All About Shifting Patterns Across Industries
Today: A curated list of past publications on how industries are impacted by the current paradigm shift.
The Agenda 👇
My frameworks for reflecting on any industries
What works, what doesn’t work
Industries I’ve covered in depth
Companies I’ve covered in depth
A few other related essays you shouldn’t miss
Business strategy has historically been one of the focal points of my written work in general, and of this newsletter in particular. I designed my own frameworks for reflecting on it quite a long time ago, and I’ve since written a lot about various cases of failed or successful repositioning on the part of various companies in interesting industries. Here’s a curated list of relevant works from 2016 to today.
I believe the most important idea you need to keep in mind if you want to understand the current paradigm shift is the following: in the Entrepreneurial Age, there’s more power outside than inside organizations. I summed up the argument in Fixing Today's Economy Is About Humans, Not Technology:
What exactly is the nature of that outside power? It’s vested in this mighty “multitude”—the billions of individuals who are now equipped with powerful computing devices and connected with one another through networks.
And it inspires a lesson in strategy and management that every corporate executive needs to keep in mind: the businesses that succeed in the digital economy are the ones that realize how power has been redistributed outside of their organizations. The winners are not the companies who use the most technology. Rather, they are the companies that best use technology to harness human power, which in turn fuels growth and generates profits.
This was echoed in this very recent essay enjoyed by many of you, Your Customers Are More Than Their Collective Purchasing Power (November 2020):
What does technology change? It makes it possible for customers to contribute with more than just eyeballs: data, content, labor, capital, whatever you want. This is why I think ‘audience’ is not the best word to describe the new state of things; it has too much of a connotation of someone being lazily seated on their couch watching television. (That’s why I prefer to use another word: a multitude. But that hasn’t yet caught on.)
Another important idea is that the shift to the Fordist Age to the Entrepreneurial Age more or less follows the same pattern, with the industry going through five different stages—from startups being barely visible to one of them dominating the industry value chain from top to bottom. I described this five-step process (incl. with GIFs from The Big Lebowski) in The Five Stages of Denial (2016):
For existing businesses, at every step in their industry’s digital transition, there are good reasons to think that nothing needs to change. Two years ago, The Family conducted an extensive work on understanding how exactly software is eating the world: in that work, we identified 5 steps in the digital transition of an industry. Later on we were also able to refine those ideas and point to the reasons why existing businesses deny the reality of their situation during each of those 5 steps.
Later that year, I decided to dive into Michael Porter’s seminal work on strategic positioning so as to sharpen my views of business strategy during the paradigm shift. There were two iterations of that effort, the first being In Search of Scalability in which I started to build on W. Brian Arthur’s idea of increasing returns to scale as the distinctive feature of the new age:
Most established companies ignore or overlook increasing returns as they devise their corporate strategy. The reason is that they’ve grown up in a different world, one that was dominated not by increasing returns at scale but by another, very different microeconomic feature: supply-side economies of scale. As they pursue operational excellence or merge with competitors, Fordist companies have but one goal: getting bigger in order to lower their unit costs of production. This is a very un-tech way of reasoning and I will now try to explain why.
It was followed by an essay more specifically focused on Porter’s definition of business strategy, A Stout Porter: Business Strategy In the 21st Century:
Strategy, as it applies to various disciplines such as business, politics, sports, or warfare, is such a generic concept that it will likely survive any radical changes in the technological landscape. It could even prove all the more critical as the digital economy reveals itself as far more competitive than the norms seen in the Fordist economy. The tougher the competition, the more critical the strategic positioning!
What should established businesses do if they want to reposition as their industry is changing? I have discussed many options over the years, for instance in The Family, Business Strategy, and Private Equity Firms (January 2018):
The digital transition is not about transforming the organization (management); rather it’s about repositioning within the industry value chain (strategy). You can see the transition as an exogenous perturbation that creates the opportunity for startups to enter the industry. As a result, the cards are reshuffled, not without strategic consequences all along the value chain. Strong links become weaker, whereas previously weak links emerge as the best position to have once the transition is complete. Within this framework, the stakes for traditional players are not about changing things internally; rather they are about repositioning to where value will be more easily created or captured once the industry’s transition is complete.
This echoes the late Clayton Christensen’s idea of how an existing business can avoid falling victim to the “innovator’s dilemma”: it needs to build a new business at the margins—with a different product, a different culture, and a different approach to the market. I wrote about it in two essays:
Clay Christensen, Our Secret Godfather (February 2018)
What Europe Could Learn From Clay Christensen (January 2020)
Can consulting firms help? I have my doubts, as I explained in several recent essays:
11 Notes on McKinsey (May 2020)
The Future of Consulting (Round 1) (May 2020)
The Future of Consulting (Round 2) (September)
I also have my doubts about large incumbents merging so as to reach critical mass. That’s actually stage 4 of my 5-stage framework, and it usually ends in failure, as explained in Enough With the Big Corporate Mergers (November 2019):
In the Entrepreneurial Age, the most competitive organizations are those which are agile and able to constantly reinvent themselves. They are also (and above all) outward-oriented organizations obsessed with the continuous improvement of the user experience. And in this context, mergers are a problem. They contribute to organizations retreating into themselves: implementing a merger forces managers at all levels to focus their attention on restructuring the organization and redistributing managerial positions. And a merger plunges the resulting entity into a frantic race to eliminate redundancies and reduce costs, which contributes to stiffening the organization and making it even more rigid. As William H. Janeway says, innovation is all about waste, thus “efficiency is the enemy of innovation”.
A very promising approach, on the other hand, is to acquire a failing business and start over with the same assets but a different strategy. Check out Rebooting Businesses for the Entrepreneurial Age:
I find especially interesting here is this idea of using an existing asset and refurbishing it so as to deliver a service that clears the bar in terms of what customers expect in the Entrepreneurial Age: more convenience, less friction—the Amazon way! It resonates because it reminds me of an early experiment we conducted back when we launched The Family in 2013: The Family Reboot.
The idea was simple: buy an incumbent business which owns assets that can be used in a different way, build up a new company by adding tech talent and resources on top of those assets, and make a hefty multiple on the initial investment by selling the resulting company to a higher bidder.
I applied the frameworks described above when researching specific industries. Here’s a sample of the ones I covered over the years:
Do Banks Still Have A Future? (November 2015—with Laetitia Vitaud)
The Future of Healthcare (February 2018)
The Future of Wealth Management (April 2019)
Reinventing Financial Services (May 2019)
The Future of Restaurants (July 2019)
The Future of Education (July 2019)
Homeschooling: The Next Frontier? (April 2020)
Why Software Has a Hard Time Eating Construction (October 2020)
The music industry, in particular, provides us with many lessons about the nature of the paradigm shift and how incumbents can reposition themselves. Here are three recent essays about it:
11 Notes on Warner Music (July 2020)
Can Legacy Industries Survive? The Case of Music (July 2020)
Five Trends Revealed By the Music Industry (December 2020)
There are also many lessons to be learned from the successful repositioning of individual companies. Here’s a related sample of my “11 Notes” series:
11 Notes on Amazon (May 2016)
11 Notes on Goldman Sachs (May 2017)
11 Notes on Lego (February 2020)
Finally, please make sure to check out these essays—all are related to the strategic lessons to be drawn from the shift to the Entrepreneurial Age from an industry perspective:
Data Eats Brand For Breakfast (September 2017)
Marc Andreessen's Latest Lesson in Strategy (August 2018)
Need To Reinvent Your Corporation? Time's Running Out. (May 2020)
A 10-Point Checklist For Building a Great Company (September 2020)
Note that I didn’t include my many essays related to corporate finance and capital allocation, which I’ll curate in a later edition next week because I think the financial dimension deserves a separate edition! Please send me feedback if you have some 🤗
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From Munich, Germany 🇩🇪