To map out their competitive strategy, companies in the past needed a firm grasp of the link between their core activities and profits. Yet shifts in the economy have altered ideas about how these two areas are connected, said Govert Vroom, associate professor of strategic management, at a Continuous Education session on Thursday on IESE’s Barcelona campus.
“If you think back at the internet bubble, how many firms were sold for millions or even billions on their IPO without ever making profits, without ever understanding well what their revenue model was?” he asked.
New technologies and social networks have radically altered business and, consequently, the way companies should think about strategy, he said.
The latest changes “are not developments that are superficial or temporary, but changes that are fundamental, profound. They are not going to take five years but they are going to take 20 and 30 years. More and more, this is going to change how we consume, do business, how we collaborate – the things we talk about in a business school.”
Citing numerous examples of companies such as Zara, Ryan Air, Tiffany’s, and eBay, Vroom discussed how leading companies are currently leveraging specific tools for strategic advantages such as operational efficiency and flexibility.
Overall, however, linear strategic thinking has given way to a more complex, multi-element system, in which complementary products and services work together to solve customers’ problems, and – at the same time - compete to capture value, he said.
Today’s market leaders such as Apple, he said, have learned lessons from companies such as IBM, the company which created the PC, created value and then was confronted with fierce competition from clones. In the end, IBM's value was captured by competitors such as Intel and Microsoft.
Vroom also discussed the network effect - the idea that “you care about how many other people are on the network. The more people are on the network, the better it is for you.”
By contrast, traditional economic posits that the more people who want to use a scarce resource, the less there is available for you. Today’s business ecosystem presents the opposite situation, he said. “The more people that come, the more value there is. So consumers or users are not taking out value, they are actually bringing value to the platform."