The recent evolution of organizations shows that competing only on price or becoming larger will bring more problems than solutions. So what to do?
‘‘You don’t have to blow out the other fellow’s light to let your own shine.’’ -Bernard Baruch
The pandemic has changed our industrial fabric. No sector can sleep tight. No firm can rely on old price and size strategies. Supply Chain, commercial offering, customer centricity, regulation. All are shaking and, the need for new business models has emerged steadily.
Decadence happens when the fight against the change transfers to the future the hurdles of the present. Organizations that have not yet walked the digital journey, react to change in the same old way: cutting costs and focusing their M&A strategies to increase in size.
Odds are that it will not work this time.
Why size and price matters no more?
Inside the perfect storm (the combination of the pandemic, digital disruption, globalization, social pressure, climate action), organizations cannot count on barriers (insurance), licenses (pharma), technology (from ERP to operating systems), cost-efficiency (systems integrators) to last long in the future.
Competing only on price or becoming larger will bring more problems than solutions.
What does our world desperately need? Value
Creating value requires a different type of competition that provokes the active contribution of all parties to shape the future of the ecosystem they are in.
This contribution passes through strict cooperation among all competing on some or all business aspects. Competitors, internal units, partners, sub-contractors, clients: all parts of the same, all value givers and takers.
Price and growth strategies have worked for decades. What has changed?
Digital developments have radically changed production systems, lowering access barriers to manufacturing means. Social media technologies help rank, categorize, make available product information to consumers that can change their orientation at a higher pace than in the past. The pandemic has unbalanced manufacturing and the supply chain globally, with unsatisfied trades.
These adverse conditions generate a rapid change in demand that requires continuous innovation and new business models to sustain it.
As the boundaries of organizations become fuzzy, networking and new open innovation strategies are changing the static, traditional way of conceiving competition or cooperation.
Positive-sum strategies get on stage, combining the advantages of cooperating to enlarging the ecosystems while competing to keep efficiency.
Short-term profits mean nothing if they do not change the nature of the business environment.
To grow together, partnering organizations can share investments, people, and knowledge. They can also negotiate better conditions for purchasing raw materials, components, general expenses, and shared services. With a common infrastructure for development, training, and research, they can strategically anticipate issues concerning new industry standards. From a sales standpoint, it goes without saying that they can catch together opportunities that would not be possible to service singularly.
Traditional vs. digital business: a matter of maturity
Internal competition is not very common in traditional organizations, as mostly considered inefficient duplication of activities under cost-containment and price strategies.
Digital organizations think differently. For them, a certain degree of competition among divisions plays a role in a faster go-to-market for new products, enhances the range of their strategic options and, broadens the coverage of the different segments in the market.
From an internal perspective, the proper overlap to provoke a healthy competition depends on the maturity of the specific organization in catching the digital dare.
In fact, the fast pace of change we all experience forces organizations in limbo, dealing daily with the emerging of new technologies and the lack of stability of the environment.
A new technology unbalances entire industries creating competition among parties who have never crossed their swords before and, this goes on until dominant standards emerge. Once in that stage, investment moves away from product toward process innovation and, also at this stage, new collaborative technologies create unparalleled opportunities and threats for all. Ultimately, the industry becomes commoditized but, in a matter of months, a new technological breakthrough will commence the cycle again.
In the past, learning, imitation, and legitimization have been social processes that have helped stabilize the environment, pushing competitors gradually to converge toward a game with rules, with a natural hierarchy of competitors emerging, bringing stability to the market. Today, with no barriers, we have a no-stop free-for-all match, and everybody who can add value will find a way to join the ring.
During digital times, the boundaries between internal and external perspectives have faded away. The pandemic has accelerated the vanish.
What to do then?
Promoting an ecosystem strategy by joining forces could have beneficial effects. All should cooperate in creating technologies layers and facilitating product innovation on areas still to be explored and stabilized. That does not mean that competition should disappear. Internal and external parties should compete on mature services and products by introducing rules and new standards to explore new fields.
Value creation has more to do with exploring new fields, less to do with growth and cost.
This is a cultural shift. Not all leaders are wired with skills and experience that support and understand the benefit of this new paradigm.
Traditional (not digitally mature) leaders will become an obstacle to the change. They will vigorously defend what they perceive as their territory; this attitude will decrease the cooperation on aspects relevant to the ecosystem. Unaware leaders will be scared to embrace the change: they will lower the engagement to avoid competition.
Digital leaders know what they can add to each transaction. They need to be fit for their purpose, as they are on the way, always, so they see no value in easy gains.
Organizations need them badly these new leaders. Hiring them is not enough, though. They need to put them in condition to operate, and this is the most difficult part of the change.
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Disclaimer: Views or opinions represented in this article are personal and belong solely to the article writer and do not represent those of people, institutions or organizations that the writer may or may not be associated with in professional or personal capacity, unless explicitly stated.