Digital disruption has left Europe’s leading companies struggling to sustain growth and competitive advantage. Groundbreaking new research – the world’s first AI-based analysis of the top 3,500 publicly traded companies in Europe and the US – has revealed how European companies can learn from US digital superpowers to speed up adoption of business model innovation, drive new revenues and get greater value from their core business.
These findings are at the heart of a new digital competitiveness report developed by the BearingPoint Institute, the research arm of management and technology consultancy BearingPoint, and is in partnership with OpenMatters, an AI firm specialising in business models and machine learning.
Today, firms that adopt a portfolio of business models which are asset light and include network effects are perceived by investors and the market as most likely to generate future growth. They therefore have a much higher market value in comparison to companies with traditional business models. Companies that diversify their business models improved their valuation in 2016 by 65% in comparison to those who maintained a mono-business model. Furthermore, between 2011 – 2016 they managed to generate a growth of 8% versus 4%.
Angus Ward, partner and CEO Digital Ecosystem Management at BearingPoint, said: “Organisations looking to maximise value in the digital economy must think like investors – allocating their capital to change their business model portfolio and looking to include assets that are light, data centered and involve partner ecosystem innovation. Business model change doesn’t need to be radical or high risk, there are many ways in which it can be an evolution that increases value and changes the relationship with customers.”
Europe lagging behind US
European organisations looking to compete in today’s fast moving digital economy need to understand the different business models, the fundamental role that network effect plays in the digital economy, and the overarching potential of building on open digital platforms.
The report found that Technology Creator and Network Orchestrator business models can offer a significantly greater ROI.
Pure-play Network Orchestrators (public companies like Priceline, Facebook, Alphabet, from the US, or Just Eat from the UK) are currently a small part of the market, but they have delivered significantly greater performance (5 year CAGR at around 20% in both Europe and the US, and average profit margins at 32%).
The report points out that organisations should not strive (even if this were possible) to become a pure-play Network Orchestrator, but use a hybrid approach. In fact, the top five global companies today (Apple, Alphabet, Microsoft, Amazon and Facebook) blend business models, with network orchestration as a key part of the mix.
“European leaders need to think seriously about their future in the digital economy,” commented Eric Falque, partner and global leader of the Go Digital initiative at BearingPoint.
“Optimisation strategies have been the story of the past decade, but to be competitive, our research shows that new ‘business models’ generate growth by benefiting from today’s network based, ecosystem and data driven models.”
The study ends with a five-step approach on how businesses can adopt digital platforms with network effects and reconceive its business model. The approach can be adapted to fit any existing business model and work within any transformation program.