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Transcript: Radical Business Model Transformation with Dr. Carsten Linz
Kelly: Hello, and thank you for joining us today. This is Kelly Barner, Managing Director of Buyers Meeting Point. Today I welcome Dr. Carsten Linz as my guest. Carsten is an entrepreneurial leader and expert on innovation-led business transformation that I met in the process of reviewing his recently co-authored book, "Radical Business Model Transformation: Gaining Competitive Edge in a Disruptive World." I will make sure there is a link to my review on today's BlogTalkRadio episode page so that you can learn more about the book. And if you're interested in more of Carsten's writings, I will also share a link to his blog where he further explains and explores some of the themes from the book.
Carsten leads SAP’s Center for Digital Leadership, a renowned C-suite think tank showcasing next-generation innovation and transformation approaches. He is an active business angel, serves on the investment committee of Europe's largest seed-stage fund, and holds various advisory board seats. He is an adjunct faculty member and teaches in executive programs at a number of esteemed universities. He's a sought-after keynote speaker and acts as advisor to CxOs around the world.
Welcome, Carsten. Thank you so much for joining me today.
Dr. Carsten: Yes, Kelly, my pleasure being here with you today, and thanks for the wonderful introduction.
Kelly: Now, as I've mentioned, you and I connected over your book, but for anyone that has not yet read it, would you mind providing a brief overview of the central thesis of the book?
Dr. Carsten: Yes, sure, I’m happy to do so. It’s always difficult, you know, if you have spent three years writing a book, to summarize it quickly, but I’ll do my best right now.
What we see is that today's exponential change is actually fueled by two megatrends. This one is digitalization and the other is, service orientation. This makes business model transformation a key strategic priority for basically every leader. Radical business model transformation... the theme of the book, is the systematic change process of switching from one business model type to another business model type in order to gain or regain competitive edge, so it's about gaining the competitive edge in the disruptive world, which is the subtitle for the book. This is obviously not an easy undertaking as it signifies managing a deep strategic renewal process that includes a shift in the firm's dominant logic and cognitive mindset.
So it's not about feature function, it's not about automation efficiency gains, nor about cost savings, but it's really about innovation and building new revenue streams with the change and the shift towards the new business model. And the radical shift from our research, we can clearly say, always includes a substantial shift in the three business model domains, which are the front-end, so basically a substantial shift in the value proposition and the way you deliver value to the client. It also requires substantial change in the back-end, so the value network that you're orchestrating, something that in the old days we called the value chain. Today, we would call it a value creation network. Whether it's a traditional manufacturing supply chain or cutting edge manufacturing with 3D printing, is not the question. But this is what we could call back-end, the part of the operation which is typically behind the curtain and which the customer doesn't see.
And last but not least, the third domain relates to the monetization mechanics. It always requires a deep structural change when it comes to monetization schemes. So, for example, shifting from an upfront license payment scheme to a subscription-based scheme. This is what we're seeing, for example, with software-related business models, which is a hot topic because many companies also moving towards the cloud. So I would say if you meet your leadership team in the next boardroom meeting, there are two questions to ask. First of all, ask or discuss with your leadership team when you've done something for the first time or for the last time, and the second question is: Are we thinking radically enough? And I think with these two guiding principles and questions that the book is about and where the book tries to help with business model transformations.
Kelly: Now, to that second question that you mentioned, I actually found it interesting, and I believe it was in the intro to the book, where you and your co-authors noticed that during the process of writing the book, you would often turn to each other and actually ask that same challenge question: Are we being radical enough? Now, why radical, and how much extra energy and effort did it require your team, you and your co-authors, and all of the editors that you worked with, to maintain what you felt was a standard of radical thought leadership and business model insight?
Dr. Carsten: Well, that's actually a nice question because it translates the theme of the book into our work. First, a quick note on why a radical shift is required, because what we're seeing in many cases that transformation leads nowhere, and it definitely doesn't lead to a competitive edge. This is why innovation must be the instantiation of each and every transformation program that you're running. This is actually what transformational leadership is about.
This is one topic, and the second one is that we make the leap, and not only change within the box of a business model type, be it a product business model, be it a platform business model, be it a project business model, or be it a solution business model. These are the four which we're changing or transforming in-between, in the business model transformation process, but it's really about changing between the boxes, so moving from one business model category to the next business model category. And this is why it's called a radical shift or radical change.
And now kind of back to your question, how...I mean, now it sounds straightforward and pretty logical. But for us, we really wondered why are so many transformations slip back? You know, there are many CEOs and many leadership teams doing the right thing, but then ultimately they do not succeed with their transformation. We analyzed 380 companies, and roughly 20 CEOs who kind of co-authored the book with us because they used our business transformation board to showcase and illustrate the transformation that they have been going through with their organization. We always recognized that they flip back if the effort is not substantial enough, and substantial means substantial in all the three domains, in the front-end, in the back-end, and in the monetization mechanics.
Kelly: We've talked a lot about transformation, but I think one of the important distinctions that you make is the difference between innovation and transformation. You talk about innovation as something that can happen anytime, versus transformation which is truly only happening at an inflection point or a meaningful change in direction for the company. And when you talk about that point of change, you talk about three things that companies need to identify or need to realize. They need to realize the need for change, they need to be able to articulate and describe the new business model that they're moving towards…
But then this third piece, I think this must be so hard, they have to identify what you call the ‘valuable DNA’ of their company or solution. So this is the piece that, despite the fact that you're saying we need change, and despite the fact that you're saying we want to be like that and not like that, there's something that you're saying must be preserved. How can companies simultaneously embrace something that will remain the same and overcome this challenge of trying to truly change to a new business model?
Dr. Carsten: This is an excellent question. There's a theory out there that you might be aware of that's called the ‘ambidextrous organization’. Fundamentally, we typically say either we are left handed, which means we're really good at managing day-to-day operations, we're really good in incrementally driving existing businesses forward, and on the other side, say right handed, we're really good at building up completely new businesses from scratch. So one is more efficiency-oriented, this is the first one. It's more about optimizing from 99.1 to 99.2, to 99.3, whereas the entrepreneurial leadership part, in contrast to the operational management part, is really about building something from scratch, from 0% to 70%. And only if you differentiate these two leadership or management types, not organizationally only, but really from a mindset perspective, you can succeed, because in many cases, you have to store the transformation despite making sure you still secure the existing cash flow from your traditional business.
And if you then take it from there, it's important that you leverage the skills and competencies, and also the assets, for example, your large in-store base of clients, on many competencies that you have gained in the past. But at the same time, you also have to make sure that you understand which of the past assets limits you, going forward, and which you have to basically...I would not say throw them overboard, but unlearning, de-learning is the key thing to realize change. Because the new business model, in many ways, just think of the change from traditional cars to electric cars, electro-mobility is a substantial change because battery technology is now the centerpiece of the strategy. In the past, it was more about the combustion engine and a link to that. So the fundamental shift that we're seeing now, moving forward into a mobility platform, the platform play becomes a key element. It's about orchestrating end-to-end business processes, mobility processes, on top of platform, linking different modes of mobility in an end-to-end process.
We see that these changes only can occur if we differentiate and are honest to ourselves, what, from the past, in terms of in-store base customers, assets, methodologies, competencies, and skills do we want to keep and still help us, but also where we have to manage the delta. And our book is about managing the delta in all respects, in the front-end and the back-end, and the monetization mechanics, and this requires a skill in competency transformation, as you pointed out rightly, but also, in many cases it requires a substantial cultural...I wouldn't say revolution, but fundamental shift, which has to be managed from the top.
Kelly: And I think one of the other things...this is probably very common, again, being human in the face of change, is that we do have a tendency to like the idea of change, but when it comes to actually doing something different or being different, it's very hard to make that shift. And in those cases, many times what ends up happening is that this idea or this project about transformation becomes more of a buzzword than it does something meaningful. And you talk about a couple of these things that, I think, it's important for us to talk about in the context of transformation because I imagine many organizations fall into the trap in this area where things become buzzwords without real meaning. One of them is digital, and the other one is this idea of customer centricity. So regardless of where you are in the organization, you should understand the connection or the value proposition between the steps that you take and the responsibilities that you have, and what it means to your companies and customer, not just perhaps the other groups that you interact with internally.
What would you say is the best way to make sure that ideas like transformation, like digital, like customer centricity, even innovation don't become buzzwords, but, in fact, become something that can be measured, can be monitored, and drive meaningful lasting change for the organization?
Dr. Carsten: Actually let's take...potentially the digital thing for a second. So we ran an analysis with 150 digitalization initiatives, and what we found is that the majority are actually geared towards process automation, nothing against process automation, but the efficiency play. And kind of the risk that we've seen is that, in many cases, organizations basically put a digital icing on the cake, so to speak. They just take the business processes that they've been dealing with, where they have been successful for the last 20 years, and they digitize them, so not digitalize them in terms of business impact, but digitize in terms of technical conversion. And this might be helping them on the cost side, but it's not bringing them towards gaining a competitive edge.
Then the second level is basically changing, rethinking, reinventing business processes, also what we've seen with Uber, for example, with a nice back-end integration into the payment process, with a world-class user experience which has been becoming very successful, no doubt about it.
The third level would be the transformation of an entire operations model, be it in the supply chain area, in the production side, IoT, whatever, but also in terms of, for example, rethinking. This is a project that we're currently doing here at the Center for Digital Leadership, rethinking the way a procurement approach in the organization should look in 2020, with the impact of digital. So that would potentially even mean moving from a cost center into a profit center, just as an idea, not saying that this is the way it should be going, but that might be an idea.
And the last, and basically most difficult transformation move is the move towards radical new business models, moving from one business model type into the next business model type, and here we hardly see any cases. I think the key for driving transformation to success is that you always ask yourself, Are we really gaining competitive edge by doing this transformation program? And Are we driving innovation? because innovation, as we said, is the instantiation of every transformation in the best case. Are we driving new digital incremental revenue streams? Most CEOs see themselves responsible for driving the digital transformation these days. A good measure is, can we really drive top-line impact?
Kelly: So the book is "Radical Business Model Transformation: Gaining Competitive Edge in a Disruptive World." It's available both on Amazon as well as from the Kogan Page website, and I highly recommend, especially early in the year like we are now, where everything seems possible, I highly recommend that you pick up a copy of this book and read it for the ideas that it will give you about the change that you need to carry out in your organization, as well as how to make that possible.
Dr. Carsten Linz, thank you so much for joining me today and sharing your thoughts.
Dr. Carsten: Kelly, it was my pleasure, and greetings to everyone. Thanks for joining.
Kelly: And thank you, as well, to everyone who has joined us for this BMP Radio podcast. Please feel free to share your comments and feedback on this conversation, as well as to share it with anyone from your network that you feel would benefit from the information. Thank you for joining us, and, please, enjoy the rest of your day.
Great Blog Post.
Without writing a longer message (which I am certainly tempted to do) explaining my organisation's business model, I wanted to ask how a new organisation like mine can get its voice heard in the procurement community.
Even though our proposition costs nothing and creates new (and potentially significant) value for buyers - we are not able to engage with a single buyer willing to listen, let alone try our proposition.
Whilst I understand that it is always difficult to identify early adopters, it feels like the buyers that we have engaged with are defensive of existing practices (by the way we do not undermine any existing procurement levers), say that they have seen it all before, or may even feel threatened by a digital platform. If we can get past that, they would see that we really are different, and that we would actually strengthen the procurement function rather than threaten it.
Of course - it is also about how we communicate our proposition - but unless we get eyes on it in the first place - we are not able to assess our communication efficiency.
If you would be willing to offer some advice - perhaps I can send you a 1 page explanation in my very own words about us. I hope you would find it intellectually stimulating at least.