Finding growth outside the core business

Growth is not what it used to be – It used to be as simple as adding a new feature, spending millions in marketing and bang – but not any more.

It’s become especially challenging in industries that have clear expiry dates defined by regulators, or whose customers will not need their services or even more simply, not keep up with the pace of change.

Accepting the harsh reality

What would have Nokia’s CEO said if you told him back in 2007 that his mobile business would be meaningless in 2010 and he’d have to sell it?

Many executives in industries such as Telco, Utilities, Oil & Gas, among others, are challenged with finding growth beyond their core business, and struggle to find ways to diversify while digitising, especially within companies that already have transformation fatigue. Or maybe they are Innovating, but just not at the pace of disruption (Nokia’s example).

Telco’s are not mandatorily a bad business, but when compared with what’s been created on top of their infrastructure, it’s clear they missed a trick or two

The one I see the most, is definitely where the organisation tries to do everything alone, without an alignment between leadership and execution, and without a framework to set the right basics in place to scale and exponentially grow an ecosystem.

I’ve observed a number of factors leading these companies down the route of focusing all their energy (poetic) on cutting costs, optimising resources and improving efficiencies.

All of this while new businesses capitalise on the gaps left open by the incumbents or new value propositions that leverage disrupting technologies, or even because of the fast-approaching reshuffle of value chains.

But this strategy is just covering up symptoms: lack of vision, process driven culture or just an indifference to the fact that nowadays the world evolves at a drastically faster speed to name a few root causes. Meanwhile, technology and innovation drag customer, markets and regulators’ expectations to a much higher level, that will never cease to rise, so these businesses run the risk of accelerating down a one way road.

A good example: OIL & GAS

Thinking about the Oil & Gas industry specifically, there is an example that jumps to mind: Kodak.

This organisation, much like O&G, saw themselves as a chemicals and petroleum company, not a media company (retailer, distributor in the latter case). This led them to prioritise the fact you needed to process film, and not in what customers used the output for. They decided not to kill their core business, but someone else took away the need for the service while managing to achieve an even better outcome – the photo is always there with you on your devices.

This risk is also present in (fuels) retail for this industry. Aleksandra, Fred, Sam and myself, have been working to match facts and trends and put them in a clear format, to arrive at a few hard truths.

  1. Customers will no longer need to buy fuel – there is a convergence between fuel to charge with autonomous vehicles
  2. Customers will no longer own and maintain a car – They will consume mobility as a service, in a transition from today’s ownership model
  3. Customers will consume services on the move – if you’re not driving you’re either working or consuming (or both), either on the move or in convenient locations (bye malls!)
  4. Fuels Retailers will be competing with all convenience offerings – if we merge all of the above with the democratisation of personalisation, we have the perfect storm

The side note to all of these, is this transition will not be immediate and there will be a long transition period, even though I believe the impact of this transaction period will be hitting much sooner than expected, removing the current cash rich EBIDTA of the Industry.

Now is the time to place bets – important ones – and not on improving what you do today, but exploring where the ecosystem will be tomorrow, and not the O&G, but the energy one, and even beyond.


Multi-industry growth strategies can help create unlock trapped value from multiple pockets simultaneously – just like ankle bitters do

THE amazon REVENUE MULTIPLIER

If we look at examples of companies who like Amazon, that have built and exponential approach to business, the thing they do differently is thinking of themselves not as a rigid one purpose fixed value chain, but as a symbiotic ecosystem of businesses. A few examples in Amazon stand out in my view.

The first one is obviously AWS – Why build an internal function when most companies like me are struggling with this same challenge. If I build it well for me, why shouldn’t I profit from that knowledge and make money out of the wider industries?

The second one is Amazon Prime – which seems risky if you’re a traditional retailer that worries about supply chain costs and operations – which Amazon embraced and now has seen prime members spending almost twice the amount a non-member spends. Loyalty is now earned through convenience and service.

The third one is the Amazon Echo device line. On top of adding revenue from the device sales and enabling new value propositions, while expanding the adoption of voice, Amazon pulled of another 66% increase in spend for all prime members that own an echo device.

Fascinating how they keep adding multipliers to segments of their revenue stream (Startups typically do this – AKA, the anklebitters) and they can do that because they place parallel bets on things they think their customers might care about, and that might impact their business. This comes with it’s obvious failures (Fire phone, anyone?) but Innovation always has risk – and this is now smaller than the risk of not doing anything.

Thinking about this from another perspective, they also have the ability to orchestrate all of these services to work as an evolving ecosystem, understanding that ROI might not actually manifest itself on the operating business where the investment is made (Prime). This makes them think about customer lifetime value impact across all business units when they think about investing, and they’re thinking of small and medium businesses the same way.

What would this mean for Oil & Gas, in a time when we’ve all clearly seen Electrification, Democratisation and Demonetisation will hit them in the coming decades (see Peter Diamandis’ 6D’s). The truth is the transition from a linear and fixed asset value chain, to a mobile and decentralised one, will bring plenty of challenges, but in my opinion even more opportunity.

My take on the value chain of energy in 15-20 years time

GROWING BEYOND THE CORE BUSINESS

Businesses need to take a lateral approach to growth, and see beyond their core products and services. They need to challenge what are ancillary services and might become independent business units or even new ventures. They need to see beyond their internal capabilities and most importantly beyond their current mission and role for customers.

It’s been happening to industries like automotive – becoming a mobility company instead of a vehicle manufacturing business; Life sciences – becoming a health business instead of treatments and medication (disease). And the biggest challenge is how do they adjust their financial models to remain relevant to shareholders. It needs to begin with purpose and a clear value proposition (or many of these as hypothesis).

Solve a key challenge that is valid for all of your network, but that’s also applicable to the sector, other sectors (and an SMB crowd for instance) and ultimately globally – and you have created a pivoting opportunity for your company to offset the inevitable decline of your core commercial activities.

There is the potential for Digital growth within the core set of activities of your business – it’s just not the ones you’re currently providing to your customers. A good example is British Gas’ Local Heroes. An Uberisation play for home services near you, they make available to all consumers, leveraging a pool of qualified technicians. These usually have great side effects like increased workforce productivity.

INdustry tunnel vision

Most industries suffer from an acute case of funnel vision. They only see the threats within their industry, they only account for the trends around what affects them today, not the value they create, and they can’t see beyond their capabilities. This means the biggest threats will be the ones coming from cross-industry moves and consolidation.

Notice how IKEA joined the battle for the spend in the home with the acquisition of Task Rabbit. It goes hand in hand with their line of connected furniture, as it maps customers behaviour in their search for relevance and purpose, and helps in the transition from product to services.

Why is this relevant to O&G? They have a clear role to play in the decentralised energy ecosystem, but it needs to be aligned with customers – either businesses or consumers. And notice how some have begun putting the pieces of mobility, consumer and renewables together (Kudos to Shell).

HOW CAN I SPOT OPPORTUNITY?

So what are the questions organisations need to ask, explore and experiment around to identify these opportunities?

Which are the processes I can codify from my industry and digitise in a platform?

What decisions do I make repeatedly or have abundant data about?

Which processes are applicable to other industries, audiences or other territories?

What is the value proposition I can put around them to be applicable to small & medium businesses?

Which partner ecosystem do I need to create and what role do I want to play?

Which services are my customers consuming on my platform/device/scenario?

What are the processes currently made obsolete by technology, regulatory change or customer expectations?

How do I set up for success?

There are a few key steps to maximise the chances of success when going for it.

  1. Start with a customer need or an industry challenge – yours as well as other companies’ employees are your potential customers as well
  2. Redesign all key jobs to be done (I like the value prop exercise from strategizer) using a service design approach, so you digitise the customer as well as the servicing functions of the service
  3. Think about using platforms that can scale, and architect as if you were serving globally, across industries and customer groups – API’s are critical here
  4. Implement a data architecture that enables you to automateand maintain an experimental approach to future iterations
  5. Think real-time, geo-relevant and beyond your organisation (it’s an ecosystem game, not an individual sport)
  6. Link your pricing with outcome or as close to as a service as possible

Imagine if you were to build an ecosystem of partners that can add more services on to that platform, and increase the subscription amount and increase the customer lifetime value.

Mantras like Agile, Design Thinking and DevOps are good beginnings, but now is the time to bring those together with a vision and the right conditions to empower your teams and attract new talent that will help harness the power of new technologies like Blockchain, Artificial Intelligence and Internet of Things.

Culture: the usual suspect

The key objective is not to build a new business (or set of businesses), it’s to build a new culture of customer oriented behaviours that will help you remaining relevant, pivot and change, and continuously improve and experiment.

If you’ve already built a first successful venture, you’re on the right track, but it doesn’t end there, so keep accelerating and don’t think that’s the end, it’s just the beginning of a new chapter in every companies’ journey.

I’ll wrap up with one of my favourite quotes: “A ship is safe in harbour, but that’s not what ships are built for” John A. Shedd

 

I look forward to reading your comments and points of view – either below or on social media: Twitter | Linkedin

 

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