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Disruptive Business Models: viewpoints from the worlds of business and science – CEO Dinner, March 2013

CEOs from sectors including energy, publishing, retail, business services and finance joined PA experts and guest speaker, Baroness Susan Greenfield, at a round-table dinner in London. The topic for discussion was the disruptive impact of new technologies on established business models and on the human mind.

New technologies enable disruptive business models and create an ‘arms race’

Nathan Sage, PA social intelligence expert, opened by exploring how technologies such as the internet, social media and mobile devices are creating a society of super-connected consumers and, in doing so, are transforming the way companies do business. These connected digital technologies offer businesses new capabilities, which feed into each other to create a continuous and increasingly influential cycle: an arms race in which established players can be left behind. Companies such as Blockbuster, Yell, and traditional booksellers have already experienced the consequences of failing to keep pace.

The cycle begins with the opportunity that connected technologies present for far more powerful interactions between businesses and customers. The internet, for example, allows businesses to sell products (and especially digital products) directly to customers without the need for retail intermediaries. In addition, social media gives businesses enormous scope for influencing and persuading customers through extensive online networks. And mobile devices are now morphing into payment devices, creating new opportunities for direct transactions between businesses and customers.

This increased interaction via digital channels provides businesses with an extraordinary depth and breadth of data about customers. With new approaches to analysis and interpretation, these data can be developed to become 'social intelligence', giving businesses better insight into customer needs, behaviour and intentions. This, in turn, fuels more effective (and more profitable) interaction with customers.

Businesses have now entered an arms race, competing to be the first to learn how to exploit these new capabilities. Some are discovering new tactics for marketing their own products more effectively or for making competitors’ marketing less effective. Others are analysing data to pinpoint profitable new markets and reshape their customer proposition accordingly. The boldest are capitalising on new technology to launch new business models that disrupt established markets and pose a serious threat to incumbents.

Spotting and responding to disruptive business models

Mark Thomas, PA strategy expert, took the floor to look more closely at the economics of these disruptive business models. He used as an example. This new player in the non-standard lending market offers short-term loans online, getting cash to customers’ bank accounts within minutes of an approval.

This new business bears the two key characteristics of a disruptive business model:

  • customers love the offer so the business’s share of the market is growing fast – Wonga’s growth is running at over 220% pa, compared with average growth among sector incumbents of 7% pa
  • the business model delivers a better return on capital employed (ROCE), thereby attracting the investment needed to fund further growth – Wonga’s post-tax ROCE is 82%, compared with average returns of around 13% among sector incumbents.

For established players in any sector, careful analysis of the economics underpinning any new model is required to formulate an effective response. The two key questions are: ‘Will the existing business model continue to provide attractive returns over the life of an investment made today?’ and ‘How do the potential size and profits from the new business model compare with those from the existing model?’. Strategic options, determined by the answers to these questions, range from a slow transition to the new business model to aggressive cannibalisation of the existing business. Interestingly, the natural responses – to deny the new business model or to defend the existing business model – are almost never the best option.

How the brain becomes a mind

Baroness Susan Greenfield drew on her work as a neuroscientist to explore a different aspect of the impact of new technologies – their impact on the human mind.

She began by explaining how each human brain develops to become a unique mind as it adapts to reflect its environment. Repeated experiences prompt and reinforce connections within the brain, enabling us to interpret and make sense of the world in which we exist.

Susan argued that the dramatic changes taking place in our environment – long periods spent in front of screens, relationships built on the basis of online rather than face-to-face interaction, video games offering rapid, intense stimulation – will inevitably change the nature of our minds.

She offered two alternative visions of the future. The first – which she believes we are heading towards now – sees the development of minds very good at processing information, but no longer very good at understanding the context in which it sits or of sifting and interpreting it to build knowledge. The second – possible if we develop mechanisms to counter the current disruptive effect of technology on our minds – sees the development of minds that remain capable of turning information into knowledge, and of building creative connections between ideas.

The three presentations were interspersed with a wide-ranging debate, as guests talked about how technology is changing the way they do business and considered how they might need to respond to a new breed of customers and employees growing up in the digital age.

To learn how to create a distinct advantage from disruptive business models, contact us now.

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