Clarintelligence | Discover What Drives Businesses into the Future
Discover What Drives Businesses into the Future
Clarintelligence is a platform that dissects the drivers of business, innovation & culture to help executives develop strategies and adjust their business to an ever changing world. It was founded by private equity professional turned publisher Martin Hoffmann.
The results of this poll will be published here as soon as we have a substantial amount of results. The link is provided at the end of the poll.
I first published an earlier version of this Article on Entrepreneur Magazine.
Read why you can’t apply the rules of legacy markets to new business models. And read why the term “disruption” is great for scaring people into buying books and courses, but fails to facilitate new perspectives.
In 1995, Clayton Christensen developed the “disruption theory.” Since then, the term has not only caught heat as a buzzword, but the theory’s core concepts have also been extended and misinterpreted.
However, the correct definition of disruption is only a subplot. The problem with thinking in terms of disruption, whether correctly applied or not, is that it locks businesses into their legacy perspective. By definition, a disruption is the interruption of something existing.
Yet, when an industry is transformed, more often than not a completely new market is created. This new market has little in common with the legacy market. This is why we should view the transformed market through a new lens.
In reality however, we unfortunately see businesses trying to apply old tools to new rules. In particular folks who talk about “disruption” tend to focus on the old market and the old rules.
For the greater part of the last century, the automobile industry was a metaphor for stability. German, American and Japanese powerhouses steadily churned out huge volumes of cars offering top performance and quality, while generating attractive profits for investors and stakeholders. For decades, there was little substantial change in vehicle design and neither was there any movement on the leader board. Some had better years than others, but the key players remained the same.
Now the space has changed. Traditional car manufacturers are in the process of adoption. Ford brought on CEO Jim Hackett, who previously ran design-driven office furniture company Steelcase and who has outlined a forward thinking six-point plan for Ford’s future. Not quite the vita that automotives would have envisioned a few years ago.
In this current auto industry power struggle, Tesla is viewed as the disrupting force, the David that fights against the Goliaths. Not too long ago, former VW CEO Matthias Müller had bashed Tesla for being the champion of announcements not products, ridiculing the company for burning money and having tiny unit sales volumes compared to traditional manufacturers.
But is Tesla really the David? Can its unit sales volumes provide us with an indication of who will win this battle?
The problem is that this not about changes within the traditional market. This is a new market. Comparing the volume of Volkswagen and Tesla in the old market is like comparing apples and pears.
The automotive market of the last century has been commoditized and will decline. This is not where the competition will take place in the future. The future of transport is an emerging market, which is still tiny today, but which is set to grow rapidly. While Müller may have been quick to ridicule Tesla for its output and burn rate, in new markets innovation takes time and output is low in the early days. This is the nature of the Technology Adoption Lifecycle.
If we consider the manufacturer of “future” cars, Tesla holds the largest volume. Tesla has not been catching up. Volkswagen is the contender in this new market.
In new markets, new rules apply. For example the processes of developing and building cars is changing. The machinery required to build cars is changing dramatically, because electric cars have less mechanical complexity. While mechanical complexity is being reduced, automated driving is increasing the software complexity.
At the same time the integration of the connected car within the internet of things will require the integration of a new mobility infrastructure, the ability to analyze the user’s context information and a UX design that provides users with the best options based on that context information.
Tomorrow’s car is not a mechanical car, but a software device and an information unit. The most important part of a new car will not be its engine, or its horsepower, but its analytical and design capabilities.
This will also change the criteria by which consumers will choose between car models. Factors such as auxiliary connectivity services will play as much as a role as the user interface of the “software product.”
Aside from new purchase criteria, the future will also bring new ownership models. With the rise of the sharing economy, cars will have to find their place in the bustling, congested smart cities of the future.
Therefore, when view the automotive market as a new market early in its life cycle, it is easier to understand why Tesla has never been too much concerned about his lower production volumes. We also see why Ford has ramped up its design capabilities at the board level.
The rules of this new market, not of the old market, determine how a company has to approach its business. They determine what type of resources the company has to build up and how it addresses and reaches customers.
If an automobile manufacturer tried to enter the aircraft business, it wouldn’t even think about hiring automotive executives to manage the transition. It would look for someone who is well versed in the industry it was moving into, not out of. Yet, as Mueller’s statement has illustrated, leading car manufacturers’ executives have long been thinking of the current mobility market as the same market they cut their teeth in.
The current shift of automotive is often compared to the evolution from horse carriage to car. Here is the problem with this comparison:
The horse carriage served the same purpose as the car: getting from A to B with a device as quickly and safely as possible. The device that gets us from A to B, the traditional car, is a commoditized market.
The car of the future has additional use cases: customers’ purchase criteria will not solely be driven by which car is more reliable or faster. More important questions will be, for example, which vehicle is smarter and has the highest processing power.
The automotive industry is just one example. The same lessons apply to any other industry that is being “disrupted” by emerging technology.
We would not measure an online media business by the same standards as a traditional print newspaper business.
Neither would we judge iTunes and Spotify by the same standards as the traditional music industry.
Airbnb does not play by the same rules as hotel businesses.
Refresh your perspective. Understanding how the businesses differ helps us understand the distinctions between the new and the old market. Here is a simple trick: have a look at the recruiting websites of legacy business vs new businesses. The areas they hire in will provide you with valuable insights of what type of resources they are building up.
Before allocating resources to the new challenges, figure out what customers want and what new rules exist in this new market environment. What are the purchase criteria of customers in this new market and how do they differ from the old market? What capabilities will drive the success of businesses in this new environment? Is it mechanical engineering, software or design? Is it hotel locations and service or the reviews and trust of Airbnb’s website?
Which parts of any legacy business are still suited for this new market? Which parts of traditional OEM’s are necessary to compete in the new mobility markets? The answer to this question could mean scrapping legacy production methods or processes, or simply bringing on a new leadership with experience in the new industry, as Ford did.
Simply put, if our legacy business is building furniture and we were to enter a media business, we would immediately plan to start from scratch. Yet, when companies who feel being “disrupted” enter transformed markets, they still tend to think in terms of legacy business models.
Like any architect who designs a new building for a new environment, we first need to go back to the drawing board. We need to question existing assumptions and take steps to adapt to a new environment like Ford did, rather than resting on our laurels, and risk becoming irrelevant.
This article first appeared in my column on Equities.com more than two years ago. The events have changed, but the patterns have remained the same. I decided to not update this article (except from the title), because this way it interestingly shows where we stood a few years ago and where we stand now. Up to you to decide how much has changed since. I hope you enjoy the read.
According to Oxford Dictionaries, “post-truth” was the word of the year in 2016. Thanks to the controversial “Brexit” referendum and the highly contested US presidential election, the use of the term increased 2000% last year. The phrase ‘post-truth’ is aptly described by Lahcen Haddad as the use of pseudo-facts to twist reality, so that it looks and sounds in line with the fears and anxieties of an already angry and frustrated population.
And it’s not just the integrity of politicians that is being questioned. Edelman, a global PR firm reports that public trust in all four key institutions — business, government, NGOs, and media — has broadly declined. Over the last year, we have seen a public backlash against media outlets and social media platforms facilitating ‘fake news’, and also against public figures and brands that have been seen to align themselves with controversial politicians and their beliefs.
For modern investors and consumers alike, this poses an interesting dilemma. While it has always been important to ‘look behind the scenes’ at a brand’s backstory and values to make sure there are no ‘skeletons in the cupboard’ before investing, now more than ever the walls between business and politics have been broken down, and there are many more factors to consider.
So how much is brand integrity affecting business, and how can investors and consumers make safe investments in the ‘post-truth’ age?
More so than ever, people are realizing that brands and media companies are only as strong as their customers and followers. Thanks to social media, today’s world has become more transparent and brands and public figures are expected to weigh in on current events and social issues. As Uber recently found out with the #Delete Uber campaign, staying neutral is not an option anymore, and lack of a clear stance can be misconceived as complicity.
As consumers take sides, they are using their buying power as a political weapon. The Grabyourwallet movement is encouraging consumers to boycott brands and retailers deemed to be supporting of the Trump family or endorsing president Trump’s administration. However, on the flipside, brands like Nike (NKE), Nordstrom (JWN), T.J. Maxx (TJX), Starbucks (SBUX) have found themselves losing custom from Trump fans, for voicing opinions against the president and his policies, or in the case of Nike for releasing a Nike Hijab, which has been deemed ‘Un-American”.
Corporate values have become a key motivator of customer purchase decisions, dramatically increasing volatility for brands. While this has placed some brands on the firing line, it has also boosted the popularity of brands seen to be taking a moral stance.
Over the last year, we have seen brands taking a stab at the ‘powers who be’ with advertising campaigns and company policies. In the midst of the Trump immigration ban fiasco, Airbnb won millions of hearts by offering free housing to those affected by the travel ban, and Google (GOOG) and Starbucks announced new employment policies aimed at welcoming foreign workers. Over the last year, Airbnb, Budweiser and Amazon also released adverts that tackled the issue of acceptance and integration of people from different backgrounds and cultures.
Smart brands are realizing that their values offer a strong playing card, and while it might be viewed by some as opportunistic, by weighing in publicly on political and social issues whenever the opportunity rises, brands can see likes, shares, followers and sales come rolling in.
It is not just brands that have been affected by the political and social whirlwind in the US and Europe. The media and social media platforms have been forced to take sides too, and those viewed as being selective in their facts have come under fire.
In January 2017, after the Grindeanu Cabinet was sworn into office in Romania, widespread protests erupted against controversial ordinance bills effectively legalizing government corruption. In response to the bills, the commission of Romanian advertising agencies organized a boycott of “Romania TV” & “Antena 3”, which spread government propaganda. The media boycott successfully led to a withdrawal of advertising from multiple major brands from those TV channels.
In the US, President Trump’s administration was recently forced to apologize after retweeting a Fox News report based on a Breitbart news story. Both Fox News and Breitbart have been publicly slammed for publicizing factually incorrect and inflammatory right-wing content, and politicians, brands and advertisers have begun giving them a wide berth in fear of being caught up in the controversy.
In response to accusations that Facebook was responsible for spreading fake news during the US presidential election — which founder Mark Zuckerberg initially denied– Facebook publicly backtracked in December 2016, announcing the launch of measures to combat fake news. Other media and social media companies such as Medium and Snapchat, have also returned to their core mission and values, and controlling external content from paid advertisers, in an attempt to better control the content which reaches their users.
We are entering a new era of brand volatility in which consumer trust and loyalty — and in turn custom — are linked to much more than products, but instead the values and perceived allegiances of brands and their stakeholders including founders, investors, employees and media partners.
A recent Fast Company article offers some tips for how brands can protect themselves from unwanted heat during the Trump administration, but for investors and consumers, who want to place their chips on the right bets, and to avoid any nasty surprises, this means researching brands and their stakeholders extensively.
Here are some guidelines to bear in mind:
The Delete Uber campaign is great example of how important this is. Uber wasn’t boycotted because the CEO is a Trump advisor, but due to the snowball effect of multiple scandals including the CEOs spats with Uber drivers, allegations of spying on customers and downplaying sexual assault risks. With consumer trust at a low, the JFK airport surge ban was enough to tip consumers over the edge.
Motivational speaker and author Simon Sinek said, “Customers will never love a company until the employees love it first.” A good way to get a grasp of how well a company sticks to it’s core values is by looking at how happy it’s key stakeholders are: its employees. Millennials are value driven and want to work for companies which ‘make a difference’. Use resources such as Glassdoor to assess what current and former employees have to say about what goes on behind closed doors.
Check social media channels and review websites such as trust pilot and Yelp to see what customers are saying. Look at how brands respond to clients and deal with complaints and issues. Do they try to minimize damage or do they try to listen to customers and implement changes?
As seen in Romania, and with respected media organizations turning their backs on Fox News and other right wing news outlets, it is important to look at where brands are advertising and any media partners or celebrity endorsers they may have. In a recent article Jeff Jarvis argues brands should be judged by the company they keep, citing how the Guardian, Havas, the UK government, the BBC, and now AT&T have pulled their advertising from Google and YouTube, complaining about placement next to “inappropriate” and “offensive” content.
Companies have always been vulnerable to scandals. Even in monopolized industries, the power has shifted towards consumers. Who could serve better as an example than United Airlines (UAL), who seems to have learned only little from past experiences. The 2009 song “United Breaks Guitars” has over 16 million views on YouTube until today, and it allegedly sent the airline’s stock price down by $ 180m when released in protest to poor customer treatment on their flights. The Facebook (FB) video of the company’s most recent scandal of the physical assault of a customer due to overbooking has already generated 19 million views, and the company’s stock price has fallen by $ 800m.
However nowadays brands have to worry about much more than their employees behavior, and customer service, instead making sure that their wide network of stakeholders stay true to their values and aims. Gone are the days when brands can bury their heads in the sand about current affairs. Modern consumers are becoming increasingly motivated to stand behind the causes and brands which represent their views and values, and are placing their money, and trust, exactly where their mouths are.
