Organisational Change Management Volume 1

Changing Face of Competition

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Competition is increasingly coming from

"...where you least expect it"...industry newcomers - not the traditional competitors - had taken the best advantage of change over the past ten years"...by profoundly changing the rules of the game..."

GaryHamel, 1997

eg retailing of groceries has evolved from the horse and cart to corner store to general store to supermarket to petrol stations and now E commerce

People like Murdoch, Gates and Branson do not play by the traditional business rules of a particular industry they enter. This trend is expected to intensify. It has been observed that the traditional business rules that have gone into the history books include

"...- brand creation as a long-term proposition

- consumers are loyal

- the cost of entry is high

- traditional advertising is essential

- full-time employment is the answer

- sticking to core business is the only way to grow a business..."

Tim Flattery et al, 2000

The continuously changing nature of the playing field of competition is creating opportunities for new and smaller players to get into traditional industries that previously had high barriers to entry, ie capital, expertise, etc

Furthermore, more and more traditional business rules are becoming sacred cows, ie

"...an outmoded belief, assumption, practice, policy, system or strategy, generally invisible, that inhibits change and prevents resources being used for new opportunities..."

Examples of sacred cows that have disappeared over the last few decades:

- 40 hour work week

- job security

- life-time employment in one organisation or industry, ie 25 year golden watch

- retirement at age 65

- management by objectives

- command-and-control organisations

- top-down decision-making

- single paycheck households, etc

 

"The idea is to create a world that is no longer governed primarily by habit prevents people, companies and societies from making radical change"

 

Peter Senge as quoted by Mike Hanley, 2005

 

"Our behaviour is driven by fundamental core beliefs: the desire, and the ability of an organisation to continuously learn from any source - and to rapidly convert this learning into action - is its ultimate competitive advantage"

 

Jack Welch in Senge et al, 1999

 

"Over 50% of technological breakthroughs that influence an industry or organisation come from outside that industry"

 

Peter Drucker, 2001

 

Some examples are

 

- the pharmaceutical industry which increasingly has come to depend upon technologies that are fundamentally different from the technologies on which the pharmaceutical research lab is based, such as genetics, micro-biology, molecular biology, medical electronics, etc

 

- the computer industry's impact on all industries, such as ATMs and Internet on the banking industry and car industry. The car industry's slow and steady approach, such as using computers to help drivers at the wheel is being challenged by Google who wants to a more revolutionary approach, ie replace drivers. It is expected that Google will not build cars but license the technology to car companies and suppliers as the operating platform for their self-driving vehicles. This is a similar model to its mobile operating software (Android) where Google licence it to phone manufacturers in return for installing Google services; Microsoft did a similar thing with its software. Car manufacturers and suppliers need to be aware of what happened in the computer/phone industries with software licensing, ie the profits went to the software firms and manufacturers suffered.

 

Thus

 

"organisations set adrift from past success, flummoxed by the future, unable to find the footing in the present"

Monej Williams, Managing Update, May 1997

 

"Sooner or later traditional forms of competitiveness - cost, technology, distribution, manufacturing and product features - can be copied"...You must have them to be a player, but they do not guarantee a winner. Winning will spring from organisational capabilities such as speed, responsiveness, agility, learning capacity and employee competence. Successful organisations will be those that are able to quickly turn strategy into action; to manage processes intelligently and efficiently; to maximize employees' contribution and commitment; to create the conditions for seamless change"

 

David Ulrich (HBR) as quoted by AHRI, 1998

 

"the accelerating pace of change in today's economy means that it is no longer enough to be responsive to current customers' needs and competitive pressures. Companies must now look beyond their headlights to anticipate the change ahead"

 

Lila Booth, Harvard Management Update, March 1999

 

"to get ahead you have to sometimes break the rules and forget everything 'they' told you to do"

 

Kate White as quoted by Robert Kriegel et al, 1996

 

"...to get people working and behaving differently, there are four key elements......make sure the measure of performance is easy in economic terms; give people easily understood tools they can use; educate them on how to use those tools; and put them on a bonus system...."

 

Joel Stern, 2001

 

Increasing competition and uncertainty/chaos are linked

 

"...those that found ways to supply and thrive in the chaos hold valuable lessons. Paradoxically, many are meeting chaos with chaos, loosening controls, sometimes radically, while guiding the company in innovative ways......yet even those efforts may lose their effectiveness over time. Today's fast-moving reality may force a rethinking of just how long companies can and should survive......the hard fact: we're going through a transition that will interest historians centuries from now. It's partly a result of globalization, partly the digital revolution and the information-based economy its spawns. By freeing companies from physical assets, it has made them more flexible and more vulnerable. Microsoft can get in and out of many businesses - Internet search, online advertising, mapping, electronic payout - at virtually a moment's notice, but so can anybody else. (Indeed, Microsoft itself has been disrupted by net-based competitors like Yahoo and Google.)"yet we still see companies of every kind totally blind-sided by competitors they never saw coming. EBay and its PayPal unit are disrupting credit cards. Google is now trying to disrupt PayPal as well as the whole ad-sales industry. YouTube is disrupting television, and MySpace may next disrupt music......the digital revolution also makes business more chaotic by shifting information and power towards customers. And it changes products in every industry, young or old. Today cars are essentially computers on wheels. Some credit cards have chips in them. Some greeting cards have chips in them......Their industries may be transformed by them, and more industries will be transformed everyday as the costs of computing power, telecommunications and data storage continue to plunge. So the forecast for most companies continued chaos with a chance of disaster. The challenge is getting comfortable with it - especially hard because most corporations were created explicitly to resist chaos..."

Geoffrey Colvin, 2006d

Need to open your eyes to disruption in other industries that might provide important warning signs for your industry. For example, the music industry has progressed from buying albums, cassettes, CDs etc into the digital age of Napster, iTunes, and now streaming, eg Pandora, Spotify, etc..
Traditional players are acquiring more tech start-ups, such as Westpac's A$ 5 m. investment into peer-to-peer lender SocietyOne and Commonwealth Bank's recent A$ 40 m. acquisition of digital banking start-up TYME. In addition to hoping they have made a good investment, the traditional firm is trying to understand these possible disrupters, eg understanding how people are thinking in these new industries, to look at the sort of things they are doing and their suitability to be conducted in-house.

"...So it is really part of gaining experience and gaining access to their minds..."

Lindsay Maxsted as quoted by Patrick Durkin, 2015b

Sharing economy or collaborative economy/consumption as a threat to traditional successful business models

· Secret of the sharing economy is its capital-lite, technology-driven ability to unlock value in what was previously neglected or underutilised goods and services.

· This business model is based on high tech gadgetry and sophisticated programming codes that feed smart phones and websites. It is reinventing how supply can meet demand, and shifting mindsets about private possessions and ways of consuming. It means the behaviours that were once confined to the online world on your computer are now spilling over into the real world via mobiles like smart phones. Australia has a smart phone penetration of around 64 % (2013).

· It is based on an old notion of rural/village community sharing or bartering of capital stock and taken it to a global marketplace; with the latest technology (including connectivity) making it seamless and allowing micro-businesses to merge. For example, Goget was conceived after consideration of the wide gap between having a car and not having one, ie there was no service in the middle

"...there are still lots of areas in the economy where there is a polar choice - you either fully have a good or you don't have any of it..."

Bruce Jeffreys as quoted by Jacob Greber et al, 2014

· There is a greater integration between online networks and off-line life; with people having enriching experiences, eg meeting interesting people whom they would not normally meet. On the other hand, there are regulatory, eg safety issues, etc and tax questions that need policymakers' attention; regulators are struggling to create rules around something that never existed before. Most sharing economy services are emerging in a policy and regulatory vacuum. As more activity shifts to the collaborative economy with more people "earning a bit on the side", the taxman will start to pay more attention to it.

· It has been described (Warwick McKibbon, 2014) as a definite productivity driver and will create more value in the broader economy than it destroys. At the same time, there will be distribution aspects, ie winners and losers but overall everyone will be better off.

"...Look at all the capital stock - people have their cars sitting in garages something like 80% of the time. Think about the stock of houses and schools. Imagining if schools operated beyond 9 to 5 and had more after-school activities..."

Warwick McKibbon as quoted by Jacob Greber et al, 2014

"...it will add an awful lot of competition...... by expanding the range of things society can consume without requiring what economists call additional "inputs", the results should be a net boost of GDP..."

John Freebairn, as quoted by Jacob Greber et al, 2014

"...This is having a profound impact on many consumers, who now realise that they need only pay for what they use rather than sink money into assets that are only occasionally utilised..."

Peter Williams as quoted by Jacob Greber et al, 2014

· Total size of the new economy is still small but growing and has the potential to be big as the mining, retailing and construction sectors of the Australian economy. For example, over a 12 month period, Airbnb had 30,000 stays in Sydney, contributing US$ 214 million to the local economy and supporting 16,000 jobs

· It is becoming a threat to the traditional business models, ie creative destruction. It has the potential to shake up lazy industries and organisations. For example,

"...A budding entrepreneur travels from Brisbane to Melbourne for a meeting. Using the iPhone she hires a chauffeured limo via Uber to get to the airport and, once at Tullamarine airport, hires a GoGet car. Minutes before her meeting begins in the CBD a venue is booked on LiquidSpace, a company which rents out empty offices and conference rooms with people by the hour. At the meeting a new business venture takes shape, but instead of seeking a bank loan, the group request capital from wealthy investors on crowd-funding site VentureCrowd.

Keen to eat dinner in Melbourne's latest hip laneway restaurant but unwilling to wait for a table at the no reservations venue, she briefly employs someone to wait in the queue with Airtasker, leaving time to rent a Gucci python slouch handbag from designer rental service LoveMe and LeaveMe. As the day closes, she sleeps the night someone else's city apartment; the owner is away for the week and has listed their place for short-term rental on Airbnb.

Such is life in the shared economy..."

Jacob Greber et al, 2014

· The 3 components of sharing

i) platforms for websites and smart phone apps that create goods and services

ii)  the entrepreneurs or individuals that supply spare goods and services

iii) consumers

This is sometimes called peer-to-peer networks, ie seek to re-purpose owned assets as a rental service, etc.

· Just as in the village community concept of sharing/bartering, trust and credibility are important commodities in this new economy to survive and thrive. For example,

"...GoGet is a shared fleet of cars that members can use at a whim. You pay your membership with a $500 deposit, hop online to book a car for a few hours, users swipe their card to unlock the car and drive away. When you're done, you park it and leave the keys behind..."

Nassim Khadem, 2014

Trust and credibility are part of a private brand, ie your reputation that you will do the right thing and are transparent in your activities. This goes beyond the concept of the traditional consumer behaviour. Increasingly platforms are relying on sophisticated systems to measure reliability and trustworthiness of users; this includes reviews of your performance from other users. The more reputational capital you earn, the more you can participate in the sharing economy. Everything you do on the social media/Internet connections is affecting your reputational capital I think ebay was an early leader in developing this feature of reputational capital.

Most of the shared economy firms like Airbnb, Uber, etc are P2P services, ie people to people. This involves transactions between willing sellers and buyers. Other examples include
- Kiva.org (allows people to make micro-loans, like $ 25, for charity purposes; in one week alone 50+ k. lenders made loans worth US $ 3 million; the website advertises the hundred percent repayment rate
- TaskRabbit (allows people to post requests for the performance of small miscellaneous tasks, like repairing a broken fence, etc to a community of service providers; most tasks are worth less than $100; they have 20+ k. background-checked regular supply services

· Expanded details on shared economy examples

- Airbnb (global holiday and short-term property rental) was founded in 2007 by a group of roommates who rented out beds in their San Francisco loft. In March 2014, they raised US$ 450 million and the company was valued at US$ 10 billion. This is greater than the market capitalisation of Hyatt and Intercontinental hotels groups; around 50% of what Hilton is worth (US$ 21 billion), in a fraction of the time. Yet Airbnb is a hotelier with no hotels; they simply turn rooms lying empty in people's homes into hot commodities.

"...For home and apartment owners, it promises a little money on the side. For those renting, it is the chance to get more than a cramped suite, often at a significantly cheaper price and location outside the synthetic confines of a tourist destination..."

Jacob Greber et al, 2014

Airbnb has around 5% of the US and European business travel market.

Airbnb is a real threat to the traditional hotel chains' business model; they have acquired over 1+ m. rooms in 26,000+ cities and 200+ countries in around 7 years, i.e.

"...that's more rooms than the Intercontinental and Hilton combined and it took those companies 95 years to build that number..."

Rachel Botsman as quoted by James Hutchinson, 2014

It allows people to rent spare rooms, entire homes, or even castles across 34,000 cities allowing them to generate cash from unused space.

Advertising is primarily by word-of-mouth and press.

Airbnb takes a commission on each booking; this is estimated to be up to 12%. Owners of apartments and homes have to conform to 9 key metrics that include responding promptly to queries, ensuring toilet paper is present, etc

Airbnb has not spent any money on hotel construction, staff, beds, etc. The traditional hotelier uses an asset-heavy model while Airbnb has an asset-light model. Also, their philosophyis that people feel at home anywhere in the world. Compare this with a hotel experience where everything is standardised, eg rooms, hallways, lobby, restaurants, etc

Airbnb is expanding to become a virtual concierge to travellers, including provision of local information on the best restaurants and shopping. Also, it is exploring ways to expand in Asia, especially China

Airbnb has agreed to collect and pay hotel taxes in San Francisco and Portland (USA)

- Uber (mobile application for car service bookings) allows users to hire private cars and their drivers on short-notice via mobile phones. They are not a tech company but a hospitality firm with the traveller being the customer. It started in 2009; now in 115 cities globally with 900 employees; takes 20% commission. But it is facing regulatory issues around safety, non-licensed drivers, tax plus taxi‐cab industry protests, eg 10,000 in London (mid 2014). It was valued at US$ 3.5 b (2013)

- 1000tools.com (re-purpose owned assets as a rental service) allows people to rent each other's power tools and equipment that they otherwise would have to buy directly

- Kitchit (professional service provider) allows customers to find skilled chefs to cook meals in their homes for dinner parties

- eBay and Etsy (peer-to-peer asset sales)

- Translators (freelance labour to be exchanged)

- Flatmates (online directory for room share partners) was started in 1997

- Property Collectives (property investment syndicate) was started in 2007

Other companies include car sharing networks, skills exchanges, crowd financing for banking and investment; shared workspaces, new marketplaces for unwanted goods, etc (see attached diagram on collaborative economy ventures)

 

organisational development change management

 

· Some traditional players are joining the sharing economy

- DHL (courier company) has launched its Myways smart phone app in Europe to tap unrecognised demand parcel pickup

- Marriot (hotelier) has Liquidspace which sells idle meeting rooms and conference rooms

- Westpac (banker) uses Onesociety as a peer-to-peer lender with those seeking a return by lending money

(source: Jacob Greber et al, 2014; James Hutchinson, 2014a; Nasssim Khadem et al, 2014; Jacob Greber et al, 2014a; Jamesw Chessell, 2014)

 

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