The events of 2020 have required all CEOs to evaluate how their businesses will operate in the future. Change is necessary, whether operations were directly impacted by COVID-19, initiatives were launched to aid pandemic recovery efforts, or workforce cultures were disrupted by the surge of protests.
These events catalyzed critical adaptation efforts in all sectors. But the foundation for evolution was laid by technology and global connectivity throughout the previous year. Data and advanced analytical tools are freely available and adopted by companies, there is less friction associated when companies collaborate to boost productivity and creativity, and risk management has a new lens in AI and machine learning (ML).
The companies of tomorrow are leaning on these trends to reimagine how they conceive, develop, produce and take their products and services to market. This means decoupling business functions (aligned with what they do) from capabilities (how they do it) to deliver value. Companies will focus on what they can do best, operating in those areas at their optimal scale. They will leverage best-in-class ecosystem partners to boost their capabilities and externalize both key and non-critical ones. These innovative, adaptive companies will enjoy extra resilience in their operations and future prospects.
Looking at themselves in terms of capability “building blocks” allows companies to take a strategic view of where and how to optimize, as well as what part the external ecosystem can play. Companies can ensure they are the right size for each capability and possess the correct internal/external combination of technology, data, infrastructures, human expertise and facilities. This will be a competitive advantage because it will make them more efficient, creative, flexible and agile than integrated organizations (Arthur D. Little’s 2020 PRISM, The Company of Tomorrow).
The automotive sector provides a good example of extending collaboration from non-core to core capabilities. Here, the challenges around the transition from combustion engines to electric power trains and from ownership to access have forced traditional auto makers to reconsider their approaches. Demonstrating this, Daimler and BMW are pooling their noncore mobility services to create a new global player that will provide sustainable urban mobility for customers. They have also stated that they are sharing core engineering capabilities on driverless cars.
Companies in every sector and region are adapting in similar fashion. Here are four pillars that combine for a powerful foundation that enables the company of tomorrow:
1. Continuously anticipate using the best tools and partners.
Companies need to read the evolving dynamics of industries and ecosystems in a complex world of blurring boundaries. Technologies that enable fluid collaboration will change at an accelerated speed. Being an early adopter or fast follower can provide a competitive advantage – however, being first is not always necessary. When considering technology adoption, deciding when to follow will be as important as choosing when to lead in order to avoid wasting money and distracting the organization. Companies need to:
• Continuously read the context through customer trends, technology maturity and adoption rates, as well as the economic, global trade and geopolitical environment. Thought leadership will be key.
• Decouple anticipation from any given business function so it can achieve a broad-enough context.
• Leverage automated tools, advanced analytics, human intelligence and ecosystem partners to anticipate, as well as create, a forward- and outside-looking attitude throughout the company culture. Connecting relevant dots from close and far references will be a critical skill.
2. Use an ecosystem lens to shape the required capabilities.
The linear view of supply chains delivering products or services no longer reflects the multidimensional network realities. Companies must start building maps through this ecosystem lens. Companies need to:
• Map organizational capabilities and compare these to the ecosystems in which they operate. The goal is to generate a view centered around end users and customers, showing activities and assets, how the status quo has changed, who is winning, and who is losing ground.
• Be flexible in adding, removing, scaling up and scaling down capabilities, as well as collaborating with partners to boost efficiency and creativity. To decide which capabilities to own and which to source, companies should plan for at least two or three levels below the main capability level. Dispose of assets and resources that do not provide differentiating or efficient capabilities, and source them from more efficient and creative partners. Be willing to consider even the “sacred cows.”
• Data is essential. Companies should be able to generate, process and share massive amounts of data securely and without friction. Winning companies will be able to use that data to run highly efficient operations, make better decisions, and expand their businesses into new areas.
3. Develop the ambidextrous organization and culture to perform in a “decoupled capabilities” ecosystem.
In the coming years, survival and success will rely on people and machines that together achieve excellence in creativity, agility and collaboration. Data will be pervasive, and real-time performance measurement and adjustments will be expected.
With this mix of human capacity and advanced technology, organizations should adopt proven approaches to become “ambidextrous” – balancing efficiency with creativity by matching the right approaches to different jobs.
Imagine a company with 1,000 engineers in product development, working on 50 projects. It could open 30 of these projects to co-development with ecosystem partners, with 600 of its engineers collaborating with two or five times this number from specialized partners. This would allow the company to increase its product development capability by 60 percent, or up to 300 percent. It could also reduce headcount, freeing up expensive resources, while still accessing new projects with external resources. Companies need to:
• Redefine business processes for ecosystem operations, leveraging data centricity, automation, advanced analytics, and AI/ML.
• Mobilize and retrain their workforces to shift to a new model in which capabilities teams are highly accountable, with greater degrees of freedom to decide what to do in-house and what to leverage from selected partners.
• Through optimizing across internal and external capabilities, seek opportunities to run flatter, leaner and more project-driven organizations.
4. Review the future positioning and role of the company.
Companies must decide where they want to play in three to five years, and how they will reach and defend the desired position in the ecosystems. The path to becoming an orchestrator or premium or commodity player will be greatly influenced by the purpose of the company. Companies need to:
• Develop a clear and shared underlying sense of purpose to help guide positioning as the scope of products and services changes and evolves.
• Learn by doing and collaborating to help identify and reach preferred positions in the ecosystem. Move away from linear strategic thinking to a network, multidimensional model in which ecosystem players can be partners, competitors or both.
• Put suitable innovation structures in place to facilitate development and validation of major new strategic alternatives without being stifled by corporate antibodies. These innovation structures will be integrated into the organization if and when needed.
CEOs transforming their companies by decoupling capabilities from business functions should receive understanding and support from shareholders and private investors if the equity story is properly assessed and executed. Private investment (activist) funds have also spotted the opportunities around disruption of value chains. They seek companies whose capabilities, as well as the ecosystems that they develop or play in, are worth more than their existing products and services – and target them accordingly.
Technologies and business paradigms are ready for this evolution; professionals, managers and consumers are educated; infrastructures have been deployed; and institutional enablers such as investors and regulators are starting to accommodate change. CEOs need to set the agenda or be left behind.