In a mere two decades, the digital transformation of every aspect of human affairs has been profound enough to make silicon-based computation seem almost as important to our evolution as DNA itself. The undeniable and irreversible effects are visible everywhere.

However, somewhere along the digital transformation journey many companies have become confused.  Transformation is not monolithic nor an end unto itself. Transformation is the process that enables new growth opportunities and unlocks paths to long term value creation. Digital transformation is a means to an end, but not the end state itself.

The growth opportunities that software and digital innovations enable, what we like to call Smart Systems, are creating unimagined new solutions based on new customer experiences, new business and revenue models and new service delivery modes. As the cyber-physical world continues to dovetail with IoT, machine learning and artificial intelligence, Smart Systems will enable previously unimagined capabilities. The question is whether business leadership really understands the new dynamics driving value and are ready to grasp its potential.

EVOLUTION OF CORPORATE DEVELOPMENT AND GROWTH STRATEGY

source: Harbor Research

Established product manufacturers and services providers, what many people often refer to as “old economy” or “bricks and mortar” businesses, are operating with outdated growth strategies and innovation models that were conceived in the post-WWII era and cannot serve the needs of a truly connected world.

DRAGGING GROWTH STRATEGY BAGGAGE INTO A NEW ERA

When we coined the term Smart Systems our intention was to highlight two important trends driving future information systems innovations: the first trend was that innovations would accelerate exponentially, and the second trend was that interrelated combinations of compute, network, sensor and software innovations would reinforce one another and multiply their impacts.

Evidence of these two concepts surrounds us daily. Technology is blurring the traditional distinctions between products & services, value chains and entire industries. New innovations are forcing companies to rethink not only business processes but business models, operating models, domain focus and even the scope of their core businesses. All of these impacts represent new growth opportunities and are driven by the following market forces:

• Exponential Technology Advancement: The rates of impact will accelerate in a logarithmic way resulting in far-reaching intended and unintended consequences. Industry boundaries will blur, value chains will be reformed with value migrating to new places, and entirely new industries will be created. Every sector of the economy will be affected.
• Confusion About Smart Systems Impacts: There is a general understanding in business that Smart Systems will drive enormous impacts however, the specifics are not well understood because it is difficult for most people to imagine exponential growth.
• Re-Design of Corporate Structures: Modern enterprises have been deconstructing for decades and are becoming value-delivery networks consisting of diverse business functions and entities – some owned directly, many sub-contracted, but all requiring orchestration.
• New Value Creation Modes: Agile organizations are extending skills through new relationships and ecosystems increasingly comprised of coalitions of diverse self-motivated participants, not sub- contractors tied to “command and control” schemes.
• Excess Capital and Less Capital Needed To Form Ventures: Capital is superabundant. Global financial assets are more than 10X global GDP making talent and ideas more important than capital. At the same time, it’s becoming ever cheaper to form and prove new ventures.
• Catalytic Technologies Will Drive Abundant Value: Evolving technologies will radically transform our lives and the global economy, scaling their equity market capitalizations from over $10 trillion today to potentially more than $150 trillion in 2030.

Most importantly, these changes are not one-time events. Technology advances will force corporations to continuously evolve their growth strategies. To succeed, companies must become more flexible and adaptive and will need to continuously reshape their businesses to address changing market and competitive structures.

MULTIPLE PARALLEL GROWTH MECHANISMS REQUIRED
TO ADDRESS DIGITAL AND SMART SYSTEMS

source: Harbor Research

The strategies and organizational approaches adopted by many companies today reflect their focus on too few sources of new business development.  In contrast to these more limited approaches, we believe executives need to move beyond their “comfort zone” and focus on multiple parallel growth mechanisms that foster a more flexible mix of approaches.

Developing autonomous growth ventures in parallel with the core business raises challenging operating model questions. To what extent should a new growth venture re-define elements in the core business? How, when and in what manner should the new business be integrated into the core?  How will leadership make critical allocation decisions around skills, people, talent and investments?  All these issues lead to a very basic question, is it better to create new growth ventures or does it make more sense to keep an eye on similar external developments and players in the market and then either invest or acquire the new growth business?

New inorganic growth levers offer several advantages relative to organic growth — particularly in the digital and Smart Systems era. Inorganic growth increases a company’s options and increases the odds of success where organic innovations have practical limitations regarding what technologies that can be pursued. Virtually any technology, capability or collaboration mode is available and accessible with inorganic growth strategies. Moreover, external maneuvers are less costly today and can significantly shorten development time.

CREATIVE COMBINATIONS OF GROWTH LEVERS & STRATEGIES

source: Harbor Research