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Changing business ecosystems in the 4th industrial revolution

Friday, April 1, 2016 - 05:50

IN the fourth industrial revolution or as many call it, Industry 4.0, rapid advances in technology and the liberalisation of public policy have shaped a world in which large companies face increasing performance pressure amid sinking return on assets, intense competition and changing workforce dynamics.

Individuals are taking advantage of lowered barriers to market entry and commercialisation to become creators in their own right. As a result, a new economic landscape is beginning to emerge in which a relatively few large, concentrated players will provide infrastructure, platforms, and services that support many fragmented, niche players.

In this way, both small and large players will coexist and reinforce each other. Some parts of the economy will be more affected by fragmentation than others, and some more quickly, but the fragmentation will be enduring rather than transitory.

A DIFFERENT LANDSCAPE

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Large companies will likely play one of three roles in this new landscape: infrastructure providers, aggregation platforms, or agent businesses.

Today's large companies will need to assess whether the market for their core products or services is susceptible to fragmentation and choose where to focus in the future.

For individuals and small entities, the new landscape offers opportunities to transform the pressures of today into profitable new ventures. Many large companies are on shaky ground. Seismic waves are already shaping the landscape.

The winners among large companies in coming decades will be those that position themselves on more solid ground in areas of the economy that will continue to support scale and scope economics.

The evolving landscape, reshaped and reformed, is also opening up large areas that will favour smaller, more focused enterprises, creating opportunities for everyone to build viable small businesses that tap their creative potential, but only if people know how to focus.

Companies small and large thus have to be thoughtful about where they position themselves to be sustainable.

THRIVING CROWDFUNDING PLATFORMS

If, in 2005, someone had said that a marketplace that did not even exist yet would grow to over a million discrete sellers with US$1.35 billion in sales in only eight years, he or she likely would have faced scepticism.

Similarly, the emergence of a platform that would enable 5.7 million individuals, most of whom are not professional investors, to fund over US$1 billion worth of individual and small business-led projects might also have sounded unlikely.

Yet, today, both the Etsy marketplace and the Kickstarter crowdfunding platform not only exist but are thriving and continue to grow rapidly. Such success is emblematic of a dramatic shift in the business landscape.

The simultaneous fragmentation and concentration that the two platforms exemplify will change how we do business and go about our daily lives.

Companies of all sizes need to understand the forces that led to their rise, as the marketplace's simultaneous fragmentation into many smaller entities and its concentration in certain key roles represent a crucial redefinition of who is able to start a business, what a successful business looks like, how big it can get, and what is required to sustain it.

SMEs IN A DIGITAL ECONOMY

Crucial to Singapore's economic success are the 180,000 small and medium enterprises (SMEs), which continue to serve as the building blocks of the economy. SMEs make up about 99 per cent of the country's enterprises and contribute to nearly half the GDP (gross domestic product). Employing approximately 70 per cent of Singapore's workforce, they play a significant role in the development of Singapore's future and in creating jobs for Singaporeans.

As the world becomes more hyper connected, SMEs will need to consider a range of solutions that can enhance core and support activities across their value chains. These can range from alternate financing, business education, inventory/logistics/procurement optimisation, accounting and expense management, HR (human resource) and payroll management to business process enhancement.

These solutions can be developed internally, but require significant amounts of investments. Given that SMEs have to focus their generally constrained working capital on their day-to-day business operations, the opportunity costs to build these value enhancing solutions are thus too high.

Fortunately, there is a myriad of technology solutions providers including FinTechs that can help SMEs enhance their productivity and growth. A leading example in alternate financing is a UK-based online FinTech marketplace lender that allows investors to lend money directly to SMEs in the United Kingdom, the United States and in Europe.

The FinTech not only enables SMEs to borrow cheaply and fast as a result of using technology to streamline its processes, but also creates a new type of investment that allows investors to quickly access a diversified portfolio of loans and earn attractive returns.

For business education, there are digital platforms globally that provide up-to-date growth topics and areas of interest to SMEs, connect SMEs to similar business owners for knowledge exchange, and offer access to member exclusive content by SME experts. In the area of inventory/logistics/procurement optimisation, there are software companies which provide wholesalers with mobile and Web-based inventory management solutions, including features such as analytics, and automatic syncing of inventory between channels, locations and warehouses.

As for accounting and expense management, players like New Zealand-based Xero, for example, offers businesses a mobile and Web-based accounting software that also enables access to other third party technology solutions such as invoicing and CRM.

In the case of HR and payroll management, there are players like Japan-based TeamSpirit, which develops HR software specialised in timesheet management, absence management, and easy tracking of workflow for businesses.

Lastly, one of the interesting examples in business process enhancement is ProcessMaker, a US-based technology provider of automated business process management and workflow software, enabling customisable interface to model workflows, and detailed analytics to optimise process inefficiencies.

Tapping any of the above technology solution providers allows SMEs to not only address their financial and non-financial challenges, but also empower them to grow their digital capabilities to further integrate into the expanding digital economy.

SCALE-AND-SCOPE TO DRIVE GROWTH

All players must understand what roles they currently play, where they want to be, and what assets they can leverage to get there. Large companies as well as small companies looking for growth cannot afford to ignore the dynamics around fragmentation and consolidation; they must pinpoint where concentration is occurring within the economy and pivot to succeed in those spaces.

In particular, the continued success of Fortune 500 companies will hinge upon the ability to position themselves effectively in portions of the economy driven by strong trends towards concentration. The winners will be those that are simultaneously aggressive and creative in serving broader ecosystems of fragmented players, anticipating those players' needs and delivering targeted, high-quality solutions that benefit from scope or scale.

Focusing around scale-and-scope roles will enable growth, as these areas will continue concentrating. This will require some shifts and repositioning, but companies can leverage assets they already have to shape the role they play. They may choose to transform into infrastructure businesses; become platform businesses, aggregating resources and vendors and connecting them with appropriate users or customers; or become agent businesses where they channel their sector experience and existing customer relationships to provide specific recommendations.

Finally, whatever role they play, companies, both small and large, will also have to connect and collaborate with mobilisers - entities that orient participants towards a common goal by creating an environment for a sustained, shared collaboration among ecosystem participants - in order to unlock the collective knowledge of the ecosystem and become part of the transformation, rather than simply being impacted by it.

  • The writers Mohit Mehrotra, Arnub Ghosh and Richard Hill, are respectively, strategy consulting leader, senior manager and consultant at Deloitte South-east Asia. The views expressed are their own.
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