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In today’s digital age, the business landscape is undergoing a profound transformation, marked by the deconstruction of traditional business architecture.

This paradigm shift is leading businesses to transition from vertical value chains to stack-based structures as a result of digital transformation.

 In this blog post, we’ll explore the reasons behind this fundamental change, delve into the obstacles and challenges it poses, particularly for legacy companies, uncover the competitive advantages of embracing a stack-based business model, and examine real-world use-case scenarios to illustrate these advantages.

The Shift from Vertical Value Chains to Stack-Based Structures

The traditional vertical value chain model, which has been the bedrock of many industries since the 1980s, is giving way to a more flexible and agile approach – the stack-based structure.

Reasons for the Shift

1.    Agility and Innovation

Stack-based structures enable businesses to be more agile in responding to continuous market changes and new innovation of products and services.

Unlike the rigid, linear processes of vertical value chains, stack-based structures offer flexibility and the ability to quickly adapt to evolving customer needs.

This agility is essential in today’s fast-paced digital environment, where disruptors can quickly gain a competitive edge.

2.    Improved Customer Experience

The digital age places an unprecedented emphasis on customer-centricity.

Stack-based structures break down traditional silos, allowing companies to have real-time access to customer data and insights. This is key to establishing customer lifetime value.

This, in turn, enables them to provide more personalised and seamless customer experiences, fostering loyalty and satisfaction.

3.     Cost Efficiency

By optimising processes, reducing waste, and improving resource allocation, the stack-based approach often leads to cost savings.

Efficient operations not only enhance profitability but also enable companies to offer competitive pricing in the market.

4.    Ecosystem Collaboration

In the digital age, businesses are realising the power of collaboration.

Stack-based structures make it easier to connect with partners, suppliers, and even competitors to co-create value for the customer.

This ecosystem collaboration fosters innovation and expands market reach.

Obstacles and Challenges, Especially for Legacy Companies

The transformation to a stack-based structure isn’t without its challenges, and these are particularly pronounced for established legacy companies.

1.     Legacy Systems

Many legacy companies have heavily invested in older IT systems and processes that are resistant to change.

The stack-based structure relies on modern, flexible technology that legacy systems may lack, making the transition complex and costly.

2.     Cultural Resistance

Employees accustomed to the hierarchical, vertical value chain model may resist changes.

This cultural challenge can slow down the adoption of the new structure and hinder its success.

3.     Data Integration

Legacy systems often lack the flexibility and integration capabilities needed for a stack-based approach.

The smooth flow of data is crucial in this model, and adapting legacy systems to meet these requirements can be technically challenging.

4.     Risk Management

Rapid adoption of digital technologies can pose security and compliance risks.

Legacy companies may not be adequately prepared to handle these risks, potentially exposing themselves to data breaches, legal issues, and reputational damage.

5.     Skill Gap

Shifting to a stack-based model often requires new skill sets and digital expertise.

Legacy employees would need training to acquire the necessary competencies, adding to the transition’s complexity.

6.     Startups Proliferation

The stack architecture characterises the fact that players can compete on different key success factors in different layers; scale at the bottom, innovation of the top.

In this new model, new players can disrupt incumbents by attacking only a specific portion of the whole value chain.

Competitive Advantage of Stack-Based Structures

Embracing a stack-based business structure offers several distinct competitive advantages that can reshape a company’s positioning in the digital age.

1.     Rapid Adaptability

Stack-based structures provide the agility to swiftly adapt to changing market dynamics and customer preferences.

This responsiveness allows companies to stay ahead of competitors who may be hampered by traditional, less flexible models.

2.     Data-Driven Decision Making

Real-time access to data and advanced analytics empowers companies to make informed, data-driven decisions.

This results in more effective strategies, better resource allocation, and a deeper understanding of customer behaviour.

3.     Enhanced Customer Engagement

Stack-based structures empower businesses to deliver personalised customer experiences by gaining valuable insights into preferences, interactions, behaviors, and needs.

By dismantling data silos and streamlining operations, companies can segment their customers based on shared characteristics.

Utilising predictive analytics, they proactively engage customers, fostering loyalty and enhancing customer retention.

4.     Collaborative Innovation

Businesses can form partnerships and collaborations more easily in a stack-based structure.

This collaborative approach allows them to tap into the strengths of partners, access new markets, and co-create value, creating innovative solutions that outpace the competition.

5.     Cost Efficiency

The optimisation of processes and resources in a stack-based structure often leads to cost savings. This cost efficiency can be translated into competitive pricing, making a company more attractive to cost-conscious consumers.

Despite these challenges, there are a number of things that legacy companies can do to make the transition to a stack-based architecture more successful.

Solution to Overcome Obstacles

1.     Start Small

Don’t try to transition the entire company to a stack-based architecture overnight.

Start with a small pilot project, and then gradually expand the scope of the project as you gain experience.

2.     Get Buy-In from Stakeholders

Make sure that all stakeholders, including employees, managers, and customers, are aware of the benefits of transitioning to a stack-based architecture.

This will help to reduce resistance to change management and culture.

3.     Invest in Training

Provide employees with the training they need to implement and manage a stack-based architecture.

This will help to ensure that the company has the skills and expertise it needs to be successful.

4.     Use a Phased Approach

Transition to a stack-based architecture in a phased approach, rather than trying to do everything at once.

This will help to reduce the risk of business disruption and make the transition more manageable.

By following these tips, legacy companies can overcome the obstacles and challenges of transitioning to a stack-based architecture and reap the benefits of this new approach to business architecture.

Use-Case Scenarios

To illustrate the advantages of embracing a stack-based business structure, let’s explore some successful real-world use cases:

1.     Amazon

Amazon, an e-commerce giant, has redefined the retail industry by adopting a stack-based structure.

Their vast ecosystem of services includes Amazon Web Services (AWS), which provides cloud computing, and Amazon Marketplace, a platform for third-party sellers.

These services are highly integrated, allowing Amazon to rapidly scale its offerings, enhance customer experiences, and drive innovation.

2.     Netflix

Netflix, a leading streaming service, uses a stack-based model to continually improve content recommendations.

By analysing user data in real-time, they deliver personalised content to millions of viewers. This data-driven approach keeps customers engaged, reducing churn and strengthening customer loyalty.

3.     Airbnb

Airbnb leverages a stack-based structure to create a global marketplace for accommodations.

Their platform connects hosts and travellers from around the world, facilitating collaboration and innovation in the travel industry.

The company’s ability to adapt quickly to market demands and provide personalised experiences has given them a competitive edge.

4.     Uber

Uber, a ride-sharing platform, exemplifies the collaborative nature of stack-based models.

Their app seamlessly connects drivers and riders while optimising routes and prices.

This collaborative approach transformed the transportation services industry and has been widely adopted by other companies in the gig economy.

Here’s the takeaway for companies in this digital age revolution.

The transformation from traditional vertical value chains to stack-based business structures isn’t a question of “should we or should we not” business objective adoption, but a strategic pivotal shift that defines sustainable success for companies here and now, in the digital age.

While challenges are certainly present, the promise of agility, innovation, and enhanced customer experiences are driving companies to embrace digital transformation.

The use-case scenarios of companies like Amazon, Netflix, Airbnb, and Uber illustrate how this shift can be harnessed to gain a significant competitive advantage, revolutionise industries, and meet the evolving demands of the highly connected digital world.