August 02, 2019
CEOs can renew their businesses for the digital age
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As they are catapulted into the digital era, many businesses are crash-landing in a world they no longer recognize. At their helms are CEOs who have navigated choppy waters for decades and taken their company to market leadership without looking back.
But as a tsunami of digital disruption hits every industry, many business leaders are being capsized. They are seeing the iceberg, but doing nothing about it. FoundersLane, the corporate venture builder, has performed in-depth research into what works best around the world - and here, as a result, are five steps CEOs can take to renew their businesses.
If ever there was an industry ripe for disruption... it’s every industry. If you look for ways to change, you will find them. If you are alert to threats, you will find them, too. The world grows more dynamic every day, and it is naive to think that it does not affect you. Take for instance Stora Enso, the Finnish paper manufacturer. Their corporate history can be traced back to the oldest-known preserved share certificate in the world, issued in 1288. You might not think such a company would be primed for digitalization; however, they have completely embraced technology with a digitalization fund, an accelerator program, internal innovation tool, external business partnerships and corporations, and theme-specific excellence groups. Initiatives like these foster a mindset that drives everything else.
A good place to start is by examining long-held assumptions in order to educate yourself and your teams about the new business models that outperform every other business model in the digital economy. The more the team understands the finer details of how digital models can create and capture value, the higher the chance of a breakthrough.
By 2025, 30% of global economic activity ($60 trillion) will be mediated by digital platforms within new ecosystems. If you can’t figure out which ecosystems you will be operating within, and what role you will play, how can you orchestrate the market? When you start to think through the implications of your industry’s shift into an ecosystem with a myriad of players, organized by platforms, you begin to realize that your usual approach to business needs to be examined: the type of market analysis you perform, the opportunities and threats that exist, and the platform strategy you need to be successful in the future.
By continuing to invest in old strategies in a radically changing economy, you are missing an opportunity. Resource allocation is how corporate strategy translates into action, and that, of course, includes capital. Over 90% of companies do not vary their spending strategy from one year to the next, and yet wonder why profits are stagnating. As you create a new investment strategy, keep in mind that 85% of incumbent digital investments in Europe and the US are generating zero or negative profits after the cost of capital. They fail because they are not making investments that change the game; they are simply digitalizing existing business models. By creating a portfolio of digital investments that include platform-based ventures, you can minimize the level of risk involved. And what did Apple, Amazon, and Microsoft do when they turbo-charged their businesses? They allocated at least 10% of their annual budget to new digital business models.
Tech entrepreneurs are your untapped resource for an unfair advantage.
It’s time to start co-creating with proven tech entrepreneurs. These are the best people to execute new digital business models. Of course, you also need a versatile organization to do this, with a digital business unit that reports directly to you and which includes new tech talent, new skills, new metrics, and new incentives. Inviting tech entrepreneurs to collaborate and lead your digital ventures will only work if there is an enticing incentive structure in place - a generous equity stake, for example. This has worked at companies like PingAn - a $90 billion conglomerate currently in pole position in China’s digital insurance race.
The existing company should remain clearly separated from the new companies in your digital venture portfolio or there is a risk that old ways of thinking and existing hierarchies could jeopardize new digital innovation. Leave the current business to focus on its core strengths, but allow it to optimize everything it does, including decision-making, with software and data. This will enable incremental growth at the core, but exponential growth can be realized from the standalone digital unit. A growth board can bridge the gap between the two very different worlds of corporate and digital entrepreneurship. The digital unit has the potential to drive demand for your future core business, as well as enabling learning exchanges from the new venture to the core.
The new way to unlock rapid growth is to leverage others to serve your customers. What this means is that you no longer have to own all your own assets. Like Amazon and Apple, the most customer-centric businesses on earth are those that leverage others to serve their customers. The rapid expansion comes at the hands of legions of third-party developers and merchants supplying the Apple App Store, Amazon Marketplace and PingAn’s platforms. In a hyperconnected world, it is increasingly possible to think of yourself as orchestrating an ecosystem of innovation, not merely being a supplier of products and services. To make this happen, you need to incentivize others to work with and through your business. The most important third parties to leverage are entrepreneurs; they are your key resource for creating new growth and value in the digital economy.
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