In a digital economy, companies are constantly faced with opportunities, challenges and threats. Business changes are critical to successfully navigate in this environment, but there are plenty of pitfalls to watch for along the way.
Some companies, like those in the media space, are probably closer to the head of the pack in addressing these issues. They’ve either survived or not at this point. Others, in areas like retail and financial services, are in the eye of the storm, while industries like oil and gas and consumer goods see this more as an issue on the horizon.
Regardless of where they are in dealing with digital disruption, everyone’s assumptions about what is necessary to succeed are being shaken up. Digital disruption comes at you in unexpected ways, and businesses need to be prepared. MIT’s Center for Information Systems Research (CISR) has been studying this issue for years through case studies, interviews and surveys. Based on that research, we’ve identified five propositions about thriving during digital disruption.
Don’t hire a chief digital officer
Hiring a chief digital officer (CDO) is not the answer. While companies may see this as akin to hiring a head of marketing to handle marketing or a head of HR to handle HR, a CDO can’t make an existing business a digital success. This is because dealing with digital disruption is a broader issue that requires all parts of a business — that were never intended to work together — to now work together.
For example, if you want to do more things on mobile, you need information on the customer that probably doesn’t exist in a central repository at your company. Rather, the data live in different parts of the business. The CDO can’t enable the company to do more things on mobile because the company hasn’t integrated data-sharing processes across functional or business unit silos. Instead, the CDO’s job ends up being to tell people to work together effectively, but, in the end, they are frustrated by their inability to change how the company thinks and operates.
Rather than hiring a CDO, companies need to understand existing capabilities. If something is already integrated, it may be ready for digital. If not, the company needs an initiative to change processes and create new roles. It has to be very clear about its goals, then restructure the organization to make those goals happen.
Surgery is required
If your organizational structure was designed for the pre-digital economy, then no amount of tweaking management practices is going to be sufficient. This is largely because there was a divide-and-conquer mentality in the pre-digital age. Each business unit was assigned specific responsibilities, and the sum of all parts added up to the whole.
Anyone can successfully navigate digital disruption with enough creativity and innovation.
This strategy doesn’t work in the digital economy because all parts are interdependent. They need to collaborate and cooperate. For many businesses, organizational surgery is required to adopt new processes and habits.
Think of how Uber has disrupted the taxi industry by reinventing the personal mobility experience. If traditional taxi companies want to compete, they can’t just improve service — they need surgery.
Value chains are becoming irrelevant
We used to think of a company as end to end. It starts with raw material, adds value and sells what comes out the other end. Now, so much of what must be done doesn’t need to happen within a company’s boundaries. It can look beyond its walls to have a broader array of products, services, markets and customers. It can develop a distinctive set of internal competencies that are enriched by the services of partners. In other words, value chains are becoming irrelevant.
Apple plays well in this ecosystem by providing a platform for app designers. Anyone interested can pay a fee and Apple will host the app. Similarly, Amazon has created a platform for external sellers to sell goods directly to customers without stocking their goods in Amazon’s warehouses. These are complex relationships within an ecosystem — not a value chain.
Get a digitized platform
If you don’t have a digitized platform, you’re toast. By having a powerful platform to ensure efficient, high-quality transaction processing and back-office activities, management can stop firefighting and instead focus attention on innovation and customer intimacy. The best companies are learning how to leverage their platforms so they are constantly raising the bar for their competitors. This is the key to becoming any industry’s Amazon.
Focus on solutions not products
The value proposition is increasingly shifting from the sale of assets to performance management of those assets. The problem is that if you make something that is profitable, you are inviting competition. Thus, it’s important to create your own niche where you solve someone’s problems and they become attached to you as a result.
For example, GE doesn’t just sell aircraft engines, it also sells the management of those engines. Philips doesn’t just sell medical equipment, it sells the management of that equipment. Companies that think about more unique value propositions are harder to copy and have better margins. This has been the case for a while, but it is becoming more important.
The digital economy provides huge opportunities to build a niche and excel, but companies must get out of any pre-digital mindsets to recognize those opportunities. Anyone can successfully navigate digital disruption with enough creativity and innovation — and a solid digitized platform.
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