May 22, 2018
In the new digital world,
success requires a whole new game plan.
The unprecedented assault of multiple waves of digital technology disruption from cloud, social, mobile, anything as a service, data analytics, machine learning and smart devices have enabled companies of any size to penetrate some portion of well-established companies’ value chains. To successfully compete in this new competitive paradigm will require companies to come up with a whole new game plan on how to organize, operate and go-to-market as a digital enterprise.
As a recent article in the MIT Sloan Management Review stated, business in the century ahead will be driven by economies of unscale, in which the traditional competitive advantages of size are turned on their head. Economies of unscale are enabled by two complementary market forces: the emergence of platforms as business models and digital technologies that can be rented to scale as needed.
Time to break up not build up
Historically, most leaders of well-established companies believed that the key to creating sustainable competitive advantage and scaling their businesses was to build large barriers to entry into their markets and industries.
Today the challenge for well-established companies is to free their company’s future from the pull of their legacy cultures and behaviors so they can breakout of mature slow growing markets and get into higher growth, higher margin next generation markets. This means finding the leadership courage and resolve to privilege long term growth over short term earnings.
The new game plan privileges long term growth vs. short term performance
This is easier said than done as there are two extremely strong forces within well-established successful companies that tilt the decision-making scales toward the short term. The first is the company’s annual planning and budgeting process which favors resource allocation to legacy businesses over new businesses. The second is the company’s incentive compensation plan which holds senior leadership teams accountable for delivering short term performance but not for making long term investments that increase the company’s power to grow.
In order to overcome the pull of the forces toward short-term performance, a company’s senior leadership team must disengage its next generation business growth discussions from the annual planning process. These discussions should take place a quarter before the annual planning process starts and any decisions to allocate resources to next generation businesses should take that money off the table before next year’s budgeting process begins.
To build a compelling business case for developing a break out business growth game plan start by assessing the performance (revenues, margins and profits) of your different lines of business over the past 3-5 years. Mature market businesses typically grow between 3%-7% while next generation businesses grow between 15%-30% or higher. This will give you a framework and data to start the next generation business opportunity evaluation process. The key question to ask: “Is it possible for us to onboard a net new earnings engine into this company this year or not?”
There are no boundaries or borders in the new game plan
The scope and speed of digital technology disruptions is not only re-ordering the competitive landscape but its also forcing companies to discover new ways to engage with their customers, employees, supply chain partners and even their competitors.
For example, last September arch rivals Amazon and Microsoft announced that they will make it possible for their customers to access both their voice controlled digital assistants Alexa and Cortana.
Last October, Hollywood took a major step to eliminate historical borders and boundaries in the film industry when five studios, Sony, 20th Century Fox, Universal, Warner Brothers and Walt Disney Studios came together to create the Movies Anywhere Service. This initiative was designed to compete against digital distribution intermediaries who have responded to consumers insatiable appetite for experiencing personal entertainment anytime and anywhere.
A major transport company that plays an intermediary role in its customer’s value chain discovered it was collecting enormous amounts of data and information on global shipments. Sensing an opportunity, it created a new business unit that sells this data to companies who want to improve their business and economic forecasting analysis.
Who says you can’t teach an old dog new tricks?
Every entrepreneur believes their start up company can unseat a well-established company because the incumbent will be too slow to adopt the new digital technologies. Here some examples that suggest just the opposite:
Wolverine Worldwide, a 140-year-old shoe manufacturer and retailer used 2D and 3D modeling software and Citrix file-sharing software on Microsoft Azure to reduce their average new shoe design and production cycle from 425 days to 150 days.
Boeing developed a “digital flight deck” that combines the company’s marketing, sales, supply chain, operations and services into an integrated digital thread. The resulting shift to real-time analytics from this end-to-end thread helped Boeing identify new business opportunities and improve its operational efficiency saving them tens of millions of dollars.
Casual dining restaurant chain owner of Outback Steakhouse, Carrabba’s, Flemings and Bonefish Grill is building their own delivery network to compete with Uber Eats, DoorDash, GrubHub and other food delivery services. Their motivation is driven by the fact that delivery partners take 25% of the customer’s bill and don’t share any customer data directly with them so they don’t know if they had or good or bad dining experience. In addition, they are ramping up their own customer loyalty program, which now includes 4.6 million consumers which allows customers to order and pay for their meals on their mobile phones at the restaurant, as well as, tracking the status of their home delivery.
Monsanto developed and launched a data analytics platform called science@scale to run simulations against millions of data points on seed genetics, climate, water, soil and nutrients. The platform leverages Amazon Web Services and Google’s Tensor-Flow machine learning application to reduce the time to run simulations from months to minutes thereby increasing revenue by $17 million.
Union Pacific created and launched PS Technology, a separate commercial technology business, to sell the digital technology apps the company developed originally for its own use to its partners and competitors. As a result, UP is now one of the largest providers of locomotive simulation systems which has generated $50 million in new revenues. The company reinvests 8% of its revenue into filling PS Technology’s new digital product and services pipeline.
How open is your culture to changing the way your company does business?
The examples above are proof positive that companies can create and adapt new game plans for how they do business. It is by no means easy but armed with the leadership resolve and commitment you can enable your company to escape the pull of its past.
As always, I am interested in your feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com. And, if this content could be useful to someone you know please share it here:
