book.chapter Unlocking trapped value .

In a landscape where market conditions are volatile, the notion of a single, large-scale transformation for a company is no longer sufficient. Instead, what's required is a continuous process of reinvention, with businesses making multiple strategic shifts to seize new opportunities as they arise. The goal is to consistently discover innovative and more effective methods to tap into the latent value that is embedded within the existing business model, and then to realign the company around an optimal combination of both legacy and new assets. Take the case of Royal Philips in the early 2000s, which foresaw the impending dominance of LED technology over traditional incandescent bulbs. Despite its historical association with and invention of light bulbs, Philips made a strategic pivot. It utilized its established manufacturing, marketing, and distribution capabilities while simultaneously investing in compact fluorescent bulbs as a transitional technology. This move provided marketable products in the short term while Philips intensified its research and development in LEDs. The company strategically divested its incandescent lighting assets to competitors while they still held value. As a result of this pivot, Philips was well-positioned to enter the LED market as a service provider once the technology matured. Moreover, Philips broadened its focus to health technologies, which emerged as its new core business. Despite its long-standing history in lighting, Philips largely withdrew from the industry, exemplifying a classic pivot—selling off the traditional bulb business to finance the next-generation LEDs, and then transitioning to become a high-value health technology provider. Balancing investments across technologies at varying stages of their life cycles is a complex task but can result in remarkable synergies when executed effectively. As noted by Omar Abbosh, Paul Nunes, and Larry Downes, mastering a wise pivot involves a continuous and bold rotation through the old, the present, and the new. Leaders must regularly reassess and maintain a balance in their investment allocations across these stages, despite the unpredictable nature of market disruptions. Digital technologies are opening up possibilities to generate new revenue streams from products and services that were previously limited by market inefficiencies. To capitalize on these opportunities, companies must access this trapped value before their competitors do, to fund future growth. This necessitates a shift away from outdated plans, strategies, processes, and systems. Trapped value can manifest in various domains: At the enterprise level, companies fail to harness new technologies to significantly enhance mundane aspects of business. For instance, Nike collaborates with manufacturers to produce shoe uppers in 30 seconds with 30% less labor, while Adidas employs 3D printing to customize shoes, reducing design time from months to days. Businesses must revise their procedures to take advantage of disruptive technologies. At the industry level, technologies that could benefit all players often only advantage a few. Car sharing and ride-hailing services have accessed the trapped value in personal vehicles that are idle 95% of the time. Industry analysts predict that these new entrants will decelerate annual vehicle sales growth by capturing 40% of that trapped value. At the consumer level, technology can reduce excessive costs. Airbnb unlocked $20 billion in user revenue from 2010-2016, earning $2.5 billion for itself and $100 million in profit by facilitating home sharing. At the societal level, benefits accrue through reduced pollution, enhanced education, health, and wellness. Tencent provided efficient, trusted financial networks to consumers who lacked access. Within a few years, China's mobile payment market expanded to over $5.4 trillion in transactions, with Tencent handling 40% of these. The opportunities to identify trapped value will continue to grow as technologies become more accessible and affordable. Soon, every sector and industry will experience reinvention, even those that have already been remodeled once or twice. The imperative is to leverage the release of trapped value to strengthen, rather than diminish, competitive advantage. However, there are common barriers to releasing trapped value, such as: - Becoming excessively lean to the point where all resources are focused on a product that addresses an irrelevant problem. - Debt levels that hinder the ability to capitalize on new market opportunities. - Prematurely replacing visionary entrepreneurs with managers. - Managing to meet short-term earnings expectations set by Wall Street rather than investing in long-term technology. - Relying on luck and a sense of invincibility, as seen with Oculus Rift after its initial successes. - Prioritizing regulatory compliance over customer needs by requesting bans on competitors. - Misjudging customer interest, as was the case with the Apple Watch. These pitfalls can obstruct the release of accumulating trapped value. To avoid these mistakes, there are seven successful pivot strategies: 1. Embrace cutting-edge technology for innovation and commit to building a flexible IT infrastructure by replacing outdated systems with superior architectures. 2. Become hyper-relevant by meeting evolving customer needs with personalized interactions. For example, CVS offers customized prescription labeling, deliveries, telemedicine, and appointment reminders to enhance long-term health. 3. Utilize more data to generate insights that drive service and product innovations through influencing behavior. AllLife leverages data to provide cost-effective life insurance to HIV-positive individuals in South Africa, including health recommendations. 4. Adopt intelligent asset and management systems to increase efficiency and free up capacity for innovation. Apple, for instance, owns minimal physical infrastructure, which means it pays no interest and faces fewer constraints from lenders. 5. Foster transparency to widen participation in innovation through efficient supply chains and consumer/supplier platforms. Alibaba collaborates with couriers to enhance China's logistics infrastructure, benefiting both merchants and consumers. 6. Implement superior workforce approaches to attract and retain top talent. Volvo, for example, added 3,000 engineers as it pivoted to become a premium brand, eliminating outdated processes. 7. Partner strategically to deliver the best innovations to customers. Caterpillar's Cat Connect platform assists mine operators in better managing equipment performance using data. Applying these strategies requires courage, boldness, and a tolerance for early failures while learning. As Abbosh, Nunes, and Downes have articulated, successful value releasers "keep turning—fluidly, regularly, and with great speed. And while experts make it look easy, at some point they all mastered the art of choosing when and where to turn." It's not necessary to prematurely abandon core assets. Instead, leverage them to generate more revenue, applying new technology to rejuvenate older products and accelerate newer ones. Then, invest that revenue in the next generation, scaling rapidly with even newer technologies. Disruption has become a continuous cycle. In every industry, a growing gap between what is possible and what is available is emerging and reemerging with increasing frequency. The imperative is to leverage the release of trapped value to enhance competitive advantage.