Is Your Business Model Safe?

There is no safe business model. If you or your company think you’re safe, you’re in trouble.

Kenneth L. Coleman, chair of Saama Technologies and special advisor to Andreessen and Horowitz, made that claim in his opening keynote address at the ISM Supply Chain Diversity Summit last week. The thing that has changed the most over the course of his career is speed — “the speed at which everything is changing” — which is disrupting established business models and practices, but also creating new ones.

Coleman pointed to AAA as an example. When you look at AAA’s history of providing road maps (TripTiks), reviews of hotels (AAA Diamond Ratings), and travel assistance, “AAA could have been MapQuest, Yelp, and Travelocity” but it missed the opportunity. (Coleman is a member of the board of directors of AAA Northern California, Nevada, and Utah Insurance Exchange).

He also pointed to traditional enterprise software vendors and how they originally dismissed software-as-a-service. A lot of times, when a new idea or way of doing things emerges, even internally, company leaders “act like antibodies and try to kill it” because it threatens the status quo.

I saw this firsthand when I worked at Motorola and Polaroid. Motorola missed the transition from analog to digital cell phones and was left behind, and then it missed the transition again from flip phones to smartphones. And at Polaroid during the late 90s, most of the managers I encountered viewed digital cameras as a very expensive tool for professional photographers, not as a consumer device — and none of us back then envisioned the merging of cell phones and cameras. The antibodies released by Motorola and Polaroid didn’t attack and kill what threatened the status quo; it killed them.

In an HBR blog post published last November (Amazon Constantly Audits its Business Model), the authors say the following:

[S]mart businesses like develop ways of constantly questioning what they do. Business models and the advantages that flow from them are transient. What is a competitive strength today might be a burden tomorrow. From the time he founded the company, Amazon CEO Jeff Bezos was aware that its business model might become outdated. The need to counteract the effects of growth-induced stagnation and confront irrelevance of existing business models was thus embedded in Amazon’s DNA. 

If only more companies would do the same. Top managers spend countless hours analyzing the financial statements of their company; they would be well advised to do the same with their business model.

Here’s the way I put it: The standard disclaimer that appears on all investment literature also holds true for supply chain and logistics: past performance is no guarantee of future results. The biggest challenge supply chain and logistics professionals face today is not change, which is something they have always faced, but keeping up with the rapid pace of change across a variety of dimensions — technology, regulations, economic and political landscapes, demographics, and so on. (For related commentary, see Why Supply Chain Innovation Matters in a Fast-Changing World).

Therefore, is there an opportunity for third-party logistics providers (3PLs) and supply chain software vendors to innovate their business models to deliver greater value to clients, differentiate themselves from the competition and gain market share, and achieve greater financial success?

Of course there is, and it’s already happening.

As mentioned earlier, software vendors have been moving away from the traditional model of having customers pay large sums of money upfront to implement software solutions in-house toward software-as-a-service (SaaS) and cloud computing models where customers pay over time to access solutions deployed remotely via the Internet.

In the 3PL realm, it’s no longer outsource everything or nothing. Many service providers now offer customers more configurable service options, where customers can choose which functions they want to keep in-house (such as procurement) and which ones they want to outsource (such as day-to-day operations and IT). Some 3PLs and their customers are also starting to adopt Vested principles in the way they work together.

And as I’ve discussed in previous posts, the business models of 3PLs, software vendors, and consultants continue to converge. A successful 3PL today is an operations manager, a consultant, and a technology provider all rolled into one.

Simply put, 3PLs and software vendors have been transforming their business models over the past few years. The challenge now is to keep looking for additional opportunities to innovate — and to keep the internal antibodies away that want to protect the status quo and kill new ideas and business models.

Is your business model safe? Ask your company leaders and listen carefully to what they say. Their answer will either surprise and motivate you, or disappoint and scare you.