The fourth industrial revolution, centered around digital technology, has had a profound impact on industries and companies – disrupting and enabling them at the same time. Consider what the music industry offered back in the early 2000s: concerts helping companies sell bundled music through CDs versus what the industry offers now – unbundled music through online streaming that assists companies to sell concerts. Digital technology has completely changed the way multiple industries function, making it necessary for companies to either shift from bricks to clicks or establish synergies between the physical and the digital world.
In formulating such strategies, executives usually choose a path that attempts to mitigate the impact of digital disruption on the revenue. While doing so, executives tend to, firstly, create think tanks or independent startups in the silicon valleys of the world that have separate budgets and KRAs to propel the bigger ship towards innovation. Secondly, executives initiate the lean way of working by experimenting on-the-go for certain products in order to explore the possibility of synergies. Lastly, executives approach “digital” as a way to reduce costs and increase the efficiency of processes.
While these methods can help companies test the “digital” waters, these cannot ensure a turnaround. Independent units are likely to unveil quickly and help the parent think better but these can never become the armory as it is almost impossible for a boat to tow a ship, even with the best management processes. Next in the order, lean management can help produce good results for startups and some extremely sorted companies but for complex organizations, the results might not even reach the senior leadership teams because of the very nature of the path, i.e. bottom-up. At last, using digital just as a way to improve efficiency limits the overall scope and advantages that come along.
In studying how incumbent companies have moved to the world wide web, we have learned that true innovation is possible only when digital is incorporated in every process and digital-first becomes a mission, making it a part of an organization’s core. Instead of focusing on ground-up testing, executives should be looking within. Inspired by the framework for digital leadership by Harvard Business School Professor Sunil Gupta, the article will attempt to highlight focus areas and approaches taken by companies to rethink leverage.
A) Customer and Data
- Rethink customer requirements – John Deere evolved from selling tractors to managing their customer’s farms by improving farm productivity with the help of data analytics and partnerships.
- Leverage customer data – Netflix analyses big data, collected as a part of its user’s behavior and buying pattern to recommend shows based on preferences. Their customer retention rates are as high as 93%.
B) Competitive Advantage
- Exist across industries – Alibaba’s retail marketplace caters to buyers and sellers working in industries ranging from automotive to chemicals, pharmaceuticals to semiconductors. The company operates across multiple industries.
- Become customer-centric – Tesla receives the highest customer loyalty, compared to other car companies, with an overall satisfaction rating of 90% and 80% of customers making a repurchase. Along with making great products, the company owns the complete customer journey, ensuring a great customer experience throughout the funnel.
- Optimize network effects – Facebook’s 2.5 billion user base is exposed to millions of businesses on the platform making Facebook one of the world’s biggest marketplace. Over the years, the company has cultivated its users and merchants to create two-sided network effects, helping it create an open market.
- Innovate processes – Amazon uses customer buying patterns for its patented anticipatory shipping model. The company uses predictive analysis to stock products at its fulfillment centers in order to increase its profit margins and save on delivery time.
C) Value Proposition
- Build compliments around your flagship offering – Compliments that make Apple’s hardware products more attractive include iTunes, iCloud and the App Store. By creating an ecosystem of offerings around the iPhone, Apple increases customer’s switching costs and ensures repeat transactions.
- Move from selling products to selling experiences – Starbucks eliminates the need for a customer to wait to pay or to get a coffee. With the order-ahead feature in the company’s application, a customer avoids painful moments in favour of a seamless experience.
- Create a marketplace – Reliance Jio has connected its 400 million network subscribers to its other businesses ranging from Commerce (JioMart, Jio Healthhub, MyJio, JioGST, JioAds) to Capital (Jio Payments, Jio Coin) to Content (Jio Games, Network 18) through a single platform Jio, creating a multi-sided marketplace.
- Balance interests – European automakers are partnering with tech companies, competition and suppliers to combine complementary capabilities that will accelerate the development of connected-autonomous-shared-electric mobility, customer experience and FinTech, as the auto consumer demands mobility as a service.
- Enhance reach – With the shift in consumption habits, 43% of content consumed is learning-based. Youtube India is leveraging this through its monthly user base of more than 265 million users and 2,500 creator channels with more than 1 million subscribers to enhance Google India’s reach in Bharat (India) through influencer marketing.
A) Open Innovation
- Advance with the help of crowd – With its touch-free Freestyle dispenser machine, Coca-Cola allows its customers to mix their own flavours and invent their own drink. This model of open innovation helps the company evaluate ideas of a new product line, putting the crowd at the core of its product innovation.
- Innovate with the help of existing customers – LEGO’s shared-vision strategy involves customers through a website where they can design their own LEGO sets using a 3D application. Other customers engage by voting for the best idea which is later considered by the company for a new product. Open innovation enables LEGO to innovate quickly as 60% of its product line changes every year.
B) Real-time Information Transfer
- Enhance product to customer communication – Alexa is capable of controlling 85,000 smart home products and processing billions of interactions a week, generating huge quantities of customer data. The device aims to offer assistance informed by the user’s actions and preferences, allowing Amazon to influence transactions on an intuitive level.
- Enable product to product/infrastructure communication – The data generated from products is used to decentralize manufacturing/stocking as well as produce better products. Each dress in a Zara store contains an RFID which sends a communication to the stock room once sold. Automakers are testing the V2V and V2I connectivity to increase the level of automation levels in a vehicle. Siemens uses RFIDs to let a product talk to the machine to produce a similar product, after incorporating usage patterns
C) Omni-channel Strategy
- Move close to customers physically – More than 98% retail sales in India take place through physical stores. Multiple digital companies such as FlipKart, LensKart, CarDekho which have tremendous online presence and popularity have opened offline stores to attract brick & mortar consumers. The average conversion rates in a physical store climb up to 3x-4x as compared to its digital counterpart.
- Expand digitally – Indian automaker Maruti Suzuki, which sells about one out of every two cars sold in the country, has put digital at the center of all their strategies. The Original Equipment Manufacturer has digitized 21 out of 26 touch points in a car purchase journey and is looking at a “phigital” approach for the remaining points such as test drive and delivery. Digital is contributing about 35% to the enquiries, a 7x jump from FY18.
D) Customer Relevance & Acquisition
- Focus on customer lifetime value – Zappos saw that customers including its most valuable ones buying the most expensive shoes have a return rate of 50%. With a high focus on customer lifetime value (CLV), the company offered a 365-day return policy with free shipping and no return charges, eventually helping them increase repeat transaction, conversion and “deliver wow through service”.
- Optimize customer journey – Amazon’s audience-specific awareness campaigns, its one-click purchase widget, the tailored recommendations basis customer’s search data, the volumes of relevant reviews etc are steps taken by the company to personalise its customer’s journey. Research states that 80% customers are influenced to transact as a result of customized marketing.
- Establish two-way brand communication – Zomato’s marketing strategy displays the company’s focus on interaction. Along with gathering feedback from customers, the company’s communications aim to involve participation from users as well as other companies, helping them garner a whopping 1.4 million followers on micro-blogging site Twitter, eventually leading to higher consideration and preference rates.
- Shift from storytelling to storymaking – With the shift in content consumption from a group format over TV to an individualistic format over the web, Mastercard realized that rather than hearing brand stories, consumers want to be a part of the story. The company has changed its approach to connect with consumers by collaborating with them to create personalized communications. In other words, Mastercard enables customers to create stories they tell their friends and act as evangelists to the company.
- Build a culture of rapid experimentation – Booking.com runs more than 25,000 experiments a year. Billions of landing page permutations are LIVE which means that at any given time, two viewers at the same location are unlikely to see the same version of their website. The culture of rapid experimentation helped the company transform from an entry-level startup to the world’s largest online accommodation platform in a span of 20 years.
- Look across set boundaries – Companies are looking beyond region, application, features and channel to capture their next set of clientele. Whether it is India-based Jio creating an ecosystem around its offering or US-based Tesla leapfrogging from personal to mass mobility, companies in the digital age compete with the help of network effects and complementary products rather than product differentiation or low-cost positioning.
- Align agile teams – IBM and Google have perfected the art of keeping multiple management layers of an organization aligned to a shared strategy with the help of goal-setting framework Objectives and Key Results (OKR) and the team management approach of fast/quick response teams, which are being nurtured with the help of digital tools. The centralized organizational model is particularly preferred by companies to help their teams cross-collaborate while still being more localized, eventually supporting the company to scale their people.
- Develop the core – With the electronic trade squeezing margins and institutional clients moving their trading in-house, Goldman Sachs built a Software as a Service (SaaS) platform offering data solutions and advisory to its existing clients. The company opened up its platform to new clients and also to its competition to create a multi-sided marketplace, helping them upsell its high margin services. The company now is strengthening its core by regulating stakeholders on its platform and innovating with the help of accelerators, investments in companies, JVs and partnerships.
C) Skill Management
- Focus on skill development or acquisition – PWC’s “New World, New Skill” program offers skill-building opportunities in the field of leadership, data analytics, robotics process automation, artificial intelligence etc to its 2.8 lakh employees worldwide through an investment of $3 billion over a period of 4 years. The company believes that it is critical to ensure that people have the skills they need to succeed in the digital world. Data is the new oil and companies need people with skills to refine and extract value from this important resource.
- Leverage AI to sustain – LinkedIn uses Artificial Intelligence (AI) and Machine Learning (ML) in ways like giving users the right job recommendations, encouraging them to connect with someone, or providing them with helpful content insights in their platform feeds. For their enterprise customers services include helping a salesperson predict the responsiveness of their leads, serving relevant advertising to companies, or helping a recruiter find new talent pools. In the background, AI is also used in making sure that users are protected from harmful content, and the notifications sent to users are informative. The match-making enabled by AI helped the company saw 30% increase in job applications through “Jobs” you may be interested in, 40% increase in general job applications, 45% increase in “InMail” response rates and 20% better article recommendations, year-on-year.
- Re-evaluate performance – Companies are providing real-time performance feedback to their employees with the help of tools, training and evaluation criteria that hold stable or equivalent definitions of abstract qualities such as strategic thinking, leadership potential, business acumen etc. These tools are rerouted on multiple criteria to eliminate unconscious biases that may influence performance evaluations. Displaying and managing objectivity is the main aim.
As businesses innovate their business models, strategies and management practices, they improve their chances to manage the turbulence caused by digital disruption in their operating revenues. The business ecosystem is getting democratized with the digital play, opening the playground to multiple players across industries. Decision making that impacts the core of the company will be the key to address such dynamics and will help re-establish businesses.