BUSINESS MODELS: OUT WITH THE OLD IN WITH THE NEW?
In March 2018, CSI hosted an event at Telenor for partners to discuss the implications of digitalization on new business models for service based companies. The debate revolved around whether the “old” thinking of value chains and processes are “obsolete” and if the new business models in platform companies is the only way forward.
The prevailing teaching of most business school around the world has been that for companies to deal with the transactional cost of doing business, they organize the work in value chains and processes. But this way of thinking is challenged by the digitalization and the emergence of companies that can be seen as “platforms” typically serving two different industries at the same time. These platform companies put pressure on traditional business models because they seem to be more efficient, create greater value with fewer resources as figure below shows.
“The companies with business models that create the lowest transactional costs and highest value for the customers will win, and from the looks of it, it seems that platform business models do just that” said Tor W. Andreassen, Professor and Director CSI, NHH to the participants.
Platform companies: Santa Claus or the boogieman?
The digital economy of platform companies like Facebook, Google and Tencent often appear to customers as Santa Claus, giving free services to users, but later the cost of using these services are revealed. The “cost” is that the companies collect data, and in turn use that information to make money in other areas, e.g. targeted advertising. Platform companies operate in what may appear as separate industries at the same time. Moreover, this fact makes it difficult to deploy the existing rules of thumb for competition authorities.
Bjørn Hansen had a plea to the participants “We need to stop thinking about them as Santa Claus giving us free stuff and maybe more like the boogieman who has other motives and hidden agendas using our data that might actually jeopardize our own businesses.”
The driving force is digitalization
The reason for the pressure on traditional business models is digitalization. Digitalization is about value creation from automation and improved efficiency. In short it is the process of moving into a digital business.
Morten Dalsmo claims that Norway is lagging, losing terrain because the overall rate of change is too low. “It is not enough to be best in using new technologies. We have to be part of the developing side of it as well. Norwegian businesses need to advance in digital leadership within their markets” he states.
Six disruptive business models due to digitalization
Tina Saebi, Associate Professor NHH warned that a successful business model up until now could potentially be a trap. Having a profitable business model can make companies oblivious to the competition and risk being overtaken before they know what “hit” them. She also shared six disruptive digital business models that are successful
She finished with a cautionary note; “Remember that the goods and services like food, medical care, banking and education always will be essential, but the companies delivering them today are not”.
Business models of the future
But the future is not totally bleak for companies that have been around for a while and rely on traditional business models. Lars Jacob Pedersen and Sveinung Jørgensen both Associate Professors NHH summed up how existing companies can transform:
“The business models of the future will require frequent redesign which necessitates controlled experimentation. They will be characterized by service-logic based on ideas from the circular economy. This will make alliances even more important, in order to achieve the right results in a world where the scorecard is three-dimensional”.
Discussions around the table after each presenter engaged the participants.