Redefining your business—is that really necessary?

“Overall, the inexorable shift from simple digitization (the Third Industrial Revolution) to innovation based on combinations of technologies (the Fourth Industrial Revolution) is forcing companies to re-examine the way they do business” (Klaus Schwab, January 2016)

Pinpointing a key challenge for businesses as a whole, the esteemed founder of the annual Davos-based summit once again draws the attention of senior executives. While predicting that looking into the next decade represents more changes than experienced over the past fifty years, both carrying unseen impacts on supply-side and demand-side economics.

In light of that, does that mean you need to redefine your business?

Honestly, my perception is that very few companies proactively spend time considering such questions. And when they do, it is rarely proactive, and may often prove too late. For that very same reason, it also seems particularly relevant, primarily as an executive management team seriously to reflect on the nature, speed and volume of changes as compared to how the company is expected to meet reality in the face of competition. Not just here and now, but the future.

Redefining your business is not just about adding another source of income. Redefining business is essentially about challenging shareholders by throwing the entire set of business beliefs into the air, re-stating both the mission and the vision. If you’re scared doing this exercise, start asking yourself as a CEO, senior manager or shareholder what it will take for the company and the organisation to be around in say, five years. Also, does that mean anything to your potential in maintaining a sustained competitive advantage or competitive advantage at all? I’d say it certainly does.

Ceteris paribus, what is the competition the organisation is up against today? What is it in five years? Is the organisation ready to face such demands, applying today’s capabilities and competencies? Hardly, you’d probably end up concluding. You probably already know this from the sense-making process in doing your strategic analysis and planning.

Your considerations should continue by questioning what products and services are currently offered. Also, you ought to ask yourself how are they offered in context to the customer expectations today as compared to customer needs in a future realistically not so far ahead, your next milestone in completing this thought process is most likely that this works fine as of today and that the value proposition fits well into the market demand. I’d say it does not.

On top of this, you should also acknowledge that the need for being able to read and interpret impact of changes in the external environment has dramatically enhanced, primarily reasons of the speed at which observed changes occur.

So why would you need to care, after all? Your organisation may not from an opportunity cost perspective be able to afford adapting to a future ‘that far’ at this point in time. It is already busily occupied, probably running with increasing brand value, profitability up for the third consecutive year, and so on. In the face of the words entering this post, the question is really whether you can afford not to adapt.

While history books and management literature are full of examples on how technological leaps in the 20th century repeatedly and inexorably contributed to outpace even renowned brands in their respective industries—e.g, Tripsas and Gavetti on Polaroid (2000; cited in O’Reilly and Tushman, 2008)—acceleration of this trend is likely to increase significantly over the next years. In the face of that Dew et al., 2006 conclude that “…the strategic manager’s job is in fact futile in the face of environmental disruptions”, somewhat challenging the idea and mechanisms behind dynamic capabilities.

Thus, while only a start, but also extremely critical to do, a recent article published by McKinsey Q (July 2015) advices manage teams on how to reframe business beliefs.

According to McKinsey, the point—and need—in reframing business beliefs emerge from the fact that although incumbents in a given industry are driven by certain, inviolable beliefs, someone—typically from outside that industry—comes around and violate it. That is, almost overnight entrants redefine market dynamics applying new business models, customer offerings, speed, etc., while incumbents are often left empty-handed in their attempts responding to that. Yet, in the face of these perspectives—the McKinsey report concludes—the process of redefining your business in meeting new competition may also be possible.

McKinsey’s list of examples of companies includes such notabilities as Target, asking what if customers already visiting discount stores were willing to pay for designer products. Similarly, Apple—doing a ‘reverse’ Dell—asks, what if customers want to buy products from stores, and not directly. Same goes with Amazon, constituting a key reason for Walmart now closing more than 260 stores in the face of stiffening competition from a disruptive business model, significantly impacting consumers’ behaviour on how and where they do their shopping.

Acknowledging these circumstances as facts, one important thing—amongst a series of other critical considerations to be made in reframing the company’s business beliefs—senior executives should become fully aware of how they are going to translate current assets, competencies and dynamic capabilities as a whole into what Klaus Schwab correctly labels the ‘fourth industrial revolution’. Thus combining available technologies, Schwab's view complies with the perception indeed distinguishing the early understanding of digitisation from the reality ahead of today’s business environment, i.e. the latter represents a jump to a level of innovation combining data, internet-of-things, sensors, BI, cloud, knowledge, analytics, etc.

From that perspective, management teams are also faced with the often significant lag in typically organisations on the one side, and on the other side a need to respond quickly to competitors redefining market dynamics, whilst simultaneously giving a d… about constraints traditionally known to impact profitability potential in your own or another industry.

Finally, the inherent challenge with considerations on redefining your business also includes significant risks, also in the face of key stakeholders, e.g. are your investors up for more risks than already observed to impact revenue streams, profitability and shareholder value? What about the organisation and the employees?

Admitted, redefining your business is tough; really tough. The very thought and recognition frighten many Companies, not daring to face that alternative, whilst hiding their heads in the sand or simply coming to realise that they cannot afford it. Eventually, they get sold to a competitor, potentially larger and financially stronger. Those hiding heads may sooner or later learn to acknowledge that adapting to market changes came too late—i.e. you’re out of business.

Full-scale redefinition of your business, essentially dismissing long lasting business beliefs and ultimately existing source(s) of income, whilst simultaneously mobilising the organisation to start gaining a satisfactory profitability momentum from such a change, is not something happening overnight.

In addition, while myriads of medium-sized and particularly larger firms probably dream of that in the face of rapidly changing market dynamics and a truly unforeseeable competitive environment, they also acknowledge that rules of executing change management correspondingly changed. Change programs must be executed faster, often leaving management teams in delicate schisms whether to prioritise acceleration of pace in the market or keeping the organisation together.

In turn, transforming the entire organisation into operating and profiting from a completely different business model, offering new products in new ways to existing and new customers based on a new value proposition all represent very costly initiatives, particularly if the organisation spans several geos.

Surely, while digitised platforms and dashboards, personalisation, etc. may help along, it all irrevocably ties back to executive management making the brave, risky, yet strategically necessary decision proactively to prevent that the future outpaces the organisation, or even the industry.