From the desk of our Principal Consultant, Mr. Tan Tat Jin

The advent of the 20th Century has brought about massive innovation in products and services as evident in the chart shown below on patents explosion in the US.  The engine that drives transformational change in the 21st Century is digital revolution.

Digitalization has brought about disruptive changes to more than just products and services.  In recent years, it has birthed many innovative business models that have impacted the what, when, who, where, and how products and services are delivered, the core competence, and even the mission of the organization itself.

Many corporate leaders have finally succumbed to the reality that making incremental or continuous improvements to their existing business ideas simply by embracing digital solutions and processes is insufficient.  Increasingly leaders also need to critically examine their current business models on how their business income streams have to be recreated and sustained.   As an illustration, does it sound too surprising that some public news media companies have yielded to this wave of disruptive change even though they have embraced digital print over the years? 

What then are the key attributes needed for leading an organization through this exponential rise of innovative business models?

1. Challenge basic assumption through Critical Thinking

At the heart of Critical Thinking is the challenge of basic assumptions on which the business model is built.  The outcome is a switch of the main business income stream from a traditional source to one or several radically new streams using digital technology as the enabler.  Courage is needed for risk-taking and strategic influencing when a radical change in the business model is made.  Some examples:

• A manufacturer of airplane engines, bicycles, or industrial air conditioners produces quality products instead of selling them. It changes its business model to leasing them to customers based on their actual usage, consumption, or business needs instead. A switch from making income through selling products to providing services using its products.
• A permanent large retail outlet that carries inventory selling cash-and-carry items onsite changes to small and mobile showrooms that display items for viewing and testing by prospective buyers. All customer orders are processed online with home delivery.  A switch from the traditional mortar retail outlet to a “click-and-mortar” outlet.

2. Change people

In any transformational change that involves a switch of a very successful business model of the past, there will inevitably be potent resistance from people. 

Resistance can come from all strata of the organizational pyramid, including those who are very loyal, committed, and competent.  Any business model change is made difficult or even painful because of a certain group of valuable past contributors including senior executives that are very influential in the organization.  In making the business model change, regrettably, some of these people have to be gracefully replaced by people with the right competence, values, and motivation to make the new business model work.  Some people can be expected to resign voluntarily when they do not agree, accept, and/or adapt to the change initiative.  An example:

• LV Gerstner Jr. was the first IBM CEO externally hired in 1993 when the company board forced its predecessor John Ekers to resign. I still remember till today that one of my friends said in jest, that IBM recruited him because he knew how to sell IBM’s high-end mainframe computers like selling biscuits (Gerstner was the CEO of Nabisco before IBM)!  Well, with a series of high-level change initiatives, Gerstner successfully turned IBM into a complete IT solution e-business company that included selling products and services.

Needless to say, changing people is not just about changing the high-profile CEO. It certainly involves people across all vertical levels of organizational hierarchy, vocations, and locations depending on their skills, alignment of change vision, and commitment in making the company successful.  Building new people capability in the organization will be a major challenge in executing a switch in business models.

In conclusion, it is important to bear in mind the Corporate Vision and Core Values of the organization when executing business model change.  Depending on the abstraction levels of the vision statement, high-level crafted vision statements like “Touch Lives, Transform Organizations” or “We Build People’s Self-Confidence” are unlikely to become irrelevant by a business model switch. However, if the company’s vision is crafted in close relation to its products or services like “World largest Oil Company”, then it might need to be recrafted to “World’s largest energy company” if the products and services are extended.

Corporate core values with certain evergreen values like “Respect for People, Integrity and Safety” could remain unchanged and unaffected by business model change. But some core values such as, “Operation Autonomy” and “Profit Orientation” might well be affected.