Yesterday, the CEO of Air France KLM tried to end a very damaging labour dispute with these words :
“With the withdrawal of the Transavia Europe project, there is now no reason to strike because there are no longer any concerns about relocation.”
If you are a large company CEO, business strategist, business strategic CIO or chief digital officer this should make you shudder. The Air France pilots strike grounded half the firms flights and cost 15 million Euros per day. The project he mentions “Transavia” is a low cost airline. Simplifying a lot – Air France was trying to grow the Transavia model while allowing the old core model to gradually shrink. Its one of the hardest strategy manouevres any CEO can attempt – to progressively switch over from one business model to another gracefully. There is often a risk of schism.
This year I published a report with the title “every industry will be digitally remastered”. It explains why the process of disruptive change that happened to music, books and photography will now extend to all sectors. With that kind of thinking in view, I am regularly encountering companies that are hiring chief digital officers and empowering them to set up digital development centers in which they will reinvent not only the business model but some of the the core products or services that the firm provides. It’s an easy journey to start, but a very hard one to complete.
The low cost airlines were a business model innovation of the 1990s. In many geographic markets, such as the UK and US, start-ups challenged incumbents and those incumbents had to adapt or die. There were scary moments for many airline CEOs in the early to mid 2000’s but the internal transition story is now mostly done. Often airline majors had to create their own challenger brand operations ( do you remember United’s “TED”, Delta’s “Song” or British Airways “Go” ? ). At the outset the crucial question is whether such new model operations are intended to be the change or whether they will catalyze the change in the core business and then fold. The strategist must of course ensure the intent is never too obvious.
All the shiny digital business innovation centers being set up this year and next, if successful, will ultimately lead to the kind of dilemma Air France has been facing in recent weeks. Hopefully not all of the transitions will result in such industrial strife. But strategists should think very hard about the design of the new vehicle and the limits of its separation from the corporate core. If it’s too far removed, it will be deemed non-core and investors will call for it to be sold as soon as it makes money – thus having no net change effect. If it’s held too close it will be killed off by the powerful vested interests of the old core. Goldilocks design is needed. Think about that, before you decide to push your digital innovation off to California, hundreds of miles from the old political power center of your firm.