Convergence – Blurring The Lines Of Business

Flexibility, collaboration, convergence & innovation

It’s interesting to see what happens when an incumbent business start to explore territory outside of its usual sphere of interest. Sometimes this is a reaction to an imminent threat or disruption, other times, it’s a planned part of a cycle of ongoing innovation. In our discussions with businesses, the topic often moves on to how they can apply their existing expertise in new areas. Even as a thought experiment this is a valuable exercise because thinking along these lines explores what the business really is right now, as well as what it might become in future. Rising to the top of these discussions is the idea of convergence and the growing sense that businesses that are willing to both collaborate and converge will find themselves far better placed to adapt to today’s rapidly changing world.

Nothing stays the same

As an example, electric vehicles are becoming more commonplace and the business model of the fuel station will have to change. Charging times are significantly longer than filling up a petrol tank, so opportunities and potential revenues from the site will be different. Through widespread automation, each station will probably require fewer staff. But, through diversifying, collaboration and convergence, business opportunities are likely to increase.

If incumbent fuel companies do nothing, they will be forced into a position of having to either change under pressure or fail. Far better they go through a future scenario planning exercise and explore the possibilities now than be forced into a corner later. Spotting and capitalising on opportunities early, while they still have a lead, is essential because the electric car future isn’t far away.

Fuel stations have already evolved to offer far more than fuel, of course. They have become coffee outlets, local hubs for parcel collection and convenience stores. If fuel stations evolve to also encompass shopping and entertainment opportunities, will rooms be developed for meetings? Could they become 24 hour pharmacies or drop in clinics ? There are vast possibilities. Without running all the scenarios, we don’t know which are the most desirable outcomes, but certainly, there will need to be change.

Incumbent advantage?

All large organisations can be threatened when they need to make a rapid or radical change of direction, their size is usually a hindrance to the speed at which decisions need to be made. However, what they lack in agility, they make up for in the strength gained from size and longevity. Incumbents have this advantage over startups through their existing networks, relationships, reputation, infrastructure and trust in their brand. These don’t remove the threat of disruption but if utilised properly, they can add considerable momentum when it’s time to change.

A startup trying to break through may have a far tougher time in comparison, which is why so many are willing to part with a large share of their own business in order to secure just one of the ‘engines’ that the incumbent has earned over time.

Time for change is nothing new

Many of today’s long established incumbent businesses have a track record of major changes in the past. Peugeot, for example, has made coffee, salt and pepper grinders, crinoline dresses, umbrella frames, bicycles and eventually, cars. Clearly part of the company’s long term success has been its willingness to quickly adapt by not being precious about what it does. Peugeot’s drive has been to stay in business, not to cling to a specific product for sentimental reasons. It has always looked to where its existing technologies and expertise could be deployed and shifted sector accordingly to meet opportunities.

When disruptors become incumbents

Flexible thinking, growth and learning are inherent in many of today’s most successful companies. Certainly in giant tech, a diverse portfolio of businesses now seems the norm. This is no accident. It’s being driven by the speed at which change can happen, as well as the reach all businesses can now have, should they so wish. No one knows this better than the giant tech businesses currently at the top of the tree that were once themselves the disruptors.

Having so many companies under one roof allows for spectacular failures – think Amazon’s Fire Phone or Google’s attempt at a social network with Google Buzz. As long as the majority of projects keep working, there is no lasting impact or threat to the overall business from the few that don’t go quite to plan. As long as a failure isn’t significant enough to put you out of business, it remains the great teacher.

Tech giants such as Google and Amazon have a financial advantage which means such failures, however spectacular, are unlikely to impact their business in any meaningful way. With such deep pockets, the privileged few can afford to take the risks involved while smaller businesses must hope to make a success early on before selling out to one of the giants. For many startups, this is their plan.

This cycle therefore becomes self perpetuating. It’s great for the giants because the startups take all the risk – financially and reputationally – falling by the wayside if they fail . That can be a life changing moment for anyone invested in the startup – but so too can the huge rewards of being absorbed by the giants.

In this way, the giants gain the all benefits without any of the risk, since startups become unfunded research labs for new ideas. Startups are a risks that occasionally pay off for the smaller company yet acquiring successful startups is always good for the giants.

Still risky

While the tech giants can afford the risks and failure, what about everyone else? Incumbent businesses stuck in their existing business models struggle the most with convergence and are those most at risk. For example, if a high street bank decided to release a mobile phone onto the market can you imagine how hard this would be for them to convince people to buy it, or even to take them seriously? A bank moving into mobile phones seems bizarre, yet a mobile phone company moving into banking doesn’t. The reasons for this are complex but in part it is because some businesses have flexibility, collaboration and convergence as a foundational part of their business model.

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