Business Models Must Be Built to Adapt

July 27, 2011 · Filed Under Online Advertising Australia, dLook Blog 

In every market there are industry captains that excel at executing their current business model, that’s what makes them industry leaders.

However most of them slowly become hostages of the status quo, “the way we do things round here slowly morphs into the way we think round here”

History is littered with industry captains that lose out to start up companies who appear from nowhere, and in a few short years overtake the established leader.

A New Paradigm

Cloud computing is bringing in a new disruptive economic environment that will make these transitions occur @ NetSpeed.

This speed of change and market volatility challenges the sustainability of “business as usual” in many markets, placing enormous pressure on any individual enterprise’s ability to respond to market disruption in a timely manner, as most enterprises are now heavily reliant on a multiplicity of external supply partner relationships to produce and deliver their products and services to market.

What’s The Main Frame

Looking back at history, IBM in the 1960’s and 70’s dominated the mainframe computer market, and it did so very successfully against competitors like ICL (UK), Bull (France), Univac, Honeywell, Fujitsu and CDC.

IBM quickly achieved value keystone status within the ecosystems it competed in. IBM’s technology capability, capacity, service level availabilities, integrated sales channels and associated high cost structures were sustained by burgeoning mainframe margins. IBM’s cost base expanded as their enterprise structure grew to manage and support the strategic relationships they forged with their customers.

Their customers (usually large enterprises) were generally value keystone players in their respective ecosystems and also on the trail of sustaining their existing capabilities and capacities.

This capability and value sustaining model utilised by customer and supplier resulted in creating incremental innovations that maintained and improved the business as usual approach in the computer industry.

Consequently IBM largely missed out on the minicomputer market to new competitors such as DEC, Prime, Data General Etc. Subsequent to the minicomputer market, IBM misread the PC market by seeing the value opportunity in the production of PC’s rather than the associated operating systems and software services that supported them.

In the case of DEC and Prime, who had successfully led IBM in the minicomputer business, they completely missed out on the PC market.

The IBM PC division has since been sold to Lenovo (China).

Not Robinson Crusoe

The list of market failure examples is endless and applicable to any industry. All of the above quoted enterprises had the capabilities, resources and capacities to test the relevance of their strategy and value assumptions within their ecosystems; and respond to the disruptive challenges they faced. Yet none of them did so, they lacked the insight to recognise and adapt to change in their business ecosystems.

It appears as if incumbent market leaders throughout history spent their time gathering evidence to support the belief that their strategies, business models and supporting value assumptions were permanently relevant and sustainable.

Give Me the Life Raft

So what’s the lesson to be learnt?

All enterprises and their capabilities, strategies, value assumptions, capacities and availabilities within an ecosystem are dynamically interlinked with their ecosystem partners.

Existing capabilities, capacities and business models, are not permanent and profitable belief systems to be defended at all costs.

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