Disrupting the Value Chain for the Ultimate Competitive Advantage

Articles

Published 27 November 2018

How are today’s high growth organizations (like Alphabet, Amazon, Alibaba, AirBnB, and Grab) able to win customers repeatedly? A lot of literature suggests they have a clear purpose (in why they exist as an organization) that resonates with their customers. If we analyze their successes deeper, we see a deliberate effort to manage their respective customer value-chain.

The Impact of Managing Your Value-Chain

Whether you are in retail, real estate or energy, how you manage your suppliers and customers is critical to the success of your organization. Scour through the Taobao platform, and you will see endless streams of products from thousands of suppliers, each competing for the customer’s next purchase. Because of the discounts, customers readily accept that their purchases may take weeks to come to their doorstep. By controlling the value-chain, organizations can effectively control factors which influence consumer behavior. From the producer to the customer, organizations like Alibaba actively engage with their suppliers and logistics providers to deliver volume, discounts, and seamless customer experience. Over time, companies that control value chains reach scale and the ability to move up or down their value chain. Alibaba, for instance, went to the extent of developing their payment gateway on one end, and opening up physical stores on the other. This omni-channel approach allows them to diversify across different industries and work within a new set of value chains.

Disruption in the Energy Industry

Even traditional highly regulated, monopolistic sectors are not being spared. If they do not add value, they will ultimately lose their control to emerging market players. These players bridge the gap between the supplier and the customer, often with minimal infrastructure costs. One sector that is increasingly being forced into multiple value chains is energy. According to Prof Stéphane Garelli, energy is the ‘unsolved issue’ that controls the entire business value chains of many organizations: from processing power (e.g. Google) to storage power (e.g. Amazon) and finally, delivery power (e.g. FedEx).1 All of the above are not traditional energy players. Google purchased NEST smart home products a few years ago and overnight, they could effectively control the supply and demand of energy. Have they become a player in the energy industry? Who will ultimately call the shots?

The Energy Market is Transforming

We are all too familiar with buying energy from conventional power suppliers like SP Power in Singapore, Tenaga Nasional in Malaysia and of course our traditional oil and gas suppliers like Shell, Petronas, PT Pertamina, and PTT in Thailand. In Singapore, SP Power has been setting-up kiosks around the island to promote monthly energy plans much like the mobile data plans we have seen being marketed by telecommunications companies. The commoditization of energy is advancing rapidly, and control of the industry is moving further away from the traditional energy producers like the oil exploration and refinery companies. Oil-rich nations like Saudi Arabia, Qatar, the UAE are trying to diversify and reduce their dependencies on the energy business. They have been investing in different ventures as they realize that renewable energy is quickly closing the gap. We also see the advent of solar power companies in China and Europe. Solvay, for instance, has managed to fly their solar-powered driven aircraft around the world. In Sweden, the roads are now charging the electric cars that travel on them. Once technological advancements allow for the effective distribution of energy, whether it’s fossil fuels or renewable energy, we will begin to see a seismic shift in the energy industry. The traditional oil and gas industry may disappear over time, ceding control to the players effectively managing the demand and supply of energy.

To provide the cheapest and most efficient form of energy to their customers, high growth players control where they tap their power. If they can customize the way energy is delivered to the consumer, they could effectively control the energy market. It will be interesting to see how the energy industry evolves.

What Does this Mean to Your Business?

Businesses cannot assume the status quo and will need to transform. It requires leaders to stop clutching at what is left of past success, and make the brave step to move towards the unknown. Businesses have to juggle keeping the traditional business afloat while finding new areas to find sustainable income. An excellent place to start looking for new ideas is up and down your value-chain. With the democratization of traditional products, it is imperative for businesses to differentiate themselves. The value-chain often becomes a differentiator between a high growth organization and the rest or even changes the playing field. As a player in your industry, you know your value chain better than most. However, you do need to act fast as many will jump on the bandwagon to seize the opportunities at hand. Indecision could be the difference in the survival and sustainability of the business.

1 Professor Stéphane Garelli spoke at the SIM Singapore Management Festival 2018