Time For New Business Models

Technology is part of our daily lives, every action we take is surrounded by technology, from making reservations at our favorite restaurant to communicating with our distant relatives. In the business environment it is the same, thanks to the explosion of new digital and communication technologies and the lowering of the cost of computing on them (for various reasons such as cloud computing), it is now easier than ever to streamline processes to improve our value chain and the satisfaction of our customers.

We may have the feeling that in recent years, everything is going faster in the world of technology in general and digital technology in particular, but it is not just a feeling. In the book “The singularity is near”, Ray Kurzweil introduced the law of “Accelerating Returns” where he explains that:

Evolution applies positive feedback, so that to advance from one stage to another, we use the most efficient and effective methods we have learned in previous stages.

This results in the actual time/effort to move from one stage to another becoming less and less as we learn more information and know how to use it (and what not to use).

This feedback is the reason that the advances in evolution follow an exponential function.

This can be clearly seen in digital technology, if we analyze the advances made between 1980–2000 and 2000–2021.

Linear and exponential functions

Sometimes we may feel that the advances that occur in a subject follow a pattern of linear rather than exponential evolution, that the advances achieved occur with steady growth over time; but on most of these occasions, it is because we are in the first part of the elbow of the exponential function. If we look at the figure above, we can see that between -4 and -2, the two functions (linear in blue and exponential in red) behave similarly, but there comes a time when the exponential function reaches the elbow of the graph and begins to grow in an “uncontrolled” manner. Many are of the opinion that, in terms of digital technology evolution, we are entering the exponential elbow, so that technological innovations will happen faster and faster. Incorporating these technological innovations in the right way in our business processes will bring improvements in the value chain of companies and new business models, and with it, new experiences and user satisfaction.

When we talk about incorporating these technologies in businesses, I am not talking about simply digitizing a process (digital transformation is not just doing the same thing but with a computer), we are talking about rethinking how we do business processes end to end, and even thinking about the business model itself, because no one is safe from disruptive business models that may appear or technologies that change the “status quo” of the markets; and history has already shown us: no matter how big you are. Have any readers developed a photo or rented a DVD in the last 5 years?

In order to extract the best possible performance from new technological advances, it is not only necessary to know what they offer and what they do not offer, but also how to apply them correctly to our value chain. This requires close collaboration between business and IT to define the strategic future of the company and adapt it so that it can be able to include new future technologies in its processes and extract the best from them.

It is important to include technological advances in the company’s strategy, that means a transformation of the vision, strategy and processes to adapt them to the new reality, and if we focus on the digital transformation of processes, let’s not just digitalize them. For example, in a traditional cab company, people would call by phone and order the cab at a certain time at home, i.e. someone would take the order, and internally they would look for the cab and when the time came they would call again and say that the cab was waiting for you. A digitalization of the process could be that we can send a text message, or we can order the cab through a website; but if we stay there, we are missing an opportunity to go further, and possibly our competitors will. When we are aware of what new technologies offer us, a complete rethinking of the service arises and business models like Uber and others appear, with visions and strategies very different from what a traditional cab company is, where they offer a new user experience, although the service in essence is the same, (taking someone from one place to another paying for transportation), but now it is possible to choose the time, the driver, and even the music you want to hear when entering the car and have a tracking of where the transport is at every second. Result? The cab sector (untouchable in many countries) has had to rethink their business. It is a transformation of the service and its processes, which may even lead to new business models that were not possible until recently.

Customers’ preferences and needs change, and in many cases, technological evolution and innovation allow us to offer what people really want and need, even if they don’t know it. The microwave was not something that people asked for in their homes, and now it is an indispensable appliance in every kitchen. At that time, a need was created by the microwave;people didn’t want a microwave, they wanted to heat their food and they were able to be offered something different because of the technology, they were not offered a stove or oven that heats faster, but something completely disruptive in the market. Sometimes a look at what the customer really wants and a review of current technology, can give rise to new business models, examples of this could be companies like Netflix or Spotify, where they have been able to see that we did not want to store countless CDs, DVDs and vinyl on our shelves, but we wanted to listen to music and see films, and have given us that experience through our browsers and on our mobile, without having to buy new devices.

It is possible that someone may argue how nice it is to collect CDs and that there are always the special collector editions, etc; well, let’s take another example: We all (or almost all) have a drill at home; on weekends when we go out to that special party where we want to show off, we put on our best clothes and our expensive watch, we comb our hair and before getting into our sports car, we take the drill and carry it under our arm so everyone can see that we have one. We have a drill, but we don’t really want to have a drill, we want to have some holes in the wall at a certain time and if we divide the price of the drill and the drill bits by the number of holes we make, we will see that most of us have very expensive holes. There is an opportunity for a new business, selling “holes as a service”. Some may find this example a bit exaggerated, but it is not at all. There are many companies that already offer “compressed air as a service” (easy to find them just doing a quick search on the Internet) and is that companies do not want to buy or rent air compressors, what they want is to have compressed air for their processes. On the customer side, going from having to purchase fixed assets (and associated maintenance) to paying only for the air that has been consumed (operational costs) offers important competitive advantages, such as paying after the use of air and not before (finances production), or if you do not use compressed air, not paying for it (imagine a strike, a break in the line, etc.).

Access to new technologies and business models are lowering the barriers to entry in many sectors that were previously very difficult to access and where small start-up companies could not compete with the large historical corporations. Now, we see how new companies (large and small), such as Tesla in automotive, or fintechs in banking, are opening new business models that fit better with current customers, their needs and expectations, and players in these sectors must rethink their strategies because others are imposing them.

Of course, for companies born in the digital era, the adoption of technology is much more natural, even part of the core of their business, but large and historic corporations must also adapt, since choosing the option of not transforming digitally, is not very promising; all businesses want to be more profitable, and usually doing the same is not usually gain competitiveness or profitability, that is, we have to evolve

If you want different results, do not always do the same — Einstein.

As part of the evolution and transformation we must see the processes of the value chain from the point of view of a curious child who is learning, rethinking from beginning to end the way things are done and thinking if this is really what the user wants today, which is not the same as what he wanted 10 years ago; seeing it as a startup where everything is still to be defined and rethinking how to meet the needs of today with the technology available now and in the future. We will see that thanks to technology, we will be able to offer new experiences to our customers and find possible new flows of revenue.

Changes in business can happen for many reasons, but perhaps the most worrying are those causes that provoke a reaction due to threats to the business, therefore, companies must always see how to improve their services and products and keep in mind that even small companies can change the rules of the game. It is possible that at the beginning of 2009, hotel companies did not see Airbnb as a rival to be taken into account, but the reality is quite different; if we look for the number of rooms available on Airbnb or the evolution of its turnover and compare it with any hotel chain, we will realize the threat it can pose to the big ones in the sector, and it has changed the rules of the game so that now the big ones are considering their strategies thanks to Airbnb (Marriot strategy).

But if we look at Airbnb, essentially offers the service that the client expects (to be able to sleep away from home), but with a different approach to hotels; it has removed fixed assets in the form of buildings from its accounts, using other people’s apartments and houses, and connecting people who are looking for an apartment with people who are looking to rent their apartment or room for days, in what is called a Business Platform Model, a very lucrative business model, where the platform puts in contact providers or creators (the owners of the properties in the case of Airbnb) with consumers and offers them certain services to reach an agreement and in exchange, the platform gets a commission; other examples of this type of business could be for example Alibaba or the aforementioned Uber.

Another famous case of non-adaptation was Blockbuster, who had in its hand to remain a leading company and now is gone; a slight reading of the case already reflects that it did not know how to adapt and see that a transformation was necessary, while others who did are those who have survived (Blockbuster case).

The best way to predict the future is to create it — Peter Drucker.

With this, it is clear that including technology and innovation in the DNA of companies, opens endless opportunities to improve the processes of the value chain, offer new experiences to customers and employees and address the uncertainties of the future, but for this it is necessary that IT and business have a joint strategic vision, combining the knowledge of what customers really expect, with the knowledge and application of technology to offer it to them.

To finish, a note; as we have seen in examples such as Airbnb or Uber or many others that we can find in established sectors such as insurance and banking (with insurtechs or fintechs) among others, including in the work teams people without knowledge of the sector but with knowledge of technology and startup mindset, helps to see how to meet the needs of customers from another point of view different from what people in that sector are used to after years doing it the same way, thus generating new processes and new sources of revenue more in line with our times; new business models.