How Will Robots in the Enterprise Change Executive Roles?

A recent PwC study estimates that, on average, the proportion of jobs at high risk of automation will be roughly 20 percent by the late 2020s, and 30 percent by the mid-2030s. Most expect the bulk of changes will happen across lower and middle levels of an organization. But roles of firm leadership will have to change as well.

source: PwC

"Growth is Hard"

I leaned a long time ago in management classes that the most-important decision an executive ever will make is the choice of which market to enter (assuming one has a choice). In other words, longer-term success hinges on whether your chosen market has high growth rates, or slow growth rates; is a bigger market, or a smaller one; tends to feature high profit rates or low rates.

And “growth is hard,” say consultants at Bain and Company. About nine percent of firms studies by Bain actually have sustainable and profitable growth.

source: Bain and Company

source: Bain and Company

What is Your Firm's Core Competency?

What are your firm’s core competency or “unique selling proposition? A core competency is the one thing, or small number of related things, that a particular firm does better than any other firm in its industry, not simply “things we do well.”

Granted, in most industries there might be an actual “unique” competence. There are, to be sure, many who would argue core competence does include “things we do really well,” but always with the implication that those things allow one firm to do better than its competitors.

A truly-unique and core competence is likely to be quite rare.

The same sort of thinking underlies the notion of the “unique selling proposition,” the value one firm’s offer represents that cannot be duplicated by any other firm in the same market. A core competency is a deep proficiency that enables a company to deliver unique value to customers.

It’s tough.

source: Bain and Company

Can Three Fixed Network Suppliers All Survive?

In most parts of the world, ubiquitous competition in the fixed network business is not considered viable. In a smaller number of cases, a duopoly exists, but some observers believe telcos cannot long compete successfully against cable operators.

The reasons for that belief are several. Cable hybrid fiber coax networks cost less than fiber-to-home networks to upgrade and build. That especially is true when stranded assets are considered. Stranded assets are facilities that generate no revenue. And that is a major business model issue in a competitive market.

Assuming two equally-skilled competitors, competition roughly doubles the cost-per-customer of the network. Under conditions where demand is high (95 percent) and one contestant has 65 percent market share, all remaining competitors must fight for perhaps 33 percent of remaining locations. For a new FTTH network, that means customers might be found on only about one home out of every three passed.

Keep in mind that, in most markets, 80 percent of profit is earned by two firms.

source: Bain and Company

That poses daunting financial return issues. So, sure, many fixed network telcos are reluctant to invest robustly in FTTH networks. But there are huge barriers to doing so, not the least of which is the paucity of revenue that could be gleaned.

Some do not believe that argument, and instead think telcos could earn a return if they invested more heavily. And some analysis of potential upside is therefore required. The numbers are daunting. Challengers often attack niches--parts of metro markets or smaller and rural markets where it is easier to grab market share.

Incumbents have other problems, as they most often are required to serve all parts of a city, and cannot simply choose not to serve some parts of the city. Beyond that, revenue from legacy revenues is challenged, and the revenue upside from consumer fiber to the home is mostly internet access.

The business case for full-city overbuilds can be made. But it probably cannot be made universally.

In Most Markets, 2 Suppliers Have 80% of the Profit

Market share often is a proxy for profitability. “On average, 80 percent of the economic profit pool was concentrated in the hands of just one or two players in each market,” say Bain and Company consultants. In other words, it really matters if a firm is number three in any market.

A recent Bain & Company analysis of 315 companies across 45 markets worldwide shows that the scale leader is also the economic leader in 60 percent of cases. But not always.

source: Bain and Company

Still, scale no longer is enough, and often must be augmented by other attributes. Proprietary assets, unique capabilities, the most-profitable customer base or scope economies can be important, Bain consultants argue.  

Alos, the dynamics of scale are changing. It now is possible for small firms to obtain scale benefits without owning assets or capabilities. Think about rented cloud computing versus information technology asset ownership.

So speed now matters perhaps more than scale. What matters is the ability to react quickly to changes in customer demand and preference.

Consultants at Bain and Company also argue it is “better to be a leader in a bad market than a follower in a good one.” But that is only because it is better to be a market leader, no matter what the market.

One rule I always have believed correct is that market share translates to profit margin. As with most such rules, there are qualifications. All other things being equal, market share matters.

But all things often are not equal.  “In about 60 percent of industries, we define leadership by scale—the company with the most market share (measured by revenue or volume) wins.”

However, in about 40 percent of industries, the company with the highest share of industry economics is not the scale leader. They have the most loyal and profitable customers, Bain consultants say.

They have the most differentiated products, brands or manufacturing process. They dominate an industry “control point”—they are positioned to control far more profit than one would expect, from revenue or a differentiated niche game.

But it also is better to be a leader in any market than number two or number three.

source: Bain and Company

Moving into New Ecosystem Roles is Difficult, if Necessary

One of the surest ways for any contestant in the internet ecosystem to broaden its portfolio is to move into an adjacency. It is, nevertheless quite difficult. Some obvious examples are app providers becoming device suppliers; telcos moving into entertainment video or cable companies moving into voice.

Moves into adjacencies might also include hardware suppliers moving into new product areas; software suppliers moving into new roles outside their present core.

Consultants at Bain and Company, for example, argue that the odds of success are perhaps 35 percent when moving to an immediate adjacency, but drop to about 15 percent when two steps from the present position are required and to perhaps eight percent when a move of three steps is required.

source: Bain and Company

And those are the easy ways to diversify. That is why one often hears it suggested that service providers “stick to their knitting” and focus on their existing core business. That might work for some. It will not likely work for many when the core business is shrinking, and shrinking rather fast.

Business Eras Last 40-50 Years. A new Era is Dawning

Business eras typically last about 40 to 50 years, consultants at Bain and Company say, and we are on the cusp of the next era. Speed is among the new requirements, as more value is delivered by services and digital products that can be created rapidly.

So disruptors such as Google, Facebook, Tencent, Tesla, Alibaba and Amazon provide profiles of tomorrow’s market leaders, some would argue. It long has been argued that a firm can be big and low cost, or can be focused and differentiated, but not both.

The digital disruptors have broken those rules.

source: Bain and Company

Capital access is important, but less so than in prior eras, Bain consultants say.

Most industries also have become more winner-take-all. A Bain study of 315 global corporations found that just one or two players in each market earned (on average) 80% of the economic profit.

Management horizons additionally are shorter.