Tuesday, December 10, 2013

Overcoming Inertia / ROIC As a Proxy for Innovation in Business Models

It’s the greatest power in the universe.  Inertia.  Resistance to change.
Applied in the context of today’s business world, it can seal the fate of any company.

Look at the life of Blockbuster – a market leader in retail rental of movies.  Tell me that the executives couldn’t see the threat from nimble competitors on their horizon.  Surely they could.  Yet, the change in Blockbuster’s business model was too little, too late.
There exists an abundance of pundits who can write more eloquently than me about how difficult change is to deploy, and how important it is to survive.  My point-of-view is informed by working with those who are either so desperate, or so ambitious, to do something to control their own destiny.

Change in business models – the very nature of what a company sells, to whom, and with what form of delivery – is at the heart of the revolution in the outsourcing and shared services industry.  My post of last week outlined the need for renewed relevance among both outsourcing service providers, and enterprise shared services practitioners.
The conception and deployment of new business models frame the penultimate opportunity for the “as a service” ecosystem.  Let me outline how I see this playing out.

·       By driving commoditization of the lower-end of the business process stack, we release investment that was previously dedicated to inefficiently-deployed capital;

·       That investment allows for the rationalization of the applications layer to retire bespoke services and migrate to as-a-service solutions for common business services;

·       It also motivates the adoption of a common platform for services integration and services brokerage/orchestration;

·       Making the shift to a focused portfolio of applications enables streamlining of the operations staff;

·       These efficiencies, in turn, serve as the funding source for applying the same modernization techniques for business-oriented applications and operations.
The journey towards reinvention of business processes is self-funded through driving from commodity upwards to business-facing operations.  I also believe that a fair measure of a company’s execution on a strategy of business model reinvention is the trend in Return on Invested Capital.  ROIC portrays efficiency and effectiveness in achieving results from the investment in the business.  It’s a great proxy for leverage.

In my view, this roadmap for enterprise transformation relies on the collaboration of three executive roles to serve as the nucleus for change.  The CIO, the head of Shared Services, and the head of Supply Chain must come together to form the central point of enablement for transforming the business operations.  These are the roles with the resources, and functional responsibility, to materially adjust the operating cadence of the business through policy, partners, and funding.  Together, they can engage the business around a roadmap for transformation.  They are the stewards of ROIC and innovation.
Progressive outsourcing service providers and enterprise shared services organizations will see themselves in this roadmap for transformation.  Most, I fear, do not. 

Ultimately, fortune favors the bold, and control of one’s destiny demands courage to change the status quo.  Creativity in the restructure of a legacy business model (comprising the people/process/technology) demands new ways of thinking – beyond the back-office.


  1. An interview with David Reilly of BoA enforces the view that commoditization of the lower part of the business process stack is a core strategy for driving innovation.