It is not uncommon in today’s ever-changing business world to read a story about a large incumbent that, locked in their traditional ways of doing business, has stifled innovation and missed out on tremendous opportunities for growth. A classic example of such stifled opportunity is Kodak, who despite being the first to develop a self-contained digital camera, failed to fully grasp the opportunity that digitization and technology were able to bring to photography.
Today, companies which are wary to tread in Kodak’s fateful footsteps find themselves branching out into n ew geographies, business models, end markets, and sectors, lest they be left behind by another monumental shift.
Sector convergence, or the blending of traditionally rigid sector classifications into a more fluid and combined set of sectors, is occurring now more than ever. Consumer demands have largely driven the need for companies behaviors across all sectors. These themes pressure incumbents to act faster to provide more customer- centric offerings, or risk losing out to more innovative competitors.
Insights derived in one sector that may be highly valuable to another have facilitated this convergence. One example of this can be found in the water sector, which is already undergoing a wave of technological innovation as consumers seek to optimize their water use and efficiency. The sector is also bringing together previously unrelated market participants. The Aqua America/Peoples transaction marked the first instance where a public, regulated water company acquired a natural gas distribution company. Despite delivering entirely different commodities, the two companies were able to identify significant operations, call center, meter reading, billing and collections synergies. Another recent example is Veolia’s partnership with micro-mobility provider JUMP. Veolia, an environmental services provider, aims to sort and recycle JUMP’s defective bikes and scooters into plastics, rubbers, metals and batteries. JUMP benefits by reducing its environmental footprint, while Veolia gets access to recyclable materials that can be processed and resold. The quest to unlock new growth opportunities has motivated traditionally siloed companies to reach across the aisle (or aisles) to uncover creative solutions where few others have previously searched.
Business models are also evolving, especially the “as-a-service” model, which has taken all sectors by storm. The starkest example can be found in the automotive sector, as executives debate the allocation of their finite financial resources on “CapEx vs. OpEx” spending. Transportation, originally led by the collective OEMs, is undergoing a monumental shift to decentralized “mobility services” led by technology companies. Transportation network companies, subscription models, car sharing, micro-mobility and even electric vehicles are disaggregating the transportation experience for consumers. This “fleetification” of vehicle ownership from a single individual to multiple consumers is having a profound effect on the sector as a whole. Even energy companies, which are struggling to keep up with the rapid proliferation of electric vehicles as they build out charging infrastructure, now consider themselves part of the Advanced Transportation sector. This blending of Automotive, Technology, and Energy Infrastructure companies is unlocking a wave of new growth opportunities.
While sector convergence is not a new theme in the business world, the swiftness with which it occurs and the sectors it affects should always be a cause for some excitement. Convergence enables sectors to learn best practices from one another, as they strive for growth while balancing customer needs and resource efficiency. The necessity to holistically tackle some of the biggest challenges of our generation has brought together innovators and incumbents who continually seek creative ways to deliver a cleaner future. This is an exciting time to witness the changes occurring in our sectors, and one can only continue to remain optimistic about the next bright innovation just around the corner.