Next Level Business Model Innovation — The Decentralized Network

Accord­ing to BCG, Busi­ness model inno­va­tion is the art of enhanc­ing advan­tage and value cre­ation by mak­ing simultaneous—and mutu­al­ly supportive—changes both to an orga­ni­za­tion’s value propo­si­tion to cus­tomers and to its under­ly­ing oper­at­ing model. Pro­fes­sors Giro­tra and Netes­sine, econ­o­mists of Cor­nell and Whar­ton uni­ver­si­ties, have pre­sent­ed a frame­work for iden­ti­fy­ing oppor­tu­ni­ties and becom­ing sys­tem­at­ic about the process of tak­ing busi­ness model inno­va­tion to the level of a reli­able and improv­able dis­ci­pline. 

Since busi­ness model inno­va­tion comes down to make changes to the deci­sions of how a busi­ness earns its rev­enue, incurs its costs, and man­ages its risks, it should be seen as a con­tin­u­ous process, rather than an orga­ni­za­tion­al project task. Addi­tion­al­ly to the pro­ce­dur­al aspect, comes anoth­er pre-condition for sus­tain­able busi­ness model inno­va­tion: decen­tral­iza­tion. Decen­tral­iza­tion entails the non-existence of a cen­tral author­i­ty that aggre­gates power and defines all deci­sion mak­ing, as well as the neces­si­ty to col­lab­o­rate. Work­ing in a decen­tral­ized net­work, all par­tic­i­pants must co-ordinate their indi­vid­ual respon­si­bil­i­ties and work pack­ages and they have to agree upon a gov­er­nance frame­work that allows for defin­ing the rules and process­es with­in the network.

At first sight, decen­tral­iza­tion is noth­ing you would expect to take place in a typ­i­cal enter­prise. Typ­i­cal­ly, com­pa­nies or other orga­ni­za­tions are hier­ar­chi­cal­ly struc­tured, with strat­e­gy and major deci­sions defined by an exec­u­tive level, and less­er impor­tant aspects orga­nized down­wards in the org chart. Some orga­ni­za­tion­al struc­tures, e.g. the matrix orga­ni­za­tion, have imple­ment­ed ele­ments of decen­tral­iza­tion. How­ev­er, you won’t find a tra­di­tion­al orga­ni­za­tion besides coop­er­a­tives, that would do with­out a top-down com­mand chain. 

Since I have never been a huge fan of clas­sic cen­tral­ized struc­tures, Blockchain tech­nol­o­gy has been warm­ly wel­comed. For the first time, there is a foun­da­tion­al tech­nol­o­gy that allows for decen­tral­ized struc­tures and process­es in the real world — by lever­ag­ing its inher­ent com­po­nents of trust­less­ness, immutabil­i­ty, and secu­ri­ty. For me, Blockchain is the par­a­digm shift that is need­ed to build and devel­op future busi­ness­es that are aligned with the Sus­tain­able Devel­op­ment Goals. In decen­tral­ized sys­tems, enter­pris­es become part of an over­all pro­to­col to which they add their organization-specific ele­ments, s.a. brand, exper­tise, prod­ucts, and ser­vices. There are mech­a­nisms ensur­ing that each par­tic­i­pant receives a fair return on invest­ment into the net­work, depend­ing on their contributions.

The Next Level Of Busi­ness Model Inno­va­tion — The Decen­tral­ized Network

On the basic level of a decen­tral­ized sys­tem, all par­tic­i­pants col­lab­o­ra­tive­ly build, devel­op, and main­tain foun­da­tion­al aspects of tech­nol­o­gy, legal, reg­u­la­to­ry and orga­ni­za­tion­al affairs. On the sec­ond level, par­tic­i­pants coöper­ate to run trans­ac­tions in the decen­tral­ized net­work. On the third layer, par­tic­i­pants can com­pete with one anoth­er, build­ing their indi­vid­ual appli­ca­tions on top of the joint­ly cre­at­ed plat­form. This 3‑layered Net­work Model is sus­tain­able and resilient against eco­nom­ic down­turns. How­ev­er, it is far from being eas­i­ly cre­at­ed. The chal­lenges of set­ting up such a model most­ly lie in over­com­ing the tra­di­tion­al beliefs of many top-level, and most middle-level man­agers in enter­pris­es, who try to pre­serve lega­cy orga­ni­za­tion­al struc­tures and process­es. For them, terms, s.a. open-source, decen­tral­iza­tion, or col­lab­o­ra­tion sound harm­ful to the econ­o­my, or at least they are signs of weak­ness: who would col­lab­o­rate or share IP if prof­its should be max­i­mized when used proprietarily?

The sim­ple truth is, that the size of the eco­nom­ic cake isn’t fixed. And, the more enter­pris­es col­lab­o­rate, the lower their fixed costs. In other words, col­lab­o­ra­tion pays-off. It does not only pay-off but is an indis­pens­able pre­sup­po­si­tion for environmental-friendly, sus­tain­able busi­ness­es. While many large enter­pris­es have learned that coop­er­at­ing on indi­vid­ual lev­els makes sense, only a few of them are ready to move to the next level and inte­grate not anoth­er model in their orga­ni­za­tion, but — vice versa — inte­grate their orga­ni­za­tion in a new (busi­ness) model. I think that a gen­er­al­ly more neg­a­tive eco­nom­ic out­look, com­bined with the actu­al COVID-19 pan­dem­ic, will moti­vate more enter­pris­es to think about enter­ing the new level of busi­ness model inno­va­tion, and to join decen­tral­ized net­works in their respec­tive indus­tries.  

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