Can a business model be too fragile? The current pace of time in digital world is very fast and new start-ups enter constantly to threaten existing businesses. It seems that many established companies are struggling, have given up or are choosing to ignore it. They are spending majority of their time and resources on keeping up, supporting and over-optimising their existing business models to get the last dime out. In this blog post I will try to lift up some precursors for putting yourself and your company into a better position in this area.
Advantages of a Disruptive Business Model
Some great innovations have been born in the crossroads of entirely different businesses. For instance, a couple of years ago the paper and forest industry developed – the 10 times stronger than steal – material called nanocellulose, which when taken into other industries, such as construction, could result in more earthquake resistant houses and cars that can be significantly lighter.
Through traditional business development process, the paper industry would only concentrate on developing nanocellulose to improve its existing business for packaging, cartons and paper. In disruptive business model, they can enable and control the birth of new the innovations, allowing new business models to offset the declining demand for paper.
You should be willing to cannibalize your own business when you see the opportunity.
Being disruptive or having the ability to react to it by not making your own business model too fragile and allowing it to be mishandled, can lead to great results and innovation. You should be willing to cannibalize your own business when you see the opportunity. If you’re not willing to do it, someone else will do it for you with obvious results. This is the way to benefit from the insecurity of your business environment.
How to Encourage Adopting Disruptive Business Model?
Keep the Core Functions and Development in-house.
I feel that a very important factor for a robust way towards digitalization is to keep many of the core functions and development in-house. It will pay itself back in the long run, even if in the short run it looks like the more expensive decision. In addition, having better control over the large portions of your supply chain allows quicker and more cost effective ways to try out new things.
For example, usually the in-house development and operational teams will spot the problems early on compared to the outsourced resource, which often reacts when it’s already too late. Or simple ideas are killed because even a small change or prototyping request results in added bureaucracy and negotiations between the company and their supplier.
We at PAF are going through a constant development process in our organisation, moving and looking across silos. For example, advances in technology has made it easier to port code and functionalities across entirely different platforms, think tablet vs. a physical slot machine. The age-old hacker question “Nice, but can it run Linux?” is more and more often replied with a resounding “Yes!”
This means that we can better leverage our strengths and knowledge we have stubbornly developed and retained inside the company, from game development to field services. We can also keep the concept proofing as an on-going process with continuous small iterations, bridging different business units, which would not be so easy if our development teams were outsourced.
The Second Important Factor Is Culture and Leadership
You have to have a combination of the right culture, right people and leadership to flourish in rapidly changing environment. There needs to be certain amount of organizational confidence for a company not to lock its long-term targets too tightly, since you can only predict your own actions accurately, not that of the markets. Locking yourself in to a tight yearly budgeting cycle introduces further rigidity into your organization and makes you vulnerable to rapidly changing market conditions.
Instead why not accept, or even embrace change and continuous development as permanent state. Concentrate on looking and observing the business entity from high enough bird’s-eye view, guiding the organisation into right direction, while attaching your budgeting on shorter, rolling model, based on actual actions. Movement, right direction and alignment are in the core, not showing and paving the exact route towards a specific target state three years away.
Final Important Factor Is Modularity
Modularity is important in everything; organizations and systems. For years, companies keep merging into even bigger giants or trying to accomplish even larger projects, where usually half of the mergers turn out not to be successful, and for projects the risks are even higher. It is crucial to create an environment where failure, when it happens, is quickly contained and learned from.
Tolerance for outside stressors is proportional to your modularity and flexibility, big and rigid structures incur large scale problems with limited possibilities to deal with them, while smaller, flexible units usually allow for better tolerance and adaptation to the changing environment.
Finally, I’d like you to leave with the word serendipity. It’s a word meaning that one is able to make new discoveries by accident most often in the areas where she or he has a broad knowledge base. In other words, one has aimed at different goal but instead has found something else – even more – valuable and worthwhile. You cannot force it to happen, but you can make yourself more susceptible to it.
Don’t be afraid of mishandling of your business, be open with it and serendipity might happen!