Answering 3 key questions on industry convergence

Industry convergence is a relevant topic today, but it also can be a somewhat nebulous concept. Is it tied to business transformation? Is it driven by new technology? Does it include or encompass globalization, innovation, or any other key drivers of today’s business environment?

The answer to all these questions can be “yes” in certain situations, but the simplest way to define industry convergence is that it’s when any of the following conditions are met:

• Organizations attempt to meet customer needs or demands that aren’t currently being addressed in their industry but that are being met in another industry.
• Organizations add capabilities or methodologies that haven’t been applied in their industry before but that have been used successfully in a different industry.
• Organizations try to address an unmet job in a particular market or segment by bringing seemingly disparate industry practices, norms, and capabilities together.

An example of the first kind of convergence would be online and app-based booking for medical appointments in healthcare. An example of the second kind would be agricultural companies using radio frequency identification (RFID) chips to track livestock. An example of the third would be developing a tailored banking solution specifically for a construction company or hospital system that doesn't exist elsewhere.

In all of these cases, technology is enabling a wholly new approach, but as far as convergence is concerned, the technology isn’t the point. It’s the fact that organizations in these industries applied something that was already being used in other sectors to their own operations in a novel way.

One more important aspect of industry convergence is that it all comes down to delivering unique value to customers. Other related issues might drive specific efforts, but meeting customer needs in more efficient and valuable ways should underpin any convergence undertaking.

What’s driving interest in convergence today?

In recent conversations with our clients, we’ve heard a genuine interest in increased convergence and the possibilities it holds for their businesses. Some clients are even undertaking major convergence efforts right now or are planning to do so in the near future.

A few different factors have made convergence appealing in the current environment. First, consumer habits changed during the pandemic, which drove more convergence. Also, in many industries, companies held off on investing funds and resources into any major new initiatives during the pandemic. Once lockdown restrictions went away and markets restabilized, some of these organizations began revisiting convergence opportunities.

Additionally, Gartner^® recently noted that convergence is propelling a “co-innovation ecosystem,” one of the top trends expected to impact technology providers through 2025. “The co-innovation ecosystem approach is an emerging practice that enables the convergence of internal, external, collaborative, and co-creative ideas to add new value.”¹

Beyond current market conditions and industry trends, we find interest in convergence is fundamentally motivated by one of two perspectives:

• Deficiency-driven: As organizations examine their business models and the capabilities that support those models, they’re identifying gaps in those capabilities that are being solved somehow in other industries and exploring how to add those solutions to their own business model.
• Value-driven: Organizations want to nurture their distinctive value within their industry. As they plan their journey toward differentiation by adding value in new and unique ways, they look to convergence as a means to achieve that objective.

What are the pitfalls of industry convergence?

Convergence efforts sometimes can fall short for the same reason any new initiative can fail – because risks aren’t fully understood and accounted for. When a new method or concept converges into a business, it can cause disruption in the cultural dynamic and elevate business and compliance risks, often in unpredictable ways.

The majority of industry convergence overlaps in some way with the technology sector, which has a culture of running fast, breaking things, pivoting quickly, and then doing it all over again. But when that approach is brought into a heavily regulated environment where a “run fast, break things” mentality runs contrary to risk management and regulatory oversight, it can naturally cause friction. The question then becomes how organizations in that environment can resolve a desire for convergence with their limited appetite for risk.

More broadly, when organizations converge across industries, they’re typically doing something entirely new, which means they’re taking on risks that are often completely novel – issues that very few or no one in their position have had to deal with, ever. There’s not a blueprint or set of best practices for managing through it and, unsurprisingly, some companies can get it wrong.

Convergence also can be stopped or stalled by long-standing and hard-to-change industry dynamics. To use healthcare as an example again, the majority of payments in that industry come from government sources, which means opportunities to innovate and optimize financial operations might not always be possible.

Perhaps the most common reason convergence initiatives don’t succeed, though, is that organizations don’t sufficiently define what success actually looks like. Before they even begin, businesses need to understand what the convergence should accomplish on a long timeline – not just by the end of the first year, but two or three years out.

How can organizations successfully execute industry convergence?

Some organizations and industries have been embracing convergences for several years now. For these pioneers in this area, convergence is more of a mindset than a new project to undertake. Most organizations, though, will tend to see convergence as an initiative or series of initiatives. And there’s nothing wrong with that. In fact, it can be a critical first step on the road to a convergence and transformation mindset.

Here are four things organizations should do as they embark on new industry convergence efforts:

1. Keep the customer front and center

As indicated earlier, convergence efforts might not always be prompted by an acute customer need or demand. But ultimately, convergence should tie back to enhancing the way an organization services and interacts with its customers. If there’s no connection to them, convergence probably will be ineffectual or irrelevant. Also, as part of these efforts, organizations should talk to their customers constantly, generating a feedback loop that helps with course corrections along the way.

2. Understand the capacity for change

Every organization has a “change muscle,” with varying degrees of strength. Leaders need to understand how adept their enterprises are at taking on big changes – and it’s critical to strengthen organization change management capabilities along the way. With convergence, leadership teams should push their organizations outside of their comfort zone to some extent – but not too far and too fast. If the convergence initiative is too aggressive, it will likely be regarded as unreasonable and summarily ignored.

3. Lay the groundwork for innovation

Successful convergences and innovative thinking often go hand in hand. A healthy innovation mindset is one that can quickly identify the vision for where an organization needs to go, how it can get there, and where there could be obstacles to growth. Organizations that don’t make robust investments in innovation – not just to develop new products and solutions, but also to cultivate innovative leadership and culture – will have a much more difficult time with convergence and managing the pace of change.

4. Establish consensus on principles

This is about more than ensuring ethical, proper behavior. As new situations emerge as a product of convergence, having basic principles that everyone agrees on can aid in quick decision-making. For instance, perhaps everyone can get on board with the idea of treating customers fairly and equitably, so that becomes a lens through which unforeseen issues are viewed. These principles also might be driven by organizational values and regulatory considerations.

1. Gartner Press Release. “Gartner Identifies Top Trends Impacting Technology Providers Through 2025.” Feb. 1, 2023, https://www.gartner.com/en/newsroom/press-releases/2023-02-01-gartner-identifies-top-trends-impacting-technology-providers-through-2025
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