How successful business models can lead to failure
- Posted on June 12, 2019
- Estimated reading time 4 minutes
Technology is enabling companies to create market disruption at a rate never seen in history and many of the most successful companies in the world aren’t prepared to respond. According to Forrester’s Digital Transformation: Master Startups Methods (June 13, 2018) “Most Fortune 500 companies lack the agility, talent, and technology to pivot at speed to deliver the next generation of digital experiences.” What made these firms successful in the past is now holding them back.
How success leads to failure
For publicly held companies, success is typically measured by the ability to deliver consistent results. Investors like predictable returns and executives are rewarded for delivering those returns. This combination is exactly what holds companies back and prevents innovation.
By definition, innovating is “to make changes in something established; especially by introducing new methods, ideas or products.”
Change is risky, and the outcome is often uncertain. With an innovative new product, you could find huge success and be the hero or you could fail miserably. With so much on the line, many companies stick with what they think is the safest bet and keeping doing what has produced success in the past. While this approach may seem safe it does not account for others in the market that are willing to take risk and become disruptors. These disruptors are innovating, changing customer expectations and challenging the status quo.
Who are the disruptors?
If you look at the Fortune 500 you will find that it is full of disruptors. Some are fast-moving startups while others are traditional businesses that have been on the list for years.
Fast-moving startups – These tend to be the first companies we think of when we talk about market disruption. They enter the market with new business models supported by innovative products and services. Most of these companies aren’t burdened by legacy processes, systems and approaches and don’t have technical debt. Their talent is laser focused on driving the “new” because they don’t have to worry about supporting the old. They are driven by customer demands and creating new customer experiences that change expectations in the market.
Traditional businesses – These are the well-known companies that offer the products and services that are familiar to us but what’s different about them is that they understand that to survive and thrive they must evolve. A recent article from 24/7wallst.com indicated that the place that sold the most cars in 2018 was not even a dealership, it was the membership shopping club, Costco. What is most surprising about this program is that Costco doesn’t make any money on the sale of the car. It is a free service offered to club members and Costco uses it as a benefit to drive membership sales. At the core, their business model is driven by membership sales, but they have found an innovative way to add more value to their members while at the same time disrupting the automotive industry.
In broad terms, these are the disruptors and your business either needs to be a disruptor or be prepared to quickly respond to disruption.
How can companies respond?
The answer is simple and at the same time extremely difficult. In today’s business landscape, you have to be prepared for anything. Your business must be prepared to respond quickly if you hope to survive and thrive in this rapidly changing market.
At Avanade, we call this state of being “prepared for anything,” Ready by Design. We define ready by design as a holistic approach that helps you create new digital business models, achieve faster time to market and increase business agility.
What does “ready by design” look like in practice? We break down Ready by Design into three strategies:
- Design innovative applications at speed – As I mentioned above, most companies are not wired for risk and thus they aren’t designed to innovate. Your customers and employees want new experiences and if you aren’t providing them someone else will. This is where you need an innovation studio that can not only help get the creative juices flowing but can quickly prototype your application concepts into a minimum viable product for you to take to market.
- Liberating your talent – Chances are your talent is focused on maintaining the existing and has very little time to think about the new, let alone work on it. Finding resources with the skills to deliver on the “new” can be difficult and when you do find them they are expensive and may be hard to hire. People with these skills want to do “cool things” and right now, the cool things are being done by the market disruptors. You need immediate access to talent that will bring new processes and technologies to the table and work with your people to transform the culture.
- Securely unlocking the value of the cloud – Most companies have done cloud projects, but few have really developed and implemented a holistic cloud strategy. For many, they struggle with identifying measurable results from their cloud endeavours and therefore either can’t secure additional funding or aren’t prepared to ask. The key to success here is in evaluating your historical investments and developing a plan that addresses how you go from your current state to the desired future state in the cloud. Done correctly, this approach allows you to see realize immediate cost savings which can be rolled back into the project to drive the next steps.
By implementing these three strategies, your business is ready for new competitors and new market disruptions. The Ready by Design company creates new digital business models that disrupt markets, achieving faster time to market, so it can operate at the speed that customers demand and competitors’ envy. It increases business agility in a way that changes the economics of everything it does.
Want to learn more about how you can be a disruptor in your market? Check out Avanade’s Executive Guide to Ready by Design.