We have seen the disruptive power of digital in sectors such as music, video, books and travel, where business models have been transformed in just a few years. In video for example, Blockbuster lost and Netflix won, end of story, right? Well perhaps not. One of the most interesting impacts of digital is that one reinvention is often followed by another. We saw books move from physical stores to online stores in less than a decade. In the next decade we’ll see books dematerialized. We saw music move from physical to virtual media and are now witnessing the shift from a sales model to a rental model as services like Spotify and Pandora take off. It is hard to predict the models that may follow in other industries, but peer-to-peer models (e.g. peer-to-peer lending in the banking sector, e-bay in retailing) create one set of possibilities.
Business models have always evolved, although the pace has varied by sector, depending on competition, regulation and other factors. Digital has increased the pace of that evolution, by reducing barriers to entry and by increasing scale economies, enabling start-ups (e.g., Facebook, Amazon) to become global titans at previously unimaginable rates. On the demand side of the equation, buyers are better armed with information than ever before, driving faster adoption of more efficient or effective business models.
This effect will likely reduce the lifetime of companies. Historically the average lifetime of listed companies has decreased. Firms in the S&P now average a 15 years lifespan (down from 67 years in the 1920s). All business models become extinct eventually, and organizations that are well optimized for one business model rarely can adapt fast enough to optimize for the next. In digital times, as these evolutionary cycles accelerate, firms will die younger. Technology is increasing the lifespan of human beings whilst decreasing the lifespan of the organizations they work in.
To avoid an untimely demise, firms will need to focus more on being adaptive and less on being optimized. Others have written extensively on how to be adaptive. But for many organizations, incentive structures are still overly focused on the short-term and don’t allow management teams the space to invest in future optionality. The antidote to short lifespans may be taking a longer view.
That’s my initial list of Megatrends exhausted. I’m hunting for more, but in the meantime, my next set of posts will be on the topic of ‘discovering the value in digital’