Strategy Masterclass 1: The new business models

In
the first in a series of three articles looking at the strategic challenges
facing HR in the future, Professor Amin Rajan and Gary Storer look at business
models adopted by organisations in the financial services sector and ask how
far these have helped companies respond to market forces

Successive
waves of deregulation in the 1980s, followed by globalisation in the 1990s,
have transformed Britain’s fast- growing financial, professional and business
services. Together, they initiated a sustained programme of branch
rationalisation. Over time, this was accompanied by the adoption of new
delivery channels such as ATMs, telephone banking and call centres.

Many
insurers also started their own direct underwriting operations in response to
new entrants such as Direct Line and First Direct. In accountancy, law,
investment banking, fund management and insurance broking, mergers and
acquisitions have continued apace. Telecoms and software services, too, have
been gripped by a new generation of technologies that are profoundly changing
their product mix, customer base and work processes.

So,
by the end of the last decade, the contours of these fast-growing service
industries looked radically different. 
Now, for all of them the Internet has made competition more dynamic, in
ways that have vastly changed the role of HR professionals and the structure
within which they operate.

As
a result, two out of three organisations are re-orienting their corporate
culture, from paternalism to performance, according to our latest study.*

There
is a belief that in a business environment where goalposts are constantly
changing, staff increasingly become their organisation’s main “shock
absorbers”.  As the main factor input,
they not only have to become more variable with respect to demand cycles, they
also have to play a prominent role within the organisation’s emerging business
model: its winning formula.

What
business models are companies using?

Irrespective
of business activity, the models that are being implemented look similar across
the financial, professional and business services sector.

Their
differences are apparent only in the varying emphasis they put on three
different building blocks (see figure):


Value proposition to three stakeholders – customers, shareholders and employees


Ways in which it is delivered in the marketplace through product portfolio,
service quality, financial capital and intellectual capital


Tools that are used to underpin the delivery process at the workplace

Put
like this, the models are about delivering added value to stakeholders: that
is, tangible and psychological benefits that are well in excess of their money
and subjective costs. 

Emerging
business model


Accordingly, a lot of effort has been directed at revamping the workplace.
Organisational structures are being made less hierarchical, more market focused


Business processes are being reoriented from inputs to outcomes


Leadership is being reshaped from command and control to teamwork


The employee mindset is changing from loyal servant to committed worker.

Have
the business models worked?

After
10 years of unremitting restructuring, however, the scorecard looks
uncomfortable. Much has been achieved, but much remains to be done. Many senior
managers have seen change as an opportunity to revitalise their businesses. In
contrast, their subordinates have seen it as intrusive, disruptive and
unnecessary. Symptoms of change-fatigue are all too evident, thanks to four
gaps.

First,
there is a leadership gap arising from the fact that many senior managers do
not have the skills and behaviours required for the new “engine room” to
function effectively. One in five organisations have considered this issue and
only one in ten appear to have tackled it.

Second,
there is a values gap arising from the fact only one in 12 organisations have
spelt out the norms of their new culture. In the rest, managers are perceived
as saying one thing and doing another – dissatisfaction with line managers is
the single biggest reason people quit their organisations or feel demotivated.

Third,
there is a rhetoric-reality gap, arising from the fact that the language of
change management, based on novel concepts like employability and empowerment,
has promised far more than can be delivered in a climate of dynamic
competition.

Finally,
there is an employee commitment gap, arising from the above three gaps, which
have eroded trust in the workplace.

Thus
the requisite facilitators of culture change have not been there in the majority
of organisations which have sought to implement the promise of employability,
which is at the heart of the new employer-employee relationship. Under this
relationship, employees were expected to develop a self-employment mindset by
adapting to five facts of life. These are that:


Despite the end of the jobs-for-life culture, most jobs are still secure as
long as security is based on performance not paternalism


Employees are to be treated as “customers” of their labour services which are
to be provided as, when and where they are needed


Employees need to perceive themselves as “self-employed” people, keen to retain
their customers’ business


Employees are paid to deliver results, not for the time it takes them to do
their job. For full-time staff this means working longer than contractual hours
without an overtime payment. For flexible workers, it may involve working
variable hours to meet demand peaks without a shift premium


Although their employers will provide learning opportunities to acquire
progressive skills, substantive responsibility for development rests with the
individual.

Not
surprisingly, therefore, there has been keen interest in re-examining the role
of HR organisations in individual firms: the way in which it is structured, the
skills required of its staff, the avenues of developing these skills and the
critical success factors.

Few
organisations fully recognise the psychological dimension of their change
programmes and problems in achieving the attitudinal change in line with market
needs. Even fewer recognise the role that line managers can play in achieving
the orderly management of change.

So,
when the majority of organisations found that behavioural change was slower
than anticipated, the tendency was to point an accusing finger at their HR
organisations.

Some
five years on, there is ample recognition of the fact that unless employees
have a fuller sense of engagement with their employers’ business goals, it will
be difficult to generate added value for customers and shareholders. At the
same time there is a need to re-examine the role of line managers and HR
professionals alike. This we will do in the next two articles in this series.

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