More than nine out of 10 U.S. companies are changing business models to meet customer demands, embrace and leverage disruptive technologies, and remain competitive in the global business landscape, according to research from audit, tax and advisory firm KPMG LLP.
A survey of executives from more than 900 U.S.-based multinational companies found 93 percent of respondents indicating that their organizations are changing business models.
“Business model reviews and changes have become a permanent component on the corporate agenda,” said Stephen G. Hasty Jr., a KPMG partner and U.S. Innovation Leader for Advisory. “Companies today face unprecedented challenges to develop operating models that can help them respond to and translate current marketplace pressures into competitive advantages.”
“With a carefully considered transformation process, companies can also make themselves agile enough to manage the new, unforeseen challenges that lie over the horizon,” he said.
In the KPMG survey, “changing customer focus and buying patterns” was selected by respondents as the top reason for business model changes. Other triggers for changing operating models included “new technologies” (30 percent), “domestic competition” (29 percent), “a changing global environment” (26 percent), and “balancing growth with shrinking budgets, while raising efficiency” (25 percent), with “government enforcement action,” “foreign competitors,” “a widening global footprint” and “industry consolidation” all chosen by 22 percent of respondents, who could choose more than one “trigger” in their responses.
The drivers of transformation are wide and varied. Half of the respondents said “regulatory compliance” imposes a “burden” (38 percent) or “significant burden” (12 percent) on their organization’s operational efficiency, yet 36 percent of the executives said they do not incorporate a regulatory agenda into their transformation planning.
“Obviously, with half of the respondents pointing to regulation as a key element affecting their business model, there is a significant issue if more than a third of the respondents do not factor in regulatory issues as they change the way they operate,” said Hasty.
When just 51 percent of the respondents say their organization’s transformation approach continually aligns their business model with their strategy, that is further evidence that organizations struggle with prioritizing transformation initiatives, he said. In addition, 45 percent of the respondents acknowledge that their organization has no formal process for prioritizing business transformation initiatives.
“Alignment of business strategy with an organization’s operating model can help institutionalize the transformational process, embedding enough agility to help the organization evolve more quickly and easily as new marketplace challenges come along,” said Hasty. “Companies can leverage and capitalize on disruptive forces in order to thrive amid emerging challenges and threats to their business.”
Hasty concluded that as companies face multiple, equally intense transformation triggers – globalization; a slowdown in Western economies; significant, disruptive technology shifts; and select domestic issues, such as broad regulatory changes and an overhaul of the healthcare industry – there is an opportunity to gain competitive advantage for the executives that can lead their organizations through timely and proactive changes to their business models.
Respondents to the survey, conducted in June and July of 2013, included 67 percent from the ranks of C-level executives, and the rest were managing director or above.
KPMG plans a webcast on the topic of Transformation on January 29, 2014 at 11 am ET. Click here to register.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries
Editors: The following are for your consideration
Where are you on the Transformation Continuum?
- Assessing the need for business transformation: 6 percent
- Planning a Transformation initiative: 27 percent
- Started implementation of transformation: 29 percent
- Completed at least on major transformation initiative: 17 percent
- Completed several major transformation initiatives: 14 percent
- Not considering any business transformation initiatives: 7 percent
Questions executives should ask:
- To stay competitive, what will be the most effective operating model in the future?
- How do I manage increasing risk, optimize my global tax position and address regulatory changes?
- Faced with the emergence of innovative and disruptive technologies, what will my business and industry look like in the next five years?
- With the evolving demand for goods and services, how will my customer needs and wants change in the future?
- Who are my competitors today, and who will my competitors be in the years ahead?
- Compared to my competitors, what are my company’s greatest strengths and vulnerabilities?
Derek Brown / Christine Curtin