How to create value in Digital 2.0 amid massive size and scale disruption
Digital 2.0 is more complex and challenging than SMAC, as it is creating significant torque from the industry as well as the consumer
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Rapid technological advancements have ushered us into the age of acceleration. “Life in the fast lane” is here to stay for a foreseeable future. At the dawn of digital, organizations adopted a myopic view—either by digitizing select processes such as sales force automation or by augmenting teams with specialized roles such as the chief digital officer. These digital fashionistas quickly realized—some through failures and others through competition—that a fragmented view of digital might not move the needle in their quest to size and scale disruption. With survival at stake, organizations have had no choice but to build digital capabilities that cut across the enterprise, permanently alter their core DNA and embrace new technology means for value creation.
Today, we see fiction turning into reality in the blink of an eye more often than ever before. It is just a matter of time before Apple’s HomePod or Amazon’s Echo would integrate with apps on our mobile and automatically order food based on our mood, provide emergency medical assistance or even share intelligent financial advice. While many organizations are still grappling with clichéd versions of digital (e.g. SMAC—social media, mobility, analytics and cloud), a second wave of digital is engulfing us—swiftly but silently. Digital 2.0 is more complex and challenging than SMAC, as it is creating significant torque from the industry as well as the consumer. In our day-to-day life, we are hit with a barrage of mega trends involving artificial intelligence, machine learning, Internet of Things, augmented reality, cloud robotics, robotic process automation and blockchain.
A cross-industry survey conducted by Russell Reynolds reveals that a large number of executives are experiencing massive disruption. Consumers are demanding new benchmarks for real time “now” transactions, delivered via seamless user experience.
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Digital does matter
Most organizations facing disruption look for a treasure map or native models for embarking on the digital transformation journey. They can learn significantly from experiences of leading Internet companies such as Amazon.com. Inc., Google or Alibaba Group Holding Ltd or traditional companies like Lego A/S and Schneider Electric SE. These organizations have created significant value by riding the wave of disruption like agile surfers than like rigid, immobile lighthouses. By recognizing the need to embrace digital, industrial giants like General Electric Co. transitioned from being a products and financial services firm to a digital corporation by leveraging the “Industrial Internet”, thereby generating a whopping $7 billion in software sales in 2016 (leveraging successful solutions like Predix—GE’s cloud-based platform that connects people and machines with Big Data and analytics).
In other words, agility and innovation are fundamental for value creation in the digital era. A Boston Consulting Group report in collaboration with the Massachusetts Institute of Technology highlights the gap between industry leaders and laggards along external (digital platform) and internal (operational backbone) dimensions. The report says customer engagement via digital platforms, combined with digitized solutions, is strongly correlated to performance and customer satisfaction.
Mutation for digital DNA
In order to be agile and innovative, organizations must constantly listen to their customers, develop insights through data and most importantly, be “bold” in reprioritizing their product portfolio—even if it includes making some hard decisions. In 2000, Blockbuster Inc. ignored the Internet revolution by refusing to buy Netflix Inc. for a paltry sum of $50 million. Paradoxically, just 10 years later, Blockbuster filed for bankruptcy due to an unviable business model. By then, Netflix was dominating the market. Blockbuster might have been blind-sighted by an excessive attachment to revenue from late returns. As organizations want to take a structured approach to address digital imperatives, they need to keep in mind that digital transformations need to touch the entire organization—people, processes and technology. Launching initiatives at an enterprise level is not enough; the battle of digital can be conclusively won only when new-age practices trickle down to the smallest organizational units. The key question is, how should companies approach designing their digital businesses? There are three key dimensions to consider:
Define the DNA with a customer-centric view: Organizations should focus on creating a superior end-to-end customer experience. Addressing pockets of digitization is not enough. They need to reimagine “phygital”—the blending of physical and digital—to create an ecosystem between the product and the consumer. Corporations should offer analytics and information-based services, even if without immediate monetization targets, like Schneider Electric, John Deere Co. and the Schindler Group did. They all launched data-driven services to enhance customer value propositions. Organizations should also invest in designing and building new product portfolios. Investment in the ecosystem has great importance in the digital economy. Many businesses have realized their own limitations when it comes to internal innovation, but the digital economy allows co-creation with partners within the ecosystem. For instance, Amazon, Google and Walgreen Co. provide external application programming interfaces to partners for easy integration.
Reorganize to bring digital to the core: Digital should be a part of the CEO and board agenda, as the leadership should commit to long-term investments in the digital space. They are just not cheerleaders, but should be closely engaged with transformation and on-ground change management. Adoption of agile and DevOps methods—which bring together dedicated teams from development and operations functions quickly—is a must for the success of digital initiatives. Firms must establish service/product owner accountability by adapting to a strong product management process. For example, Amazon and FedEx Corp. have dedicated product managers for applications. Products get updated with continuous integration, and improvements are made based on hard data: for instance, A/B testing and user adoption metrics. Firms should also enable user-configurable workflows to enable constant improvement and steady business reconfiguration, just as Netflix uses an in-house platform-as-a-service for developers to deploy infrastructure themselves.
Adopt soft organizational practices: Digital innovators take an inspirational push towards new ways of working. This approach involves a combination of culture, behaviours, ambition and values. People can do wonders if given the space and the autonomy to experiment, and be creative. Many digital leaders have already embraced this. For example, Google wants people to imagine the unimaginable, asks them to set big goals, and accepts a “fail early, fail fast” culture. Zappos.com Inc. pushes employees to challenge themselves by rejecting status quo all the time. Amazon avoids presentations and recommends a structured “narrative” to pitch a new idea. Spotify Ltd focuses on alignment via constant communication balanced by a high level of autonomy.
While it is important to be digitally hungry and organizationally agile, corporations must balance out stability and disruption. In his book, Thank You for Being Late, Thomas Friedman acknowledges the age of acceleration as “just too damned fast” and advises us to keep our “paddle in the water”, emphasizing that businesses should keep the momentum going for stability during the era of disruption by redoubling efforts to close the anxiety gap with imagination and innovation.
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If Tesla Inc. can beat Bayerische Motoren Werke (BMW) AG’s market capitalization by selling only 4% of the cars the latter sells (80,000)—in just a tenth of the time of BMW’s existence—then we should not undermine the immense value-creation opportunity staring right at us in this digital age. It should inspire us to do more by embracing digital to the core.
Rajiv Gupta is a partner and leads the technology advantage practice at BCG New Delhi, and Shrikant Patil is a project leader at BCG Mumbai.