AUTHOR INTERVIEW: Ralph Welborn, co-author of “Topple — The End of the Firm-Based Strategy and Rise of New Models for Explosive Growth”
I had the opportunity to interview Ralph Welborn, co-author with Sajan Pillai of Topple — The End of the Firm-Based Strategy and Rise of New Models for Explosive Growth. He shares why companies adhering to old business models are “toppling” from the Fortune 500 list, and what companies can do to capture new opportunities for growth.
What has changed from the business landscape of the recent past?
New business models and the ever-faster accelerating pace of technologies have changed the landscape. They build upon each other. Let’s look at each of these in turn.
A business model is the way in which organizations orchestrate their capabilities to deliver value to their customers. Twenty percent of every company’s capabilities create approximately 70 percent of its value, with the remaining capabilities in support of that 20 percent. For example, an insurance company’s 20 percent focuses on pricing risk; for Tesla, it’s creating the most powerful battery for electric cars.
But what happens as technologies advance, regulations change and customer expectations shift and what worked before no longer does? The 20 percent of capabilities that made you successful before won’t be the same needed for tomorrow. An insurance executive realized this during a workshop and exclaimed, “What happens as we shift our focus from predicting risk to preventing accidents? We will have to have a new 20 percent of capabilities to make that shift.”
Many (most) companies are optimized for a competitive world that no longer exists. But don’t take my word for it. Look at these two pieces of data: First, since 2000, 52 percent of companies in the Fortune 500 have either gone bankrupt, been acquired or ceased to exist. This “topple” rate is accelerating across industries. Just ask yourself: Are you facing more and new types of competitors? For most, the answer is yes.
Second, only 8 percent of companies capture well over 50 percent of the economic profit within any industry. The far majority of firms struggle to break through the average growth rate of their industry — which means that more companies are competing for a smaller amount of economic profit.
So, what’s changed? First, technologies are driving a pace of change, making it more difficult for people to figure how to use the new technologies. Second, a new business model that takes a very different approach to orchestrating capabilities to deliver value — think Tesla and Tencent, Amazon and Alibaba — are capturing the majority of economic profit by taking advantage of the new ecosystem-centric business models.
A new competitive environment requires new strategic questions: “Where is value being created… and destroyed… within your ecosystem?” and “What are you going to do about it?” Once you ask these questions, you start to see your competitive landscape differently. You work through what is my ecosystem? Where is value being created and destroyed? By whom? What will be my new 20 percent? And how will I orchestrate our ecosystem to capture these shifts in value? These questions force you to look across industries and across value chains, which is critical. This is the new competitive environment in which we live.
How did some of today’s most successful businesses — Amazon, Google, Microsoft, Tesla and more — find explosive growth in this new competitive reality?
These high growth companies did three things: First, they planted a flag on a hard problem, one that reflected a broad point of friction or need. The friction or failure existed because the problem was (once) hard to tackle. But once addressed, it catalyzed extraordinary value. Second, they realized that they couldn’t do it alone; they needed to orchestrate their ecosystem to help both their partners and customers realize value. This is tricky since different stakeholders have different motivations. But it’s doable, as we’ve all seen. Third, they identified their “pivot points” of value, and orchestrated their ecosystem around those pivot points (or what we call their new 20 percent of capabilities).
How do organizations figure out the ecosystems in which their customers engage?
You internalize the lessons of today’s new growth models and extend them to what it is you want to do using three steps:
Step 1 is figuring out what problem you want to own and planting a flag on it. This takes an outside-in perspective of figuring out how your products and services help overcome a problem. It presents the opportunity to go after, independent of any product or service you offer. It forces you to work through what it would take to capture this value, and then — and only then — to lay on top of this insight your existing set of products or services.
Step 2 is determining the new 20 percent of capabilities needed to help you plant your flag on the problem. For Amazon Web Services it entailed building capabilities to allow anyone to quickly set up the infrastructure to support whatever business it wanted to run. For the insurance executive mentioned earlier, it involved moving away from the capabilities that made them successful before (around pricing risk) to new sets of real-time monitoring and analytic capabilities to prevent accidents.
Step 3 is orchestrating your ecosystem of partners and customers to help you execute. Explosive growth companies don’t — and can’t — go it alone. They wisely figure out what the core 20 percent of capabilities are that drive the majority of value for them and engage with their partners around their own core 20 percents. The resulting business model is more fluid than the typical “we control it all” mindset.
Learn more at www.topplebook.com.