LSE - Small Logo
LSE - Small Logo

Vedrana Savic

Alison Kennedy 

February 15th, 2019

Technology makes business opportunities abundant, but most of them go to waste

0 comments | 2 shares

Estimated reading time: 5 minutes

Vedrana Savic

Alison Kennedy 

February 15th, 2019

Technology makes business opportunities abundant, but most of them go to waste

0 comments | 2 shares

Estimated reading time: 5 minutes

Business opportunities have become increasingly abundant, as prices continue to plummet for advanced technologies – from 3D printers, to electrical vehicle battery packs, and commercial drones – and essential digital services, such as the cloud and global bandwidth. While many companies are seeing these opportunities, most are unable to capture them fast enough.

There are two main reasons for this. Firstly, some are unable to convert their investments from digital technologies into more than efficiency gains. They fail to leverage digital capabilities to create new business models and increase revenues. Secondly, some are hampered by legacy infrastructure that is consuming capital investments and time, at the expense of moving fast enough to capture new opportunities.

Traditional communications companies, for example, own legacy assets and networks along with big teams to support their traditional telecommunication voice businesses. These legacy infrastructures and capabilities are hard to do away with, as they still deliver a large portion of revenue today and are expensive to replace with more modern technology and skills. The same can be said about the utilities industry, which has been facing a similar challenge for much longer.

As a result, considerable value is being trapped:

In the enterprise, trapped value exists when an economic opportunity is visible, but the entity is being hamstrung by an over-reliance on traditional business models and capabilities. The idea of “traditional business models” can also be related to public institutions, where a shake-up may be needed to reduce rigidity which hinders progress and, as a result, innovation.

Singapore’s Ministry of Education is going through a major shake-up by rethinking the way success is measured, focusing on soft skills instead of grades in its education system and abolishing exams altogether in the early years. The vision is to develop a culture of continuous personal learning that unlocks the value of a more relevant future workforce. This ongoing initiative includes other programmes such as the Skills Future initiative, which is targeted at working adults.

In any industry, trapped value exists when companies fail to come together to grow the market, seed new innovations or accelerate infrastructure improvements so that more people can benefit. Trapped value also exists in consumer markets, when there is a cost burden for the consumer (e.g. international call costs) or latent consumer surplus (e.g., monetising personally owned assets).

Figure 1. The bigger picture of value

Image: Accenture Research

Unlocking consumer value

Consider Airbnb: this young company managed to unlock consumer value when it hit on the idea that there was latent demand for less expensive and more convenient accommodation – and that there is a vast untapped store of such accommodation owned by other consumers who would be willing to monetise these assets.

By providing an online marketplace for people to rent out their properties or spare rooms to guests, the company is estimated to have captured $2.5 billion in revenue between 2010 and 2016. More interestingly, it is estimated to have released eight times that value – approximately $20 billion – in host revenue.

Therein lies the new paradigm for value creation in the digital economy. To release trapped value, enterprises and other entities may have to rethink the whole idea of value creation and innovate to create more value for others than they can capture for themselves.

Instead of competing against each other as individual companies, companies may have to think about participating in broader ecosystems, erasing hard boundaries between enterprises, between industries, and between consumers, as all of them learn to work together to release trapped value.

By rewriting the terms of engagement and innovating with technology, we also have the opportunity to release trapped value to serve a bigger purpose – and that is to solve problems that matter to society at large.

Resource scarcity and unreliability

Some of the pressing problems of today, such as lack of access to clean water, electricity or the internet in some parts of the world, can be attributed to resource allocation and infrastructure funding constraints. According to the World Resources Institute, more than a billion people around the world lack accessibility to electricity, and millions more receive poor and inadequate supplies.

For consumers, unreliable electricity services may necessitate investment in expensive backup systems like diesel generators. For businesses, frequent power outages and voltage fluctuations can impede productivity, damage equipment and affect product quality.

Companies like Tesla are currently addressing this. It is working with the French renewable energy company, Neoen, and the local government in South Australia to build and install the world’s largest lithium ion battery plant, unlocking societal value in the form of reliable access to electricity. The 129-megawatt-hour (MWh) battery is tied to a wind farm run by Neoen, and the plant is being used to provide much-needed reliable energy in an area inhabited by 1.7 million people, where power outages and shortages have been the norm.

Demographic pressures

Demographic developments around the world are driving major social problems, such as the looming issue of care for the aged.

Across the world, the number of people aged 60 years or over is expected to hit 1.4 billion by 2030. In Singapore, 27 per cent of its population will be over 65 by 2030 (similar to Japan today), while the proportion of young people will fall to 10.8 per cent. The economic cost of managing age-related conditions such as dementia is estimated to be $1.4 billion every year, and three quarters of this is related to social care. To address this, some companies are investing in care-tech innovations, such as the use of high-tech tools like humanoid robots and virtual reality to transform the lives of the ageing population.

For example, in Japan, where the vision is to transform the country’s social care by 2020 – humanoid care-bots are taking on the role of entertainer, medical assistant and nurse’s assistant at homes for the elderly. Entertaining residents and encouraging social interaction through daily music sessions, exercises and games, helps bring them out of their shell, unlocking trapped societal value in the process.

Endemic resource imbalances

The world is also suffering a chronic imbalance between food supply, demand and consumption. It is estimated that 30 per cent of all food produced – 1.3 billion tonnes – is lost or wasted globally each year, and that close to 30 per cent of the world’s agricultural land is being used to produce food that will remain uneaten. At the same time, 842 million people across the world are chronically undernourished, while almost 2 billion suffer from micronutrient deficiencies – a lack of essential vitamins and minerals required in small amounts by the body for proper growth and development.

France is rewriting the rules to address this, becoming the first country in the world to ban supermarkets from throwing away or destroying unsold food, forcing them instead to donate it to charities and food banks.

Economic imbalances

Another imbalance that presents an opportunity for unlocking trapped value is the discrepancy between asset availability and use. As well as Airbnb, ride-sharing service Grab is capitalising on this imbalance, by tapping into latent consumer demand for more convenient ways to travel locally, and the large pool of underused privately-owned vehicles and empty taxis.

By late October 2017, the company had completed one billion rides across Southeast Asia and chalked up more than 72 million consumer app downloads. In the process, it is estimated that Grab generates monthly net income of about $2,200 per driver for its pool of over 2.1 million drivers.

This is consistent with the economic pattern that we saw with Airbnb. The two examples show that to succeed in the digital economy, companies need to find and release value opportunities for others first.

As companies scramble to look for the next big thing in the digital age, it would be useful for them to identify the value that remains trapped in the form of underused assets, the imbalances between supply and demand, and using innovation as a conduit to unlocking trapped value.

To unlock this value, enterprises, consumers and other entities will have to start thinking about value in a new and considerably bigger way; by innovating for a bigger purpose, and remaking conventional rules to re-cast and grow the potential pool of beneficiaries of any economic activity.

♣♣♣

Notes:

  • This blog post appeared originally on the World Economic Forum’s Agenda.
  • The post gives the views of its author, not the position of LSE Business Review or the London School of Economics.
  • Featured image by U.S. Department of Agriculture, under a CC-BY-2.0 licence 
  • When you leave a comment, you’re agreeing to our Comment Policy.

Vedrana Savic is managing director of Accenture Research and a member of the leadership team. Vedrana has over 15 years of experience at Accenture, working with clients globally across banking, insurance, wealth management, consumer goods, transportation and logistics industries, with focus on developing breakthrough ideas and executing growth strategies. She has a PhD in corporate governance from Australia’s Monash University.

 

Alison Kennedy is managing director for ASEAN within Accenture Strategy. Her role focuses on advising companies and governments on business strategy, operating models, digital strategies and innovation, cost management, customer strategies, human capital management, large-scale business transformation and organisational change. Her career has been spent in London, Tokyo, Beijing, Hong Kong and Singapore. Ms. Kennedy has degrees in economics, economic history and finance from the LSE. She is based in Singapore.

 

About the author

Vedrana Savic

Vedrana Savic is managing director of Accenture Research and a member of the leadership team. Vedrana has over 15 years of experience at Accenture, working with clients globally across banking, insurance, wealth management, consumer goods, transportation and logistics industries, with focus on developing breakthrough ideas and executing growth strategies. She has a PhD in corporate governance from Australia's Monash University.

Alison Kennedy 

Alison Kennedy is managing director for ASEAN within Accenture Strategy. Her role focuses on advising companies and governments on business strategy, operating models, digital strategies and innovation, cost management, customer strategies, human capital management, large-scale business transformation and organisational change. Her career has been spent in London, Tokyo, Beijing, Hong Kong and Singapore. Ms. Kennedy has degrees in economics, economic history and finance from the LSE. She is based in Singapore.

Posted In: Management

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.