It's a (Globalized) Jungle Out There

At times during the last several years I have felt that the business world is being pounded by what seems like a succession of asteroids, in the form of competitive threats and new challenges. These asteroids, much like those that pummeled the earth in the distant past, leave behind a drastically changed landscape, making what seemed like a jungle before even more forbidding.  Those companies that do not adapt to the major changes taking place will be left behind, their place taken by new companies born from the new competitive landscape.  One such "asteroid" or disruptive force is globalization. 

I just read a very good article on this theme - "Are You Enjoying Globalization Yet?" -  in the Mercer Management Journal, which is published by Mercer Management Consulting.  The basic premise of the authors - Adrian Slywotzky, Peter Baumgartner, Larry Alberts, and Hanna Moukanas - is that "Globalization is changing the nature of competition and value creation in ways more subtle and fundamental than simply cost. By incubating scores of new business models that can unseat established companies, globalization is creating opportunities for new value creation and highly profitable growth at the two ends of the value chain––new customer connections at one end and new models of innovation at the other."

Without a doubt, globalization is one of the most powerful forces driving business and society in these early years of the 21st century.  But globalization is no longer just a matter of doing business around the world.  Globalization, according to the authors, is all about value migration from old, obsolete business designs to new, more economically effective ones, "fueled by the spread of broadband communications, customer access to information and over $500 billion of direct investments in China and India alone."  They add: "Globalization makes strong business designs stronger, and weak business designs weaker. That’s true in part because new competitors from all corners of the globe are combining low cost and high technology to build market share very quickly."

While such disruptive changes come with all kinds of new opportunity for those with the appropriate business designs, the article makes an observation that really hits home:  "The globalized economy feels more like a jungle than a country club. Managers will confront new risks, more risks, or a different combination of risks, including supply chain vulnerability, overcapacity, accelerated or more unpredictable price movements, and theft of intellectual capital.  Effective risk management was always valuable; it has now become critical."

I very much like their prescription for the key areas a business must focus on for value creation: deep customer connections and high-impact innovation networks.  In a world where customers have more and more choices from a vast array of increasingly commoditized products and services, highly personalized customer connections are a company's best opportunity for differentiation.  Products and services might be commodities, but you never, ever want your customers to feel like they too are just commodities.  A successful business will make each of its clients feel special by understanding and addressing their unique requirements. 

This presents a seeming paradox:  the more global and commoditized the economy, the more local and personal the customer relationship must become to ward off competition.  This is not easy.  It requires a deeper knowledge and more specific management of distinct customer types and segments, "a new game - call it the Cambrian explosion of new segments - with new rules" the article says.  A business has to be very good at market segmentation and at serving those markets as efficiently as possible. 

How do you do that?  How can a business make customers feel as if its products and services have been customized especially for them without going broke creating many disparate custom offerings?  First of all, the business needs very good market research, so it really understands what its customers value and can then spend its funds customizing precisely those features, as opposed to wasting money in areas that customers do not appreciate.  Then you need highly flexible, efficient designs, using standard infrastructure and business components wherever possible while  reserving the unique higher-priced customization for what really matters to the customer.  Through the clever use of IT tools and processes, the business is able to design products and services based mostly on standard components, but personalize the offering to match the requirements and tastes of their customers. 

The second major area for value creation on which the article focuses is innovation networks.  Innovation is more important than ever in all aspects of the business, from R&D, product manufacturing and services delivery to marketing, sales channels and customer support.  But, at the same time, businesses have to carefully manage their investments, given the competitive nature of the global marketplace.  No company, no matter how rich, powerful and talented, can innovate in every important area by itself.  Companies need to open up and "unbundle" their innovation, choose the key areas on which they will focus their internal investments, and leverage such investments by collaborating closely with universities, research labs, open communities, business partners, VC firms, customers and others.  Only by embracing such new open, collaborative approaches to innovation can a business stay at the leading edge in today's highly networked, global world.

If doing business in a fast changing, competitive marketplace has always felt like a jungle, things have gotten a few notches more “interesting,” in terms of both risks and opportunities, as the jungle has now been globalized.  As "Are You Enjoying Globalization Yet?" so aptly concludes:  "Because the global world is a riskier world, it will be harder to protect your business. In fact, globalization will turn established companies into start-ups again, with no cushion from yesterday’s success, just a focus on creating new success tomorrow." 

Comments

[Alex Osterwalder]

Irving, I particularly enjoyed this analysis. Globalization does bring a whole new world of business model innovation. And indeed, it will make strong business models stronger and weak ones disappear. The more we tap into the global talent pool of entrepreneurs and business model designers, the more we get creative destruction around existing business models. Businesses will have to be very careful that their business model building blocks fit each other and respond to customer needs in the best possible way - from value proposition, over customer relationship, to managing activities, resources and competencies. In my work and research I used an approach with 9 building blocks to better understand business model designs:

http://business-model-design.blogspot.com/2005/11/what-is-business-model.html

Based on these building blocks it also becomes easier to align business and IT strategy. The ultimate goal becomes strengthening the business model from all possible angles to enjoy global competition.

Cheers from Thailand, Alex

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