Next Generation Business Problems: Strategy

The overarching strategy problem for the next generation of businesses is the constant change in what makes for a winning business model.

Cost structures are fundamental to business models, and as Professor Edward Buckingham points out, changing costs have dramatically redrawn the global economy several times over the last century.

“In the contemporary business environment, businesses face falling transportation and communication cost regimes”, Buckingham says.

“But the cost of face-to-face communication and trust will define how business models develop in the future.”

Face-to-face meetings are expensive. And face-to-face meetings are mostly about trust. This is why Buckingham considers the cost of trust a critical factor in determining what businesses survive in which locations.

“If the underlying cost of trust is not fully understood, then business models will come and go. That is really the challenge for anyone interested in business in the future: looking at how changing conditions are going to open up new opportunities, and then whether those new opportunities will be sustainable. And to do that you have to come up with strategies which facilitate trust.“

Trust can be fragile and fickle. Buckingham gives as an example online communities like MySpace and Second Life – both of which failed because they lost their customers’ trust. A more contemporary example is Uber.

“Six months ago it was reigning supreme in the taxi space, but it has fallen under a dark cloud recently with reports of driver abuse and misogynistic attitudes at the top of the organisation. These are fundamental trust issues”, Buckingham says.

Societies try new ideas constantly; some fail but everyone moves on. Businesses need clear strategic thinking to maximise their chances of survival, Buckingham says.

“When you have a falling cost base it opens up a whole new Savannah of opportunities. But we haven’t yet had a winter and we haven’t yet had a summer.

And it’s when we have had the winter and the summer that we realise, ‘Well, that looked like attractive land but it wasn’t what we thought’. So we are going to try to help our MBA students to navigate that. “

Monash MBA program students undertake a series of consulting projects with MBA business partners throughout their studies. Addressing changing business models and their strategic implications in a wide range of business sectors is a central feature of the projects.