Sharing is thriving

SUITS THE C-SUITE By J. Carlitos G. Cruz

Business World (07/03/2017 – p.S1/5)

One of the greatest business disruptors in recent years has arguably been the rise and exponential growth of the “sharing economy.” An EY report on the sharing economy defines it as comprising new business models empowered by multiple disruptive technologies (i.e. cloud-based collaborative apps riding on high bandwidth, always-on mobile networks and the web) that exploit previously inaccessible information to instantaneously match consumer needs to idle capacity to create economic efficiencies.

Quite a mouthful of a definition but in essence, sharing economy is about how technology-enabled business innovation is giving rise to real-time utilization, empowering entrepreneurs and increasing customer satisfaction. We can see its impact on various industries, notably transportation, hospitality, services and even venture funding, among others. Through real-time, virtual marketplaces, a commuter can instantly hire a car, a traveler can rent someone’s home, and a homeowner can immediately find a trustworthy worker to do repairs.

A large part of the success of sharing-economy companies relies on robotics (automated applications and not physical robots), which maximizes process efficiencies for certain functions, such as calculating fares, estimating trip durations based on crowdsourced real-time traffic updates, managing reservations, and handling basic customer service.

In addition to boosting asset utilization and usage efficiency, the sharing economy is also redefining service levels through rating systems. By enabling customers to give immediate feedback, these business models reward service or asset providers with tangible benefits such as cash bonuses, increased visibility and more bookings. This creates a positive socio-enterprise loop that further accelerates the growth of the sharing economy. In fact, the benefits are already tangible in the following situations:

· Customer satisfaction — Most users delight in their experience, enjoying improved service, lower costs and instant gratification. Not only do customers get more choices, they are also attracted to the higher level of interaction, just like in social networks.

· Individual entrepreneurship — Anyone can now be an entrepreneur. Many sharing economy participants see it as a life-changing experience because the system empowers them to not only advertise and monetize their assets, time or skills, but it also lowers the barriers to market entry by providing the tools and the marketplace. This freedom to work and earn on their terms, and at their own time, makes the sharing economy quite attractive to millennials.

· Boosting developing economies — For emerging markets or developing economies, the sharing economy may provide first-time access to certain assets for a large segment of the population. It allows those who can afford certain assets, e.g. cars, to offset their ownership cost, while offering affordable access to those who can’t afford them. This will likely increase adoption in developing economies.

· Societal benefits — Sharing-economy businesses are also seen to be beneficial to the environment through more efficient use of resources and increased productivity. This translates into concrete benefits, such as reduced traffic, reduced manufacturing, reduced operational costs, and others.

IMPACT ON BUSINESS

The sharing economy has drastically redefined the traditional business paradigms upon which large enterprises are built. Because of the ease by which users can avail of assets or services, overall liquidity in the market is increased. At the same time, since utilization is increased, new value is created because providers are better able to monetize their assets. For example, a car owner who signs up with Uber can earn income from what was essentially a private-use asset; or an Airbnb provider now gets rental income from a family home. Through value creation, liabilities can become income-generating assets.

Sharing-economy businesses may soon open up opportunities for B2B interactions or “industrial mash-ups.” We should anticipate future systems and interactions that provide simplified, automated access to business processes, for example, a company in one country being able to directly manage and utilize the available manufacturing capacity of a factory in another country.

As with any kind of disruption, there will naturally be challenges. Sharing-economy businesses are already triggering increasing levels of government oversight and calls for new regulatory policies in many countries. Governments are still undecided on how they want to participate in the sharing economy, whether to allow, ban or strictly regulate it. The problem is not that sharing-economy companies are trying to bend or break the rules — the problem is that for many industries and situations, the rules don’t even exist yet.

Sharing-economy companies are also seen to disadvantage incumbent businesses and industries, like encouraging customers to switch, or not needing to own their own assets. Their increased flexibility, however, also opens up new business risks, from dealing with their own rapid internal evolution, to IT development and system issues, as well as pressure from regulators and government and the transition to more diverse global markets.

IMPACT ON USERS

As mentioned earlier, the benefits of the sharing economy are seen to be inordinately appealing to millennials and succeeding generations, both as participants and consumers.

First, the concept of freedom and independence is attractive. Asset or service providers can provide availability at their own time and pace, without being tied down to a particular office or company. Many millennials also see entrepreneurship as the key to independence, which ties in directly with sharing economy. On the other hand, millennial consumers see the advantage of being able to use an asset, like a car or a home, without having to buy one themselves.

Second, millennials are experience-seekers who constantly look for new stimulus and interactions. Through the sharing economy, millennials get to engage with new people every time. In addition to the wider social component, having rating systems that positively reward good performance also provides instant gratification similar to how millennials value “likes” and “shares” on social media.

Third, given the fondness of millennials for technology, the online and mobile platforms used by sharing-economy businesses integrate quickly and easily into their daily technology usage and habits. With the almost intuitive grasp millennials have over apps and mobile technology, accessing, utilizing and participating in sharing-economy models feels almost second nature to them.

TO SHARE OR NOT TO SHARE

Incumbent businesses need to consider making rapid choices on how and if they will participate in the sharing economy. Given that the sharing economy is making rapid inroads into every industry, businesses would be remiss if they do not consider adapting its benefits or they risk getting left behind.

Companies may need to take steps in developing new business strategies to fit a sharing-economy world. As more of their existing customers experience the sharing economy, their expectations of incumbent companies are likely to change. Businesses need to constantly find new ways to better listen, address and act on fast-changing customer demands.

Incumbents can leverage on their existing advantages, such as a strong brand resonance with their existing customer base, proven reliability, security and the ability to deliver consistent customer experiences. However, companies cannot be complacent in this aspect — it’s not going to be enough to simply rely on one’s past performance and reputation to maintain one’s future market position.

Another option is to dive right into the sharing economy, perhaps even through mergers and acquisitions. As with most industries, early entry is often a key to longevity. Take for example how some global automobile manufacturers have already launched car-sharing services, or how some smaller hotels have already taken to advertising available rooms in home-sharing marketplaces.

Ultimately, the sharing economy is but one of the technology-based disruptors that are dramatically changing global business. For companies to survive, adapt and even thrive under such conditions, it is vital that an openness to innovation be infused throughout the organization’s DNA — from the basement all the way up to the boardroom.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

J. Carlitos G. Cruz is the Chairman and Managing Partner of SGV & Co.