Blog #7 Is your brand cannibalising your business?

Are you blindfolded by your 90%?

If the last ten years has taught us anything it’s that your business can be here today and gone tomorrow particularly if you are an S&P 500 company. According to Credit Suisse the average age of an S&P 500 company in the 1950s was around 60 years, today it is less than 20 which, at that rate implies that half of today’s S&P 500 will be replaced in the next ten years. This is largely due to the nature of economics which has been drastically accelerated by a technological disruption in the last 20 years. Brands have had to completely reinvent themselves to stay top of mind (and top of wallet) in the eyes of consumers and this has resulted in a customer-first approach in product design and distribution.

Ok, that’s great and all but what has this got to do with brands cannibalising their business?

Well, let us consider this. A major telecommunications company that traditionally focussed on mobiles, mobile plans and individual consumers now wants to re-position itself as a digital-first technology company which not only caters to consumers but also small businesses. Great stuff! So first they execute the marketing plan, including PR, a new logo, rebranding of office furniture and internal change management sessions for all staff (tick).  The first week is smooth sailing, everyone is excited for the change (even though they don’t know what it means but hey free backpacks!) and the response from the media is positive. Week 2, not bad, just a small hiccup in procurement but we have a workaround. Week 3…well last week they could use the workaround but this week they can’t because it violates their procurement process. They need to escalate. Week 4…Ok they have no stock because they couldn’t resolve the issue from last week because EXCO couldn’t meet to make a decision. Week 5…Ok EXCO decides that they will use the workaround for now and have requested a squad be put together to find a permanent solution. Week 6… ok they are selling! But they can’t make any permanent changes because it affects the agreements with their suppliers and those terms were agreed way before the current offering’s existence.

In this highly oversimplified product lifecycle journey, we have highlighted what appears to be poor change management and process engineering. Correct! But surely someone in the organisation knew this would happen? Shouldn’t sales or operations or procurement have raised these issues? Well yes, they probably would have if they were even remotely concerned/motivated about this new business area which is expected to contribute a measly 10% of revenue in the next FY. Meanwhile, the business that generates 90% of the company’s revenue (and is measured in their performance review) took precedent. ‘What gets measured gets monitored’ as the saying goes.

In our opinion, an organisation’s adaptability is largely determined by the employee’s motivation to change. If the CEO/EXCO do not actively make the 10% a priority, the organisation will follow suit and those who raise any red flags are drowned out by the other ‘burning issues’ taking place that day, week, month or quarter. In this way, corporations tend to cannibalise themselves as the focus is purely on the 90% that brings in consistent revenue. This results in missed opportunities to make the internal changes required to leverage the new offering, lost revenue which could potentially grow to a far larger percentage than just 10 and a missed chance of mitigating the risk of having all your eggs in one basket. Soon after the idea takes off in the market, but the revenue goes to a competitor…what’s worse is your competitor is a start-up!

Of course, not every opportunity is guaranteed to rock the market, but large organisations are supposed to have the resources to predict these things. So why are the little guys flourishing? Well, again it comes back to the 90%. The business got so used to receiving income from the 90% every month that they didn’t bother to see what their competition was working on. In fact, they never imagined there would be a business that could compete with theirs. They also didn’t notice how smaller companies had found ways to undercut their business model by simply making things easier for the customer. Then in Q3, there’s a sharp decline in revenue. A deep dive of the CHURN statistics reveals that 10 companies have emerged in the past year and have cumulatively taken 20% of their customers. And gosh even though they can now see the trend, there is little they can do before Financial year-end as their processes couldn’t adapt quickly enough to keep pace with the CHURN rate.

This scenario is by no means a new situation and is the exact reason why organisations are spending millions on making their operations more ‘agile’. The word implies speed and flexibility and yes it does do those things but in reality you can only speed up a process when the business commits to either a total overhaul of the current process OR actually identifying and fixing the problems that aren’t working in the current process. This sounds simple but can have major financial, legal and/or regulatory implications (e.g. changing your procurement process to onboard vendors faster, changing suppliers who have longstanding relationships with the business, outsourcing staffing requirements, upskilling the current workforce, etc.)

Organisations that have successfully pivoted their business model for business in the ‘digital age’ in our view have had to totally let go of what they thought their business/brand represented AND be ready to pivot when the opportunity presented itself. Such was the case for brands like Amazon, Nokia and Apple. Companies that continue to focus solely on the 90% will ultimately cannibalise themselves and in the not too distant future, either. Imagine if Steve Jobs had never pushed the idea of a “mobile, a computer and a music player”, where would we be without AWS? or the Nokia 3310!

Is 5G the new 10%? And if so, how does your business realise the opportunity? In a world where every company is agile, there will still be winners and losers. In our next blog, “Agility is a given, isn’t it?” – we’ll discuss how assumptions about your business can affect your ability to leverage agile methodologies.

I’d like to say a massive thank you to our guest blogger Tanya Dreyer for the collab on research, input and writing this blog post, I hope you’ll agree it’s a relevant discussion especially in today’s competitive economy.

References:

https://www.aei.org/carpe-diem/fortune-500-firms-1955-v-2017-only-12-remain-thanks-to-the-creative-destruction-that-fuels-economic-prosperity/

https://www.forbes.com/sites/jasonnazar/2013/10/08/14-famous-business-pivots/#661326085797

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