BOOK - Developing a Strategy for the Digital World
NEW BOOK: A new book by Sunil Gupta, "Driving
Digital Strategy," explores how traditional businesses can make the leap
into the digital age.
Who Does Digital Best?
Interview by Sean Silverthorne
Digital transformation is certainly a threat to the old
guard—just ask cab drivers, newspaper reporters, and coal miners. In 20 years,
all commercial truck drivers could be facing the same fate as autonomous
vehicles take over the road.
Sunil Gupta’s message in a new book is more positive: Digital
“presents an endless number of opportunities for companies from traditional
industries,” he writes in Driving
Digital Strategy. But it starts
with reimaging what your business is, who your customers are, and how to engage
them using digital technology. Gupta is the Edward W. Carter Professor of
Business Administration at Harvard Business School.
Sean Silverthorne: Are there examples of companies that
have implemented a full, end-to-end digital strategy? It seems as if most
enterprises have “cherry-picked” technologies to solve individual problems or
improve efficiencies, rather than embracing an overall strategy that guides
everything.
Sunil Gupta: Companies, such as Amazon, which grew up with
a digital DNA, have obviously integrated digital in all aspects of their
business. Among the legacy companies I found Adobe, The New York Times (NYT),
Goldman Sachs, and Mastercard to be at the forefront of embracing an end-to-end
digital strategy.
When Adobe moved from selling its software in a box to a subscription
model, everything inside the company changed—its salesforce, its innovation
process, its marketing, its pricing, its accounting, and its short-term
profits. Shantanu Narayen, its CEO, described this shift as “burning the boats”
to highlight the company’s commitment to this new strategy. In 2011, NYT took
the bold move of creating a paywall when everyone was arguing that “information
wants to be free.” Instead of relying largely on advertising, this changed
NYT’s business model towards subscription and it had significant impact on
company’s hiring and production process as well as business strategy and
organization structure. Goldman Sachs also made headlines when it opened up its
proprietary platform to clients and launched a platform, called SIMON, where it
even invited its competitors. And Mastercard embraced digital by partnering
with Apple Pay, innovating in multiple payment methods, rethinking its
marketing approach and creating an organization that could strengthen the core
and build for the future at the same time.
Based on these and many other companies I studied as part of my
research, my book shows that digital strategy requires rethinking all aspects
of business–business strategy, operations, customer engagement, and
organization structure. For each of these four pillars, the book offers some
general principles and guidelines to help companies reimagine their business.
Silverthorne: Firms today use the “experience” word a lot,
as in creating a customer experience, an employee experience, a partner
experience. What does experience in this context mean, and why is it important?
Gupta: In today’s environment, experience is important for
three reasons. First, we live in a connected and transparent world where
consumers, employees, and partners can easily voice their opinion that can have
a significant impact on the image and performance of a business. Second, firms
are increasingly realizing that they need to build an ecosystem of partners and
collaborators, and for this ecosystem to function well they need to manage the
expectations and experience of multiple parties who often have different
objectives. For example, Amazon wants to ensure that both the sellers and
customers have good experience on its platform. Third, focusing on experience
rather than products ensures that you are solving a problem. For example, many
department stores are putting beacons or sensors in their stores to track
traffic. But it isn’t clear if this solves any consumer problem. Instead, if
they focused on consumer pain points, they would realize that often consumers
can’t find a product in the store (easy solution: install iPads in stores), or
wait in long lines to pay (easy solution: build self-payment kiosks).
I strongly believe that a digital transformation journey has to
begin by understanding consumer pain points and then using technology to find a
solution. This focus on addressing consumer pain points has led (Amazon CEO)
Jeff Bezos to obsess about reducing friction in commerce.
Silverthorne: Digital strategy turns traditional business
strategy on its head in that the company’s primary focus is on the customer,
not on products or competitors. What does putting the customer at the center of
everything you do accomplish for a company in terms of competitive advantage?
Gupta: Strategy experts and strategy books tell us that
competitive advantage comes from making your product better or cheaper. This is
a very product-focused view where a company is selling one product, say a car,
to one customer at a time. In a customer-focused view, there are two additional
forces—complements and network effects—which are very critical for competitive
advantage. Take Amazon for example. Amazon can offer loans to small businesses
at a much lower rate than banks because instead of making money on loans,
Amazon can benefit when these small merchants grow their business and do more
transactions on Amazon’s platform. If the core lending business of banks became
the complement for Amazon, banks would find it very hard to compete. The second
force, network effects, is even more critical in the digital era. As Amazon
attracts more buyers, more sellers join its platform, which brings in even more
buyers. This virtuous cycle makes it very hard for a new player to compete with
a player with strong network effects. Complements and network effects are not
limited to only technology firms. US Foods, a food distribution company that
offers meat and produce to independent restaurants could compete on the basis
of price, but instead it also offers complementary services to help restaurants
increase their traffic, reduce waste, and improve overall profitability.
Silverthorne: How important is developing an omnichannel
strategy? It feels like many companies adopt a separate strategy for each
channel, rather than working to unify experiences across all channels. Is that
a mistake?
Gupta: A typical consumer journey for buying a product
spans across several channels. A consumer may become aware of a product on
Instagram, do a search online, look at the reviews on social media, and ultimately
buy in the store. Therefore, it would be a mistake to run your brick and mortar
store independent of your e-commerce operation with separate P&L
statements. But that is exactly what many companies have done in the past and
[they are] now learning from their mistakes. Recognizing that consumers look
for reviews on their mobile phones in its stores, Sephora’s mobile app now
allows consumers to scan products in its store to view consumer reviews and
tutorials on YouTube videos.
Silverthorne: Looking ahead five years, what do you think
will be the primary trends we’ll see around digital?
Gupta: I think it is fairly certain that data will become
more important than ever before and companies that develop the skills to
leverage data would gain a competitive advantage. As firms collect more and
more data, machine learning and artificial intelligence would replace
repetitive tasks and firms would need to adjust their processes and talent
management. For example, one Oxford study suggested that there is a 94 percent
chance that the job of accountants and auditors will be automated in the near
future. Accounting firms would need to rethink their entire business model if
this indeed becomes true.
https://hbswk.hbs.edu/item/developing-a-strategy-for-the-digital-world?cid=spmailing-21599794-WK%20Newsletter%2008-22-2018%20(1)-August%2022,%202018
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