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Why we need to rethink business models and how we create them

In this episode of the Innovation Realized podcast, Jeff Wray, EY-Parthenon Global Leader, discusses impact of escalating complexity on the business environment and its implications on business models.

Key takeaways:

Complexity has changed entire business models, and, in turn, made them more complex

Plant many seeds of innovation, even though some might not come to fruition

Advantage will come to those who develop large language models (LLMs) that incorporate all their intel, from their people to what sits on hard drives

Learn to experiment – rethink “how” you innovate your business model

Understand where generative AI (GenAI) will generate the most value for your business, and start there

Artificial intelligence (AI) is foundational to those early in their careers – harness the hunger, provide the training

Develop ecosystem partnerships that enhance your business and keep you one step ahead

For your convenience, full text transcript of this podcast is also available.

Narrator

Hello and welcome to the EY Innovation Realized podcast series by Elevation Barn.

Our world is characterized by more forceful changes that appear quicker, trigger more interconnected and widespread impacts, and often strike all at once. Some call this the poly crisis or perma crisis. Whatever you choose to call it, the bottom line is a business climate that has become far more complex. This environment requires leaders to rethink core assumptions, challenge established assumptions, and rethink best practices that no longer work.

This Elevate series will bring you inside the 2024 EY Innovation Realized Global Summit to hear the new ways of thinking our complex world requires. Each episode is a provocative one-on-one conversation between a leader exploring these vital topics and impact leader, Will Travis, founder and CEO of Elevation Barn.

Elevation Barn is an international community of world leaders and experts focused on unlocking a purpose-driven legacy for sustainable personal and business growth. To learn more, visit elevationbarn.com.

And now to your host, Will Travis.

Will Travis

Jeff Wray is the EY Parthenon leader. With over 20 years of consulting experience developing strategy and driving large scale operating change, Jeff is an accomplished leader across a wide range of consumer products and retail industries. He has significant experience in transactions, including small-scale growth, corporate venture capital, and large-scale divestitures and merger integration. His global competency spans North America, China, South America, and Western Europe.

Welcome, Jeff.

Wray

Thank you. Looking forward to it.

Travis

Yeah, me too. Me too. So, just before we kick off, what is a Parthenon leader? Is that a specific style of leadership?

Wray

IIt is a business that we operate within EY. So, EY Parthenon is [global consulting organization] our strategy consulting arm and we work on growth strategy. We work on inorganic strategy, merger, integrations, divestitures, and we do a lot of work with a broader firm linking that into a broader transformation program with [our] clients.

Travis

So, it's just a trade name more than a tactic. I was reading some Greek philosophical depth there. All right. So, let’s get into the questions. The first, and it’s been quite a big topic here at Innovation Realized, is that organizations seem to be operating in this increasingly complex environment. Disruptions are more frequent, more impactful, more interconnected. How is this affecting the imperative rethink business model that you and the team are leading?

Wray

Yeah, it's a topic that continues to evolve and become more and more important. And we'll get into generative AI and what that may or may not mean to the evolution of business models.

But this underlying idea of complexity and what that means to how you face off against it is real, and I think will continue to be more and more real.

I spent most of my time in the world of consumer products. And if you went back 20 years ago, most everything you went to was at the grocery store, you got it at the department store, we all know how that has evolved. And it's meant that our clients, as they reach their consumers, it's [about] new channels, it's new ways of engaging, new digital media, direct to consumer, not just in terms of shipping product, but actually engaging with product. And it's changed the entire business model and made it, frankly, more complex. It's created huge opportunities, and I think we all know the companies that have thrived in this market, and it's made others, you know, be challenged and suffer through all this.

But that cycle of complexity and associated innovation is going to continue. And companies will have to continue to look at their business models and think about how best to evolve to address all that complexity.

Travis

And does this new complexity create new sources of disruption, sources that you've been surprised by?

Wray

For sure, I mean, I think that, to me, the surprise has been the speed at which all this stuff moves.

If you look at generative AI, yeah, it's been around, but people were sort of talking about it as a concept three or four years ago. And now, people are expecting their entire business to be disrupted or changed dramatically. And so, I think it's around the speed of it all. And one of the challenges our clients face is, in many cases, you still have to serve and make the vast majority of your money in the core business you've always had. And so, you have to do that with excellence because the standards are high. But you also have to plant a lot of seeds around innovation, not all of which are going to take off for where the customer is going to be in 5-10 years.

Travis

Generative AI is quite new for so many companies. How is it impacting the business models? And do people need to do something different? Or is it, “Wait until things calm down a little bit”?

Wray

It's an interesting inflection point in that I think it's a mix of both and it kind of depends on which industry you're in. Industries that have information-based sort of creative angles to them, are potentially going to be the ones that have to react the quickest. Other industries where you've got personal data, financial data, health data, you're going to have to move a little slower just because of the risk associated with it all.

And so, companies are trying to figure out the speed at which they need to address all that to both be innovative and in front of this innovation, but also not moving too fast that you insert huge amounts of risk in your business.

Travis

Somebody was saying earlier yesterday at the conference that with this increase of complexity, and also, how close everybody is now, it's often simpler, big challenges that need solving versus lots of little ones. Do you find that this disconnection to everybody, and the correlation and the availability of information, is allowing us to look at bigger challenges in one go?

Wray

I think it will get there. And one of the things that we expect to see, particularly with generative AI, is companies that can figure out how to apply that at the enterprise level, you know, you're a $20 billion company, you have information everywhere, it's tucked around in computers, and of course, people's brains. And if you can construct a large language model to gather all that, essentially access all of that, and give you insights that you didn't know you had and your competitors don't have access to, there's a potential huge advantage there. And so, I think, that's kind of where this is going. That, of course, is easier said than done.

Travis

Yeah, it's all in the practice. And you're seeing these business model changes happening. How much is it about rethinking the business model innovation as opposed to business models themselves?

Wray

It's a good question. It sounds sort of like a theoretical question, but, actually it's something our clients wrestle with, which is, how do you put something in place that allows you to constantly play around, experiment with business models, and there's an innovative process around business model innovation. And it's real, because companies, again, going back into the world I tend to serve, which is physical products, manufactured products that typically have gone through the normal consumer product, retail value chain, those companies have had a standard business model, they've seen the evolution of direct to consumer. But in terms of information-based business models, and in perhaps licensing intellectual property that you have in a way that you've never done before, you have to play around with and experiment with what that business model is. And frankly, companies, well, I guess they take a lot of different approaches. One is you will see maybe an arm of the M&A team or a venture capital team trying to be close enough to the core business, but far enough away that you understand what it is you're trying to accomplish for the core business, but you have the freedom to kind of play around with these business models. But how you structure that is not obvious, and a lot of companies approach it different ways based on their starting point.

Travis

And the reach of EY - I mean, you’ve got 400,000 people around the globe - being able to keep up with these business models must be an incredible advantage, that you can actually then give these insights. How do you actually come into a client, to help them readdress and realign when they're at this friction point of transition?

Wray

Well, we think about these ideas of business model ecosystems, and there's a range of different ecosystems.

We've named a few traditional ones, a marketplace model is essentially what we do when we go to the grocery store, but there's many others. And one of the ways we've grown our business is through ecosystem business partners. We have a certain set of consulting and advisory activities that we offer our clients. But as we get more and more into technology, our business partners and how we engage with them in different ecosystem models, matters a lot. And so, we talk to our clients about that and draw from that body of work, which has become a very material part of our revenue base, to help them think about how they should apply those concepts to their businesses.

Travis

Brilliant. Love it, and how is this GenAI innovating clients with this new wave of change? What are you seeing, and what are you using, as a sort of a benchmark of what great is?

Wray

Well, this is the big question, I would say, of Innovation Realized this week and on every client's mind right now, which is at what speed and how impactful is generative AI going to be for my business? And there's an expectation that it will be huge. The question is how and timing.

And so, one of the things that we've been working on, and it differs very much by sector, is helping clients understand where the value can accrue to their value chain. Is generative AI going to unlock growth? Is it an efficiency play? Does it allow you to look at speed differently than you have in the past? And I identify where that would be in your business, and then help them understand their readiness from an organizational capacity. Because one thing to say, “Hey, we have this revenue opportunity from generative AI”. It's a whole other thing to say, “Do we actually have the capabilities to go after it”, which will lead into a business model conversation.

Travis

Which is probably leading into the session that you're doing here at Innovation Realized, this ecosystem partnering structure. What are the trends that are imperative? And the opportunities for increasing the trust, and also the energy behind these new partners?

Wray

Well, it's a very real issue. And it's been prevalent for quite some time. And I think generative AI is going to even drive the need for it to a greater level, which is companies that are not in the world of technology, which is a huge amount of companies, struggle to access the technology, both from the capital to fund it all, but even more importantly, the talent to put together a digital analytics team, to put together a team that writes large language models. I mean, these are prized talent, and it's hard to get them, particularly if you're in an older industry, or in a city that doesn't have a lot of those people around. And so, the idea of understanding how to apply an ecosystem business model, engaging with partners in a way that's different than a typical contractual, I'll sell you something you pay me for it, relationship is going to be critical to get access to these technologies and apply them in your business.

And so that's actually what we're talking about this afternoon, as we're taking the example of the automotive value chain: if you went back, you made a car, it went through a dealer to service it, and this kind of thing, you think about [what] is the future of mobility, and how information features into that and the different players that can be available. Do you even need to own the car? You know, I think we're seeing evolution there. All of that is a fundamentally different set of players and how you access and participate in that ecosystem is very different than the way you did in the past. And that's a requirement that companies need to build in-house to access and engage with new business models.

Travis

And are there certain partners that are going to become must-have partners in this arena?

Wray

Well, I think you see it in the marketplace. I think that's why these valuations are so high in the tech sector, because tech infrastructure, [the] ability to process large language models at scale, access to data, in a way, for sure, are going to continue to be, you know, critical to all this. And I think it's that technology question that most traditional companies wrestle with. I was at a session we had six months ago, with a bunch of sort of mid-size manufacturing and distribution companies, long lead times from China from Southeast Asia, talking about these issues, and they're just trying to keep their business moving along in a volatile business environment. Their ability to stand up a 30-person, large language and data analytics team in their shop is nonexistent. And so, it's a very real issue. How do you actually get access to these tech companies? How do you matter to them? How do you participate in an ecosystem where you can benefit from their investments?

Travis

Do you feel that some have said that AI and generative AI in its overarching impact could be a great leveler, that it will bring insights or access to people that didn't have it before? What's your thought on that?

Wray

I think it's true. I think what's interesting is we've seen these technologies, and this is the latest of many waves, you've got almost both ends happening. You've got companies that have been able to capture market capitalization that's unimaginably large, and then you've got small companies and individuals coming out of nowhere, creating brands, talking directly to consumers, creating companies and huge amounts of value, using these technologies in a way that would have been impossible to even participate in the market 20 years ago. So, I think we'll continue to see that it's going to unleash innovation and create companies and make it difficult for some companies. And you're also going to see a handful of probably large tech companies take advantage of this scale that is needed to drive these kinds of investments and be benefiting from that.

Travis

So, what would be a question, if I was a client, which I am, of EY, what questions should I ask you? I think able to get the best out of what you’re bringing into the field.

Wray

I think the questions start with, depending on your starting point, and the industry that you're in, if we're talking about generative AI specifically, where can I expect to capture value from this technology? Because it is quite different depending on which sector you're talking about. Take some of these conversations people have about producing more, whatever it might be, music, books, is that going to create more revenue? Because at the end of the day, there are only so many consumers to consume all this stuff. So, there are questions about this. Or is it more of an efficiency play, and you can do something to change your cost structure? And so, depending on how you think about that is, you know, quite a bit different in terms of what you need to do. So, there's a value question, we've been working with clients on how to think about where value can be created and captured from generative AI, then there's also a question of your maturity level to go after it, both from a data and a talent and organizational structure. So those would be the two big questions that I see on most companies' minds and that we tend to engage with when we're talking about this topic.

Travis

So, it's going to be critical on the long game, make sure you've got your long game focus, and that you're really keeping up to speed and relevant with the short-term information that has been provided by the team.

Wray

I think that's right. And then is your team capable of making these changes, or you need to think about a new business model to capture or to access new business partners to capture these technologies.

Travis

So, one of the questions that will immediately come to mind then is with the speed that generative AI is coming in here, this must put incredible pressure on EY to be able to react, to be able to look after both its existing clients that are incorporating AI, but also [for] those that this is a whole new frontier, how are you tackling that?

Wray

It's clearly a big issue that we think about, we think it's a big opportunity. We have talked about technology alliances, we've been working closely with our technology partners [collaborators], to embed generative AI into our client-facing technologies. And so, depending on which EY service offering you're talking about, we have a whole host of technologies that support that. And we've been embedding generative AI into those technologies and are already taking that to market and working with our clients using these tools.

The second part is training our people. We benefit from a workforce that is more or less hungry to go after these new technologies and really kind of build their skill sets. Many of our people are at the early stages of their careers and see this is something that's foundational to where they take their career. And so, we've got a whole host of training programs, we call them learning badges that we've constructed around generative AI. And there's been a huge uptake, in terms of getting our people trained. So, it's a matter of deploying technologies and getting our people comfortable in engaging with clients and being trained in how to use this technology.

Travis

I love that way to bring in this new wave of young entrepreneurial thinkers, and then supported by the old guard, so to speak, to ensure that, don't get too dissuaded in case things change as they are changing by the minute. That balance there is awesome. It feels like you've got both sides of the shoulders covered.

Wray

It's incredible, because we've done a number of these kinds of things, but we've run, you know, one project, as if we always did it that way. And then mirrored the same project, using these various technologies next to it. And the amount of learnings and how quickly our people sort of dove into this is incredible, it’s just an amazing amount of insight. And to me, the big insight was how quickly our workforce, you know, both wants to, and has the ability to dive into this technology and really make the most of it.

Travis

It really highlights the importance of us all being here, so that everybody can bleed off the different insights in the knowledge, I mean, the diversity of talks that's going on here. It's just a bit of an eye-opener. It allows us all to look at life through a fresh lens afterward.

Spectacular. Jeff, thank you so much.

Wray

Thank you. I appreciate it.

Travis

I really need your services. Enjoy the enjoy the rest of the conference. And good luck with your session today.

Wray

Thank you. Take care.

Narrator

We hope you’ve enjoyed this episode of the EY Innovation Realized Podcast Series by Elevation Barn. If you would like to learn more about Jeff Wray, please visit ey.com.

To learn more about Elevation Barn, please visit us at elevationbarn.com.

To find out how EY leaders are helping clients rethink their business approach to unlock value for their organizations, visit ey.com.

Presenters

Will Travis
Founder and CEO, Elevation Barn

Podcast

Episode 5

Duration

19m 58s

In this series

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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

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Why we need to rethink business models and how we create them

Key takeaways:

In this series

Presenters