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Tech world category kings – such as Amazon, Facebook and Google – grow so fast that they appear to be untouchable. But there’s a way for traditional organisations to compete, and it starts with refocusing on three key elements: structure, customers and business model.
Most companies these days know that the traditional power structure, with a chief at the top of a corporate pyramid giving orders, doesn’t work. Instead, businesses seem to believe that success is all down to the right variation on this theme. So they regularly re-jig the org chart, looking for a magical configuration that all aspects of the organisation will align with. They couldn’t be more wrong.
Any kind of hierarchical culture stifles creativity. Yes, there must be leadership and direction, but before that, there must be the right culture. You need to allow your people to make mistakes, learn from them and engender a spirit of experimentation. Your people should be questioning and interacting with each other fearlessly, breaking boundaries and forging powerful connections. All of this is difficult, if not impossible in any of the ‘one size fits all’ templates for building organisations.
The number one thing to rediscover in the age of disruption is agility. That means rethinking organisational design, rethinking how we go from a traditional hierarchy into a much more flexible and fluid structure.
ING is a great example of a traditional organisation that has shifted to an agile model. ING begun to abandon the old hierarchical approach in 2013 – when new CEO Ralph Hamers took the helm – and is currently rethinking its structure, with smaller teams and inventive approaches. Comprising about 350 nine-person ‘squads’ in 13 so-called tribes, the new way at ING has already improved time to market, boosted employee engagement, and increased productivity.
The bank didn’t have to make such radical changes. Bart Schlatman, who was COO at the start of the transformation, said there was “no financial imperative, since the company was performing well.” Customer behaviour, however, was rapidly changing as a result of digital distribution channels, and customer expectations were being molded by digital leaders, not banking leaders. In this new omni-channel environment, ING had to start using customer journeys as a starting point for business, instead of products. The ‘squad’ model they now use means a mix of specialists come together to focus on what the customer wants, with a common goal. The inspiration didn’t come from other banks, but tech companies. Key to its success is that it has no fixed structure – it constantly evolves.
The rise of social, mobile customer-centricity, big data and analytics has transformed customer behaviour. Category kings do a much better job of understanding customer behaviour than traditional organisations. How do we respond, and how do we play with the same weapons? What sort of skills, resources and tools do we need?
ING has drastically transformed itself in the customer space too. ING started investing in digital as soon as it saw the trends coming from Silicon Valley. Ralph Hamers has said that people at the bank noticed the expectations of their customers to do banking on the go and built ING as a bank around the internet, rather than trying to build the internet around the bank. Ultimately, ING aims to have the same platform operating in all the regions of the world that all its customers will engage with in the same way they engage with Facebook. Competitor banks and other organisations would also use that platform to sell their products.
According to Hamers, ING’s biggest disruptors aren’t fintech companies, but category kings like Amazon. The open banking initiative comes into play in 2018. That will give access to the Amazons and the Facebooks of the world to deal in financial transactions, wiith Facebook’s PSD2 finance messenger enabling person-to-person money transfers.
PSD2 is the second service payment directive enabling customers of a bank to use a third party as their interface. Instead of using ING, for example, a customer can choose Google, Amazon or Facebook to handle their transactions. Banks would become simple back office providers. From a customer perspective, who is delivering value? According to a January 2017 survey by Accenture, many millennials are more comfortable with Facebook or Google handling their finances than they are with the banks their parents use. PSD2 will make this a reality. ING is ahead of the game in the banking world because it has have looked carefully at that customer aspect and continue to do so.
True innovation is changing your business model to lead to a new way of playing the game. Disruptors focus on different attributes of a product or service. For instance, online brokers sell their product based on a speedy service and low price: two aspects that traditional brokers – with their in-depth research and personal advice – do not offer.
To take on the disruptors, you need a business model not to just do things differently, but to do different things. There are many examples over the last few decades of established companies who have fought disruption by doing exactly that. If you can remember a time before the ubiquitous coffee chains invaded our town and city centres, you will remember most people – in the US and the UK anyway – drinking instant coffee. When Starbucks and co. moved in, Nestle’s Nescafe took a big hit. But instead of opening their own chain of coffee houses or trying fancy flavoured granules, they created Nespresso, and coffee aficionados were able to make a barista grade cup of coffee at home. They sold a lifestyle product: Nespresso machines and accessories are luxury goods, not hot beverages.
Many disruptors are start-ups and have a fresh, bold and flexible attitude. The most important trait is courage – rebelliousness, even. They break rules and they are proud of it. Look at Uber. It simply ignored the rules and conventions that every taxi company in history had heeded. It is still illegal in many countries but where it isn’t, its dominance continues, largely unchallenged. As of November 2017, it was still appealing the revocation of its licence in London. Many disruptor businesses fall in the gap between legal and illegal. Airbnb fell foul of local housing laws and regulations when, in 2014, it was fined 30,000 Euros for breaching local tourism laws in Barcelona.
Uber and Airbnb are both platform companies but they have become business models in themselves. They have shown that there is nothing wrong with a healthy disrespect for rules, and a lot that is right.
Today, we’re only just scratching the surface of what tomorrow will bring. Technology augmented in virtual reality is how we’ll transform customer experience. To succeed, we have to view not digital as we know it now, but digital as it will become. Most look at tomorrow with only the things we know today: from their comfort zone. But with this acceleration of technology we need to think about the day after tomorrow.
You can’t tackle this kind of transformation as a side activity. You need a top-down commitment from leadership to make transformation a priority, not a separate entity or a department.
Whatever organisation you are in, there will be a minority of people who can make a difference. They are the ones who don’t behave in the expected way. They are radical innovators who try things that have never been tried before. Some people call them the one percenters but in some exceptional companies they can make up more than half of the workforce. If those people are thwarted by the majority who like to do things by the book, they will probably leave and find a start-up to work for, or create one themselves. Empower them. Encourage them. Celebrate them. In the day after tomorrow, you’ll need them.
Peter Hinssen is a futurist, entrepreneur and lectures at London Business School on Executive Education programmes.
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