The New Reality of Business

Today whilst on a quite long, enjoyable drive through a sunny, rural Sweden in a rented Volvo, I listened to a program on Swedish radio hosted by Björn Wahlroos, PhD in Economics and Chairman of the mighty Nordea Bank amongst other roles. He spoke about globalisation, the technological revolution and the challenges to regain economic growth in Europe´s economies.

Wahlroos mentioned 1969 as the watermark year, when the old industrial era ended and the new technological era we are currently living in began. It was interesting to hear him nail down the paradigm shift to this early year as he explained his arguments.

He heavily criticized Thomas Piketty, the author of a recent book about capital in the 21st century and strongly disagreed with Piketty´s claim that we live in an increasingly unjust world. In Wahlroos view, one billion people raised from poverty in the recent decade is an achievement of the same forces that have propelled the ultra-rich to even more wealth.

I think Wahlroos was spot on in most of his remarks. It cannot be denied that we live in a world of rapid development. Economic conditions have changed considerably in both the worlds industrialized and developing nations over the past three decades. The break with previous trends have become so marked that the accepted economic models of economics of scale for achieving success are facing a fundamental crisis. Instead, the combination of technologies and economies of scope has emerged as an important source of job creation, growth and business success.

However what are the consequences for business of the new conditions we currently live in?

By globalisation, most places and organisations realities today are characterised by competitive pressure and rapid changes in all forms, from customer demands to technological development. This competitive pressure has become a key feature of the new global economy.

Business is no longer local. Competitors with the right competitive advantages can appear from distant locations. Not only is there more competition, there is also tougher and smarter competition. Consequently, competitive barriers to entry that were once considered permanent are gone and have been replaced by competitive advantages that continuously mutate and develop.

This new state is called hyper competition. It is a state in which the rate of change in the competitive rules of the game are in such flux that only the most adaptive and quick to change will survive. Customers want it quicker, cheaper, and they want it their way. This fundamental quantitative and qualitative shift in competition requires organizational change on an unprecedented scale, and the competitive advantages must constantly be reinvented.

Any successful growth of a business requires the development and implementation of a sustainable business strategy. However today´s realities means it is increasingly difficult to set the long-term mission, vision and strategies and adhere to them. Rather, setting long term objectives based on the principle “What are we really good at and how can we use it?” have become more relevant.

This reality forces a need for constant renewal and incremental enhancements, which are predicated on being innovative. Innovation is not just about product development, but also about incremental renewal of the business model, organisation, distribution, processes and the entire ecosystem around the organisation, as indicated in the Innovation Radar picture on the right.[1]

The challenge today is about developing and changing in order to meet evolving customer needs in a way that the competitors are not able to emulate. It is the company’s unique capabilities and strengths that determine its ability to do so.

In order to succeed in this environment, the business strategy needs to be based upon a sweet spot analysis, where the chosen customer segments needs, the relevant competitors offerings and the firms own capabilities intersect.

There would be no point of competing in the intersecting triangle of all three circles in the sweet spot model, however this is what many companies tend to do, keeping them in a low margin business.

The process of developing the strategy and then crafting the strategy statements that captures its essence in a readily communicable manner should step by step involve employees in all parts of the business and at all levels of the hierarchy. The wording of the strategy statement should be worked through in painstaking detail. The end result should be strategy statements that reflects all the three elements of objective, scope and competitive advantages.

It is important to define the sweet spot through strategy statements that are kept simple, clear and brief, to ensure that everyone in the business can internalize and use them as a guiding light. A well-understood statement aligns behaviour within the business and allows everyone in the organisation to make individual choices that reinforce one another. The corporate culture needs to align with the strategy, so every employee can understand and express it at a relevant level.

Bearing has developed a methodology and a software tool for the above mentioned analysis. We call it the Innovation Navigator, and a fact sheet about it can be downloaded through the link here below.