joe!
Joe’s summary article
In their preoccupation with today’s challenged economic environment, business executives might not have noticed that the nature of competition is changing, but failure to adapt could put an organization on the critical list.
So says former Madisonian Kay Plantes, a principal with the San Diego-based Plantes Company who still works in Wisconsin. Plantes, delivering the March 8 keynote at the 2012 Fusion CEO-CIO Symposium, said the recession and subsequent slow recovery diverted attention away from long-term changes that are reshaping markets and industry boundaries.
The basis of competition has changed, she said, from the features of individual offerings, which demanded standardization to drive scale and efficiency, to competition based on business models.
This new basis of competition is changing the roles of those who occupy the C-Suite, and it “demands fresh approaches to how you deploy technology and work with vendors,” Plantes said.
According to Plantes, everything we need to know about the transition from the industrial age to the information age can be learned through the decline of Motorola Mobility. The leader of the wireless pack as recently as 2004, its acquisition last year by Google, a relative newcomer to wireless communications, demonstrates how quickly transformation can occur in the Internet age.
The Internet’s fundamental innovation was to dramatically lower the price of communications and increase its speed, Plantes noted. Economists know that boundaries of jobs, firms, supply chains, and industries are significantly shaped by communication costs. In the pre-Internet age of landlines and snail mail, vertical integration was an advantage in lowering costs and creating barriers to entry. Sellers of products and services had tremendous power over customers and long periods of product differentiation.
In a nutshell, the Internet led firms from being vertically integrated to increasingly reliant on external supply chains. Supply chains made it increasingly easy for existing and new competitors to quickly and effectively copy Motorola’s thin phone.
“With the Internet, everything changed,” Plantes said. “Product differentiation rapidly disappeared and power shifted from suppliers to customers.”
As this transformation occurred, lower communication costs enabled industries to regionalize, nationalize, globalize, and consolidate – giving business customers enormous buying power. Motorola is now selling to Amazon, BestBuy, AT&T, and Verizon.
“Lose their business and you are out of luck,” Plantes said. “As for consumers? They can now shop at Best Buy to try out the gear, then use a phone app to find the lowest price, further eroding Motorola’s pricing.”
These changes created the ingredients for a commoditized market, as customers are able to use their purchasing power to force companies to compete on price, which is part of the reason inflation was tamed during the past 10 years.
No business should consider itself immune to these competitive dynamics. “It only takes one other enterprise meeting customers’ requirements, and a motivated customer, for price-driven commodity-competition to emerge,” Plantes warned.
The Internet not only enabled this customer centric revolution, it opened whole new product categories and customer benefits (smart phones are just one example), and dramatically increased the speed of adoption of new categories. Thanks to the global supply chain, it’s easy for companies to enter a category, so Apple moves from computers and music devices easily into cell phones, a development that further weakened Motorola’s competitive standing.
Disruption all around
Witnessing the rapid adoption of smart phones, iPhone apps, and Facebook, Google senses that search increasingly will be mobile. So it acquires the Android wireless operating system, and gives it away for free to cell phone companies in order to secure its place as the mobile search engine. Then, as Motorola struggles with the financial pressure of being commoditized, Google steps in and buys Motorola’s phone business.
“In seven short years, wireless communication industry market shares are completely rewritten,” Plantes noted. “If you are a health care provider, government agency, or educational institution, and you think you’re immune from these disruptions, think again as the need for radical transformation of your industries is far higher than it was in wireless communications.”
Just ask Sony, which is out of TVs, and Kodak, which is out of business. Newspapers were hurt by the recession, but are more impacted by niche sources of content, and advertisers are following readers to the Internet. Lands’ End has on-line competitors that allow a consumer to create one-of-a-kind T-shirts; concierge medicine practices are picking off the cream of health care providers’ customer bases.
This is why companies that ignore the need for advanced data analytics are placing themselves at a competitive disadvantage. “Fragmentation is why your CMO is all over your case about the need for better information about customers,” Plantes explained. “In fragmenting markets, you must understand who the distinct segments are and reach them with unique messages and offerings, or someone else will.”
Better looking models
According to Plantes, too many for-profit companies, educational institutions, and health care providers still are using industrial age tools for a new set of problems and opportunities. The old strategies are no longer sufficient to build organizational success because they don’t offset the underlying drivers of stronger and more rapid commoditization, and they don’t enable organizations to capture new value-creation opportunities.
“Something else is needed,” Plantes stated. “That something is business model innovation.”
Business models have become the basis of competition because they are much harder to copy than a product or service. Apple, for instance, has aligned its resources, processes, knowledge, solutions, and even its culture – all parts of the business model – to deliver on its value promise.
“Why open retail stores? Why break with the past and open its architecture to application developers? Both decisions made the Apple experience even more effortless, and makes us even more capable,” Plantes remarked. “Dell can hire people from Apple and Samsung can try to copy Apple’s products, but copying Apple’s business model and matching its value promise will be much harder, and therein rests Apple’s sustained price premium.”
Although most organizations have multiple business models – different ones for different target markets –leaders often take their business models for granted. They fail to invest in creating hard-to-copy platforms, or they do not evolve or innovate their models. Plantes compared business models to the root system and trunk of a tree – left unattended, they stop generating healthy growth.
If your business models are not anchored in hard-to-copy, advantageous platforms that allow the organization to deliver superior benefits and customer experiences, you’d better be the Walmart of your sector – the one with the lowest cost structure. “Every industry has a Walmart,” she noted, “and they alone thrive when price drives decisions.”
Avoiding the Kodak moment
In Plantes’ view, it all boils down to this: is your enterprise like IBM, a model for continuing evolution of its business models – selling off commoditized products to invest in new platforms and business models that advance its “Smarter Planet” vision? Or is your organization on a path to its own Kodak moment?
Avoiding that path places demands on C-suite leadership. In the industrial age, Plantes said leadership teams focused on execution effectiveness around the industry’s business model design. Today, the C-suite ensures success by becoming chief architects of their organization, innovating business models and the platforms and network of partners they leverage.
In the industrial age, the focus was on efficiency, Plantes added. With rapidly changing industry boundaries, fragmenting markets, and unexpected competitors, today’s C-suite must focus first and foremost on agility. Cutting costs that reduce maneuverability is penny-wise and pound-foolish.
In addition, Plantes does not believe there is not enough capacity at the top of organizations to drive change. Instead, the C-suite must create highly adaptable cultures in which change is bottom-up, with leaders setting overall change goals and top-level strategies.
To accommodate this change, she said organizations must be far more externally focused, more reliant on outside vendors for standardized work (spend your time being more strategic), come to the table with innovative ideas, and be more collaborative in working with colleagues to transform business models and platforms.
“If you don’t want to make these shifts as an IT leader, then go work for the IT vendors whose role is to make clients more efficient, faster, and secure in acquiring and using information,” Plantes advised. “But if you do want to make these shifts, welcome to the most exciting learning period of your life, one with enormous opportunities to make a considerable difference in your enterprise’s future.”