The New Race for Business Model Evolution

Today we have the capabilities – and the increasing customer expectation – to have everything immediately available, easy to use or handle, but still totally tailored to each of us individually. We live in an age where personal tailoring on industrial scale is becoming the norm, not the exception. Michael Bednar-Brandt, Director Digital Transformation EMEA at Oracle, discusses the move from products to service models and how it has naturally started to impact business models.

There is no consistent definition for innovation. Every industry and every department has their own definition. How would you define innovation with respect to the software industry and Oracle?

Michael Bednar-Brandt: Ed Roberts from MIT famously defined Innovation as Invention times Commercialization (Innovation = Invention x Commercialization). And usually we treat Invention as the glory part of Innovation – most believe that inventing something new is the holy grail.

But looking at history there are so many cases from Thomas Edison to Apple where the Commercialization part actually was where the magic happened, not the idea itself.

Commercialization I believe includes all the hard work it takes to successfully bring a new invention to market – to fine tune it to really solve a problem, to ensure it can be easily handled by the target audience, and also to care for monetization and promotion.

What is different today is the sheer speed at which Innovation happens. Major digital technologies have marginalized cost, cut development time and multiplied reach – allowing anybody from multinational companies down to garage based startups to create the next Uber or Airbnb.

This is very evident in service industries like Banking where we see a massive number of FinTech startups sending shockwaves through the establishment. But beyond service industries there is a trend towards traditional goods offered “as a service” today – so also very traditional industries find new ways of how products are offered, from machinery charged by usage to tires offered per mile to mobility currently being rethought on many fronts.

The software industry – our traditional home market – is undergoing a similar shift with SaaS (Software as a Service) challenging every bit of the value chain and forcing companies like ourselves to rebuild products, sales and service models.

The ultimate goal is clear: to make any form of computing as easy to use as electricity, whether it’s a simple document exchange service or a worldwide human resources management system. At the end computing will become as seamlessly integrated in our lives as electric light, as natural to use, as convenient and helpful, and as low cost.

Product and service innovation is done by most companies. Recently, business model innovation has received increasing attention. What role does systematic business model innovation play for Oracle?

Now that is a really fascinating topic, we are in a time that in my opinion is best characterized by “the new race for business model evolution”. Let me explain:

The move from products to service models has naturally started to impact business models as well, but the transition did not stop there.

The ongoing move to make business even simpler multiplied with the ability to easily leverage game changing new technology has started competition beyond pure products and services. What we see today is the blurring of traditional barriers between markets combined with a lot of innovation around business models themselves.

There are many interesting examples for this today like Car2Go or DriveNow who are providing Mobility-As-A-Service models where you only pay per minute of use compared to buying the whole car from the respective mother companies Daimler or BMW.

And interestingly by doing so they enter or create new markets and now compete against vastly different competition – in this case against the like of taxi’s, Uber or even public transport.

But going back to simplicity as guiding principles this is not the end-game, recently it has become obvious that platform based business models like Uber and Google start to be the new leading edge of competition. Looking at solving complete sets of human needs like the need for situational mobility they focus on owning the customer relationship, but happily leave the rest to others.

So Uber tries to become your one stop platform for mobility especially at the dawn of self-driving cars, and so does Google with Google Maps and their autonomous car initiatives, and so does Daimler with their German pilot of Moovel being and end-to-end travel app across all modes of transportation.

Or take Amazon, where their move to offer the Kindle eReader was not lead by the idea create a shiny new gadget. Amazon’s focus was on extending the given platform for selling books and building upon it to simplify the ultimate need – in this case the desire to read a book as convenient as possible.

For us at Oracle it is key that we support all of our customer – companies of all sizes – through these highly dynamic and major market shifts. This is why we have a clear strategy transitioning ourselves to provide the Cloud Infrastructure, Platform and Application services that are helping companies to easily add new capabilities like an online store or a new billing model as needed, but also to enable innovations being prototyped within just a few days or weeks and then securely scaled as success comes in.

And this again directly drives how we innovate ourselves to offer a wide range of new services that you can choose from like selecting the right Lego bricks needed for the task, just that the bricks are enterprise grade software pieces made easy to use and apply.

You expect platforms as the new edge of competition. What is your key advice to enterprises which transform their business models in terms of digitalization?

First - The number one rule is to start with the customer.

We all may have grown up with a mindset deeply rooted in the industrial revolution and famous stories like Henry Ford’s model T which was built to be sold as many times as possible without changing.

We live in an age where personal tailoring on industrial scale is becoming the norm, not the exception.

But today we have the capabilities – and the increasing customer expectation – to have everything immediately available, easy to use or handle, but still totally tailored to each of us individually. We live in an age where personal tailoring on industrial scale is becoming the norm, not the exception.

So we have to start with the customer, understand the real need to be solved, and then engineer the whole value chain backwards enabling relevant and well tailored and solutions with minimized process cost at all levels.

Second – and closely connected to the first point is that we may have to give up the idea of owning or building the whole value chain.

The key is to happily integrate with others, leverage given or new partnerships, combine with existing capabilities and platforms inside and outside of your organization, in order to remain the ability to innovate fast and often, and to provide complete solutions for customer needs.

Really let me emphasize this point – if you can buy, consume or partner then absolutely do so, and focus every effort on where it really matters in your business.

And in case your business is not “platformable” e.g. when you are running a hotel in a city center then leverage platforms to the maximum extend possible as most do in the travel industry, or could do in other markets. And even then you see hotels innovating on platform ideas around becoming business hubs or similar.

Third – Love the data.

Platforms have huge advantages in terms of access to customer and transactional data, which is opening up a wealth of insight into the business enabling continuous improvements, adjacent innovations and increasing profits.

Some say data is the new gold, and in the most positive sense this may well be true. And a special form of this data is digital identities, the digital gold bar representing any and each of your customer relationships – which by the way you should treat really seriously working with the right partners who understand security (like ourselves).

You mention that we are in the middle of “the race of business model evolution“. What do you exactly mean by this and what impact does it have on innovation in general and at Oracle?

We all have seen the statistics that company lifespan in the top 500 have become shorter and shorter, and also product innovation is speeding up across all markets, as is market penetration. For the telephone it took around 80 years to reach 75% of market coverage, for the mobile phone only 20 years, and starting with the launch of the iPhone in 2007 it seems the smartphone is en route to do this in just 10 years or less.

But besides pure product or service innovation there are other areas where companies invest. For many years a big part of innovation within existing enterprises was focused on economies of scale and efficiencies. And today in the digital age companies still need to improve their operations where studies talk about 30% gains to be achieved in the next 2-3 years.

Then Customer Experience (CX) was the hot topic of the last 5-10 years with champions like Apple leading the way and most companies investing into seamless cross-channel experiences, which as you know has become quite complex across increasing digital and brick-and-mortar channels. And like operational efficiency CX also remains a major imperative going forward, an area of ongoing work as the “good-enough” of today is the bad of tomorrow.

Yet as already discussed, the real race seems to be the race of business model evolution, the constant strive to innovate into new areas and markets, new service models, new alliances, new platforms, new ways of serving customers to ensure competitive leadership.

On a less serious example – what if the future of mobility is based on Freemium revenue models? What if we will not have to pay for driving in Google’s autonomous cars, but instead have to watch ads on big screens as we go? And of course for a fee we could wave the ads…

Trying new models, not shying away from unheard partnerships, and quickly ramping up the capabilities to execute is the new way of innovation. If it works – great, and the project will be scaled. If it doesn’t work it’s not a big deal, and the next idea is already in the making. Today we see things coming online in days or weeks that would have just been in the planning phase for many months or quarters in the past.

This is the field I find totally fascinating, and it is great to work for Oracle where we can help to make these projects actually possible today.

For us it means partnering with our customers in new ways, providing new technologies and services faster yet easier to consume, and becoming the trusted platform partner for innovation.

So coming back to the beginning – whether your passion is around inventing new ideas or more the commercialization of ideas, in any case the rules to success include the following: Leveraging platforms to innovate at speed & scale while always challenging the whole value chain, starting from the customer via the business model to platform ecosystems.

For today the only thing certain is that we will find our business has changed quite significantly ten years from now, now matter which industry you are in.

About Michael Bednar-Brandt

With two decades of experience in Digital technologies and it’s cross sections with marketing, sales and business innovation Michael Bednar-Brandt today serves as Director Digital Transformation EMEA at Oracle. In this position Michael drives Digital thought leadership across the region, and engages with strategic clients to help them on their journey to become true Digital leaders.

This interview was first published at Innoboard, a leading Innovation blog with a European perspective.