How Nike and Adobe revolutionized their business models
To stay on top in the business world, you have to make sure your business model matches the times.
RITA MCGRATH: One of the things that digital I think in particular has created that's new for a lot of people is it's both opened up new possibilities but it's also made older business models less relevant. And so one of the things you see established organizations having to do is fundamentally change their business models. Now some people call that pivot so some of my colleagues over at Accenture actually call Pivot to the Future. It's a big book that they've just written which I think is pretty smart.
What they're looking at is as a company how do you take advantage of trapped value where there's something you could be doing that adds more value to your customers or that allows your customers to respond in a way competitors really can't match. So if you think about companies that have fundamentally changed their business model this is hard. This is really not easy.
One of my favorite examples and I'll give you a couple of companies that positioned themselves appropriate to see an inflection point. And I should also mention this isn't a case of being prescient or making predictions. It's a case of taking early investments so that when something changes you're there and you're aware of it. And typically these are at the edges of your environment.
So, one example of a company that was pretty courageous in how they went about this was Adobe and Adobe picked up on this notion that we were all changing our behavior in terms of how we consume software in particular. We were going from a world where everybody bought shrink wrapped software and upgraded every couple of years to a world where people kind of paid for software as you need it. So the software as a service model.
And Adobe made the incredibly bold decision to shift from the one business model to the other. This was not easy and their customers didn't like it either. I mean 5,000 of Adobe's customers signed a change.org petition saying please don't do this to us because they really didn't like the idea of the new model. But as we see now that turned out to be pretty smart because that opened the door to all kinds of new customers for Adobe. So you can be an Adobe customer now for $9 a month and it's very inexpensive.
They had one set of key metrics, one set of ways of rewarding people, one set of things that drove success. When you switch to selling software as a service now you've got a whole different set of metrics. And, in fact, their CFO who I give enormous credit to spent months basically training Adobe's analysts in how they should be looking at this different business model.
He said look, you've got to understand we're going from a world where we get all the money upfront and that's our income for 7 to 12 months versus a world where we're going to get little bits of income every month. And what you should be looking at is things like how many users stay with us and what's monthly recurring revenue. They did this long before this became widely understood among the analyst community. And I think they did that because it's so hard for people to reconsider what their key metrics are when you've gone through one of these big inflection points.
Another company that I think has been slowly and carefully taking advantage of an inflection point is Nike and Nike started what we today call the direct-to-consumer or D2C market years and years ago when they first started partnering with technology companies like Apple. You remember the Nike+ Plus iPod campaign that ran years and years ago. Well that was really a first baby step toward what we now realize is a revolution in the way consumers are interacting with retailers.
And today we talk a lot about companies like Bonobos and Dollar Shave Club and Harry's. But Nike really but ahead of that curve in a big way but they did it slowly and carefully. Today about 29 percent of all of Nike sales go through their direct-to-consumer channels.
- Digital has rendered many older business models less relevant. Because of this, many established companies are undergoing fundamental restructuring so that they are better "pivoted" for the future.
- The higher-ups at companies are constantly looking for ways to take advantage of trapped value — where there's something you can do that adds more value for your customers or that allows you to respond in a way that your competitors can't match.
- When it comes to effective restructuring, it's important to stay attuned to the changing behaviors of your customers.
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