What business are we in? The technology business.
“The real issue is that every business is now a tech business – whether it wants to be or not – and that means not just new skills and experiences, but a new outlook on opportunity and strategy.” This quote is from a recent Forbes analysis of the different business models companies can deploy and how each one is performing in the new digital world.
- Asset Builders who produce and sell physical things are usually priced at .5 – 2x revenues
- Service Providers who offer professional services are usually priced at 1 – 3x revenues
- Technology Creators who develop new technologies are usually priced at 3 – 7x revenues
- Network Orchestrators who manage social, business and transactional networks are usually priced at 4 – 11x revenues
What is driving these different performance levels is the emergence of new, more profitable business models that deploy new digital technologies like social, mobile, cloud, analytics and platforms.
A recent Harvard Business School study documented that “leading digital companies generate better gross margins, better earnings, and better net income than organizations that have not adopted a digital-first business growth strategy. Early digital adopters delivered a three-year average gross margin of 55 percent compared to 37 percent for digital laggards.
Most companies are behind the digital technology adoption curve
This year’s Harvey Nash/KPMG Survey of 4500 technology leaders found that only 18 percent said their company was effectively using digital technologies to advance their business strategy.
The 2017 New Rules for the Digital Age report from Deloitte found that only 5 percent of the companies surveyed said they have strong digital leadership development programs and 65 percent said that had no significant programs to drive digital leadership skills.
Digital Technology – The New Work of Business
As the McKinsey chart bellows highlights, there is no escaping the evidence that digital technology is converting the way businesses operate and compete albeit at varying rates of impact. As such, it is no longer a choice of whether companies are going to adopt and deploy digital technologies but rather a choice of when.
Leveraging Digital Technology for Competitive Advantage
Uber reinvented the business model for the transportation industry by leveraging digital technology advances in smartphones, GPS sensors, and networks while Airbnb did the same to the hospitality industry business model.
In 2016, restaurants crossed a “digital milestone” when digital orders using smartphones or tablets (6.6%) exceeded telephone orders (5%).
Starbucks, an early adopter of “digital ordering” in the food & beverage business, says that 25 percent of their orders are now placed and paid for digitally. The digital ordering app has also helped them amass a loyalty program of 13 million active users in the U.S.
Domino’s Pizza has reported 24 consecutive quarters of increased sales in their U.S. stores and state that “technology has clearly been a big part of what’s been driving our business over the last five years.”
Charles Schwab, Goldman Sachs, and Morgan Stanley are deploying digital technology to deliver automated wealth management services to investors with as little as $5,000.00 to invest.
These new “robo-advisory” services make it economically feasible to serve markets that were previously cost prohibitive by the traditional wealth advisory business model.
Apple’s Research Kit is using digital algorithms to gather so much clinical trial data that it could eventually disrupt the pharmaceutical industry by correlating the effectiveness of the medications we take.
Disney Resorts has developed a suite of digital tools to help customers visiting their theme parks have a better experience.
These new tools include the FastPass+ service which allows visitors to reserve access to specific attractions, and the MagicBand, a digital technology enabled wristband that facilitates reservations and customer routing at Disney World.
Lowe’s recently launched a new Innovation Lab with a mandate to work with outside organizations like Google and Microsoft to “develop technology that will improve store operations and customer experience.” Early experiments include:
- LoweBots: self-guided robots that lead customers to specific products they are looking for, pull up information about different product options and check inventory for in-store product availability.
- Holoroom How To: a virtual reality tool that teaches customers how to do basic home renovations.
Silicon Valley Startup Blue River Technology manufactures robotic farming machines to help farmers manage their fields more efficiently.
The traditional approach was to spray an entire field with weed-killing chemicals. Blue River robotic sprayers combine computer vision and machine learning algorithms to spray only those parts of the field that need it thereby reducing herbicide use by a factor of 10.
What does a digital technology business model look like for your company?
Short of facing an existential threat from a disruptive competitor, most companies are reluctant to engage in substantive discussions about modifying or changing their business model. Let’s be clear, not every business is standing in the middle of a burning platform but as the examples above suggest they should all see smoke on the horizon.
Here are some questions that will hopefully help you get the discussions started:
- How long can our current business model deliver our desired business growth goals and financial results?
- Revenues, Margins, Net Profits
- What are the biggest threats to our current business model?
- How quickly do we need to respond to these threats?
- What are the most attractive opportunities for us to leverage digital technology for increased competitive advantage?
- What do we have in our digital technology development pipeline today?
- How can we most efficiently and effectively test and validate new digital technology tools?
- How open is our culture to changing the way we do business?
As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at email@example.com.