A start of the year survey by Coeus Age consulting revealed that growing profitably is the key focus for the enterprises. Against a backdrop of moderating revenue growth and rising costs, 80% + enterprises cite multiple manifestation of the same theme, profitable growth, as their top priority. 30 % of them cite product/ service innovation and another 23 % state operational efficiency as their top priority for 2017.
The challenge is further exacerbated by the advent of disruptive business models enabled by digital. The disruptors, emerging in increasingly more industries, are bound to impact the incumbent businesses in six ways.
1. Come between the incumbents and their customers or be closer to the customers and engage them in better ways
E.g. Travel portals like makemytrip.com and yatra.com are coming between the airlines or hotels and their customers
2. Create an efficient and agile delivery model by syncing up the demand and supply
E.g. Ola and Uber are integrating the entire value chain from order to cash in an effective and efficient manner
3. Provide an alternative to customers
E.g. Kindle is giving a new medium to read books and Coursera is providing a new approach to learning
4. Impact the core business of the incumbents
E.g. Payment banks are taking away the funds from traditional banks just as YouTube is taking away the eyeballs from the traditional electronic media
5. Make smaller suppliers relevant
E.g. Amazon is procuring from small garment manufacturers while makemytrip.com is bringing smaller hotels into the limelight.
6. Take away a new source of revenue (more so when that cannibalizes the existing channels)
E.g. Retailers selling white goods through e-marketplaces is cannibalizing the physical channel business
The result of each of the 6 scenarios is three fold. One, efficiencies of the disruptors’ business models helps them pass on the cost benefits to the customers. Two, bringing the smaller players into the system, adopting a multi brand approach and launching product alternatives is giving the disruptors the ability to promote competition. And three, a price led approach by the disruptor creates a cap on how much the incumbent can charge. Each of the three challenges dents the incumbents’ ability to charge brand premium and grow profitably due to pressure on both price and costs.
As discussed in my earlier post Reconciling traditional and new age business models in the middle!, it’s another issue whether the disruptors can sustain their momentum, what’s important is the fact that they would disrupt the market permanently. The incumbents can cope by driving cost efficiencies, building brand engagement with the customers and innovating on products and services.
Many of them are conscious of the need and the survey data quoted at the beginning is evidence to that. What they need is a new conversation led by the CEO in the organization and a conscious approach to cope with the disruptors.
We can help you initiate and sustain the change generative conversations in your organization.