View each upstart competitor as a company you can learn from
Digital disruption hasn't reached its zenith, leaving many CEOs still desperate to learn how to get ahead of it. Fear not: PwC principal Tom Puthiyamadam is on a mission to save corporate C-suites from themselves.
Some CEOs are embarking on vision quests to help navigate digital disruption, which is marked by a shift in profitability from one prevailing business model to another. Puthiyamadam, who leads the PwC's digital services practice and oversees its experience center, recalls one recent conversation with a CEO client who attended a "digital bootcamp" in Europe.
The CEO was told he must join Twitter and that his business would be disrupted in two years. Puthiyamadam quickly assured the CEO that the threats weren’t so imminent. Indeed, he regularly cautions clients against acting rashly because the wrong bets, from service ideation to technology choices, can set a business back years. "Don't believe you need to act frantically and in panic mode because your business is going to get completely overwhelmed," Puthiyamadam tells CIO.com.
It's sage advice, perhaps easier to hear than to follow at a time when businesses are being rapidly disrupted. Two-thirds of business leaders believe their companies must pick up the pace of digitalisation to remain competitive, according to Gartner. To help, Puthiyamadam and colleagues Mathias Herzog and Nils Naujok created a list of 10 ways to win at digital disruption.
1. Embrace the new logic
Don't write off that digitally-enabled upstart just because it operates in a narrow niche. Zume, for example, uses robots to help humans make, bake and deliver pizza. Zume is hardly challenging Dominos, Pizza Hut and Papa John's, but the company stands as a sterling example of how robots and automation can augment rather than replace working humans. The lesson: Don't write off the challengers.
"View each upstart competitor as a company you can learn from,” Puthiyamadam says. Ask: How can you redesign your capabilities to deliver better value than upstarts or incumbent competitors?
2. Start now, but move deliberately
Companies must balance moving reactively and strategically when disruption arises. Enterprises must prototype new products and services, test them with customers, fail fast and learn. Bring high-potential products to market at scale.
"Use this time to develop your own sustainable, digitally enabled value proposition, to build out your own distinctive capabilities, and to sell off or shut down the assets you will no longer need when the disruption fully takes hold," Puthiyamadam says.
3. Earn your right to win
Define what your enterprise does well and why it matters. PetSmart gained customer service capabilities to complement its retail network and other services by acquiring Chewy.com in April. Combined, PetSmart and Chewy.com have a much clearer identity and way to compete, Puthiyamadam says.
Gain your right to win at disruption by building, acquiring and maintaining combinations of people, knowledge, IT, tools, structures, and processes that suit the corporate culture.
4. Craft your customers’ future
Meeting customer needs in fundamental way will inspire continual contact with your company and its offerings. Watch your customers closely to identify pain points and figure out how to eliminate friction.
For example, IKEA sends executives to customers' homes to see how they live and use furniture. Companies can also learn a lesson from Adobe Systems, which routinely consults with graphics professionals in designing new packages for them. "The most effective consumer-oriented companies rely on privileged access to their customers," Puthiyamadam says.
5. Let pricing drive demand
Customers respond more powerfully to cost reduction than to increases in value. For example, it wasn't until Tesla launched the $35,000 Model 3 in 2017 that it began to compete with a wide range of automakers.
Consider slashing prices to drive demand, which can endear you to customers looking for a deal. Set your prices low, attract customers, scale up your new business model, and force changes that make it more difficult for rivals to compete.
6. Profit from idle assets
Gig economy businesses sell access to idle assets. For instance, Caterpillar acquired Yard Club to rent heavy machines through an online marketplace. Disrupt your industry by creating value from underused assets.
"While you are developing your own approach, consider divesting the assets that hold you back or require ongoing costs," Puthiyamadam says. "Every asset you own should contribute to, or benefit from, your differentiating capabilities."
7. Control your place in the platform
Count on platform partners, such as cloud computing vendors, for speed to market, velocity and scale. "Just as it’s vital to know what your company is best at, it’s critical to know where you can rely on others’ technology and solutions," Puthiyamadam says.
But choose wisely. Once you sign on with a platform partner, the switching costs associated with moving your data can be significant. Be sure to retain control over your customer data, intellectual property and capabilities.
8. Don’t isolate skunkworks
Executives who fear disruption sometimes launch digital side projects, such as skunkworks and digital labs. But separation creates discontinuity between side projects and the core enterprise.
"Because they are not integrated with the rest of the company, they don’t have the capabilities or support they need to be sustainable," he says. "Nor does the core business learn from them or benefit from their capabilities."
Digital efforts must instead be embedded throughout your organisation and refined based on user feedback.
9. Challenge the rules
Leverage can come from finding gaps in the rules. Ride sharing is a great example. In many cities, the regulation of taxi medallions led to artificial scarcities and monopolies, which ride-sharing giants such as Uber and Lyft have leveraged to great success.
10. Define a new way of working
Companies conducting digital transformations rethink how marketing, IT, and finance work together. Follow suit, starting with recruiting. Puthiyamadam says companies should build teams of people who can combine skills in business strategy, consumer experience and hardware and software development. Your team should include user experience designers, anthropologists, data analysts, and psychologists.
Above all, find or hire people with “helicopter qualities,” or the ability to think in and move between both fine detail and broad strokes. Such people can make “technological and design decisions on the fly that are in harmony with larger business strategy,” Puthiyamadam says. Such teams can help you imagine and cultivate the products and services you might not have dreamt of otherwise.
The bottom line: Unfortunately, Puthiyamadam says the No. 1 impediment to winning at digital disruption is a dearth of talent, with demand outstripping supply over the next two to three years. He recommends hiring talent capable of fresh thinking, especially digital natives.
“Your opportunities to rethink your business have never been so great,” he says. “The challenge facing you, no matter how mature your enterprise, is the same challenge facing any upstart: To create a new business model, value proposition, and system of customer-facing capabilities, positioning your enterprise for long-term success.”
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