Navigating the New Industrial Revolution(s)----

Exploring digital business models

Professor Robin Teigland Stockholm School of Economicswww.slideshare.net/eteigland

Robin.teigland@hhs.se @RobinTeigland

January 2017

FUNDAMENTAL SHIFT IN STRATEGY

MOVING FORWARD

INCUMBENT BUSINESS MODELS

Digital is the main reason just over half the Fortune 500 companies have disappeared since the year 2000.-Pierre Nanterme, CEO Accenture, 2016

Yet..Digital disruption has only just begun.

Technology replacing Energy and Banking

http://www.visualcapitalist.com/chart-largest-companies-market-cap-15-years/

SMACITS = Social

M = MobileA = Analytics

C = CloudIT = IoT

ExploitationImproving existing

value creation activities

ExplorationDeveloping new value creation

activities

Adapted from March 1991

FIRM FOUNDED EMPLOYEES MKT CAP

BMW 1916 122,000 $56B

UBER 2009 7,000 $62B

MARRIOTT 1927 200,000 $32B

AIRBNB 2008 5,000 $21B

WALT DISNEY 1923 185,000 $172B

FACEBOOK 2004 15,000 $369B

WALMART 1962 2,300,000 $206B

ALIBABA 1999 36,000 $241B

Adapted from Parker & Van Alstyne, with Choudary, 2016, and updated January 2017

Something fundamental is changing

The world’s largest taxi firm owns no cars

The world’s most popular media company creates no content

The world’s most valuable retailer carries no stock

The world’s largest accommodation provider owns no property

The Power of the Digital Platform

The New Multinationals

9 CGE Platform Database with Quid visualization, 2015

Over $3 trillion in firm market capSelected Platform Companies Emerging platform clusters

2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

• Launched June 2010• 551 cities in 70 countries • 7000 empl, owns no taxis• USD 62.5 bln valuation(Ericsson, 1876, 114,000 empl, USD 19 bln)

“DOING MORE WITH LESS”

A technology platform to allow customers to receive easy and reliable access to a ride using the tap of a button

Industries are transforming

http://www.slideshare.net/MarketRevolution/shsu-sharing-economy-collaborative-consumption

Pipeline BMs vs Platform BMs

• Seller of products and/or services• SMACIT to make linear process

efficient• Supply-side economies of scale• Manager of firm with distinct

boundaries• First mover advantage• Ownership of resources

• Destination for solving customer needs• SMACIT to co-create value• Demand-side economies of scale

(network effects)• Leader of ecosystem with fuzzy

boundaries• First to scale advantage• Access to resources

PLATFORM

CONSUMERSPRODUCERS

Elements of value exchange

Adapted from Parker & Van Alstyne 2016

1 connection

2 phones

10 connections

5 phones

66 connections

12 phonesMetcalfe’s LawMore users = more value = more users…

PLATFORMS LEVERAGE NETWORK EFFECTS

WikIpedia

Demand-side economies of scale

Enabling retailers to create a personalized experience for each individual consumer

across the globe

“We want to help small businesses grow by solving their problems.” - Founder and CEO Jack Ma

Alibaba Group – “Doing more with less”

PLATFORM

CONSUMERSPRODUCERS

Ecosystem Leadership

Ensure central position within

ecosystemDevelop deep understanding

of users on both sides

Define value co-creation

opportunities

Leverage resources in

the ecosystem

Create attractiveness

through cultivating

trust

Leveraging network principles1. Enable

interactions across all “boundaries”

5. Scale through operational excellence

4. Create agility through control over and access

to resources, not ownership

3. Expand industry boundaries through

providing holistic solutions

2. Analyze data from multiple

sources

Teigland 2017

It is much easier to add a technology to a community

than it is to add a community to a technology.

Marshall Van Alstyne, Platform Revolution

TRUST: The prerequisite to the ability to scale

• Third parties attached to platform– Fraud– Operational– Health, safety

• Payment systems– Functionality– Fraud

• Privacy of data – Cybersecurity– Ethical usage of personal data

Trust inDigital

Environments

FUNDAMENTAL SHIFT IN STRATEGY

MOVING FORWARD

INCUMBENT BUSINESS MODELS

MANY INCUMBENTS HAVE UNLOCKED THE VALUE OF DIGITAL…

Adapted from McKinsey Global Institute

Nike put the customer first and invested in an end-to-end digital athletics ecosystem

x4

10M+

30M+Analyst reports, press articles, web search

Creating more touch-points and data

MIT study: Four incumbent digital business models

Omnichannel business-”Life” events

e.g., ING, Schindler

Supplier-Products/services

e.g., Sony

Ecosystem Driver-One stop destinatione.g., Amazon, Aetna

Modular Producer-Ecosystem plug’n play

e.g., Paypal

NeedsLife Events

DemographicsPurchase history

Control/Influence over decisions on brand, price, quality, etc.

* 32% Higher growth* 27% Higher profit margin

Weill & Woerner 2015

Omnichannel Business-Own customer relationship-Multiproduct, multichannel

-”Life events”-Integrated value chain

Supplier-Sell through another-Low-cost producer

-Incremental innovation

Ecosystem Driver-Branded platform

-Great customer experience-3rd party plug’n plays

-Matchmaker

Modular Producer-Niche plug’n play

-Adapt to ecosystems-Continuous innovation

NeedsLife Events

DemographicsPurchase history

Control over decisions on brand, price, quality, etc.

MIT study: Four incumbent digital business models

Weill & Woerner 2015

% Companies: Larger vs Smaller Firms

Farm equipment sellerto

Farm equipment omnichannelto

Full service solutions ecosystem driver

- Analytics of global data from machinery, irrigation systems,

soil and nutrient sources, weather info, crop prices, etc.

- Platform access for suppliers, consultants, food processors,

food retailers, etc.

- APIs enabling customization through third-party development

“To enable efficient growth of the global food supply”

B2B digital leaders:5Xs more revenue growth than their peers

B2B

B2B2C

Leadership• Commit to digital at strategic level• Create culture anchored on innovation and execution• Shake up organizational structure and metrics to support

digital aspirationsDigital operational excellence

• Create consistent online and offline experiences • Enable and empower sales force through data• Improve insight and decision making through end-to-end

connection of processes

http://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-b2b-digital-leaders-drive-five-times-more-revenue-growth-than-their-peers

MIT Sloan CIO Leadership Award 2015

CDOMichael Niles, Chief Digital Officer- GE Digital partner

- Towards B2B2C

From elevators and escalators to “Moving humanity digitally”

Percentage of firms using predictive analytics for maintenance

Betting on “The winner takes all” Immelt’s goal: “A top 10 software company” by 2020

• Predix: USD 1 bln investment• Open-source model, e.g., Android• 19,000 developers + 3rd party developers • Software building blocks (e.g., blockchain)

FUNDAMENTAL SHIFT IN STRATEGY

MOVING FORWARD

INCUMBENT BUSINESS MODELS

By 2018, IDC predicts that >50% of large enterprises, and >80% of digital

transformation leaders, will create and/or partner with industry cloud platforms.

https://www.idc.com/getdoc.jsp?containerId=prUS40552015

INCUMBENTS ARE SITTING ON A DIGITAL GOLD MINEDATA

RELATIONSHIPS

TALENT

BRAND

BALANCE SHEET

CASH FLOW

INTELLECTUAL PROPERTY

McKinsey

Moving up and to the right- Knowledge about customer goals and “life events”- Amplify customer voice inside company- Evidence-based decision making- Integrated multi-product, multi-channel customer experience

- Be first choice in your space- Skilled at partnerships and acquisitions- Service-enabled core business transactions (with exposed APIs)- Compliance as competenceWeill & Woerner 2015

THEY ADDRESS SYMPTOMS, NOT ROOT CAUSES

No sense of urgency for “Digital” Decaying supplier business model Siloed organizational structure Missing core capabilities

MGI, 2016

Steel ecosystem Internal innovation unit External innovation unit

Vision, Leadership, Governance, IT Relationships (Westerman)

Klöckner’s digital transformation

http://www.kloeckner.com/en/strategy.html

From a “Product company leveraging data” to a “Data company solving customer needs”

Galina Shubina

“Jobs to be done” – Clayton Christensen

Pipeline BMs vs Platform BMs

• Seller of products and/or services• SMACIT to make linear process

efficient• Supply-side economies of scale• Manager of firm with distinct

boundaries• First mover advantage• Ownership of resources

• Destination for solving customer needs• SMACIT to co-create value• Demand-side economies of scale

(network effects)• Leader of ecosystem with fuzzy

boundaries• First to scale advantage• Access to resources

PLATFORM

CONSUMERSPRODUCERS

Elements of value exchange

Adapted from Parker & Van Alstyne 2016

Network position

ResourcesInnovation Influence

Agility e

Successful performance

Ecosystem leadership

Cognitive computingBlockchain3D printing

43Source: P. Evans, “Networks, Data and Platforms,” in Growing Global: Lessons for the New Enterprise, Center for Global Enterprise, 2015.

Trends likely to continue and intensifyFORCES OF CHANGE

Surge in data and tools that can manage and

analyze dataNetworks connect physical, digital, and social

Age of Networks Age of DataFIRM

Age of PlatformsNew business models that leverage

networks and intelligence

2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).

The Blockchain is the glue that is going to drive a productivity revolution across the globe on par with

what Henry Ford did with the automobile.— Paul Brody, Americas Strategy Leader, Technology Sector, Ernst & Young

“We always overestimate the change that will occur in the next two years and underestimate

the change that will occur in the next ten.”- Bill Gates, The Road Ahead, 1996

Scenario Thinking

http://www.slideshare.net/janschmiedgen/design-thinkingbootcamp

Robin Teiglandrobin.teigland@hhs.se

www.slideshare.net/eteigland@robin.teigland

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PlatformRevolution.com

Geoffrey G. ParkerMarshall W. Van AlstyneSangeet P. Choudary

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