Digital business transformation is akin to permanent disruption, a self-imposed regimen that recognizes transformation not as a one-and-done endeavor but as an ongoing commitment to adapt in line with changing customer needs and shifting industry landscapes.
One of the most powerful shifts in business over the past decade is value creation. While successful established businesses have always been value-centric, for most of their existence businesses have created value with some combination of their core products and services, brand, economies of scale, and efficiencies. These were the sources of competitive advantage identified by Warren Buffett as the basis for companies’ “economic moat.” The challenge now is that these traditional sources of value that determined the width of that moat are no longer sufficient to sustain the advantage.
As a parent, one of the lessons I reiterate with my son is that what you know is not as important as your desire and ability to learn. For a 10-year-old boy, the advice is pretty straight-forward and a restless curiosity makes it easy to follow. For established businesses, however, which may have had decades of success built on well-established processes and ways of working, breaking from the rigidity of “what you know” is far more challenging.
Perhaps the most foundational component of building a digital moat is creating the ability for your organization to learn, unlearn, and relearn. For established businesses, this requires a shift from a product mindset to a software mindset. Traditionally, product companies think linearly with a clear beginning and end to product development. Software development and management, on the other hand, is continuous and ever evolving, adding new functionality and changes as a reaction to customer, business, and market demands. This allows a more rapid response to the rate and scale of change in consumer expectations.
Digital Assets And Liabilities
Once you have a vision of what your differentiated future business model can look like, one of the biggest questions to answer is: what capabilities should we invest in? What are the capabilities that are the essence of what it means to be digital? These are not just the technologies you think will underpin the future; they are robust, evolving capability categories that will define you as a company in the future. They are your assets and your identity as a digital organization, your SPEED capabilities: Strategy, Product, Experience, Engineering, and Data.
Long gone are the days when a company’s primary orientation to technology and digital can be thought of from a cost perspective. As assets, they are part and parcel of how you create value for your customers and in the market. A few years back, at a series of “Idea Exchange” events that Publicis Sapient was hosting for clients and partners, I spent time with “molecular gastronomy” chef Heston Blumenthal and film director James Cameron. What struck me was that each of them, perhaps more than others in their respective fields at the time, were pushing at the envelope of what technology allowed them to create and how it changed the rules of not only what was possible but what was expected of their peers and by their “customers.”
Heston Blumenthal was not classically trained and sometimes found himself belittled by critics for not being a “proper chef” and for being over-reliant on technology. “But fire is technology, an oven is technology,” he said. “People thought it was strange that I was using a centrifuge in my kitchen. They all use a blender today, but once upon a time that would have seemed like cutting edge technology.” Today, Blumenthal has expanded his relationship with technology from how it can be applied to the making of food to the role that innovations like virtual reality and robotics can play in the experience of food.
James Cameron explained how in order to make the movies The Abyss and later Avatar – for which he had already had the creative vision – he had to wait for the necessary technology to be invented, and, in specific circumstances, to invent it himself. In the case of Avatar, this included not just advancements in filmmaking and graphics that you may naturally associate with the movie. Cameron partnered with Microsoft to create Gaia, a cloud-based platform that processed and gave the movie’s distributed team access to the massive amounts of data being generated for the film. Gaia became so critical to the movie, producer Jon Landau said, “Without Gaia, we would not have been able to do the production. Gaia was the backbone that everything else ran on top of.”
If there’s a lesson here, it’s to have a vision of the value you want to create in the world and then use not just technology, but the breadth of your digital capabilities to realize that value. In this way, digital becomes more than an enabler, it becomes an asset. And, like the creation of Avatar, that asset may go beyond your walls to the ecosystem of partners that will expand what’s possible for your business.
Digital Business Transformation: Why It’s More Than Just Technology
What’s particularly challenging for established businesses is that acquiring technological capabilities alone will not be sufficient to create the kind of moats you see surrounding the most successful digital companies. The competitive advantage of digital companies comes from their integrated set of capabilities, what they are able to create with those capabilities, and the cultural principles that underpin the systems that create their outputs. Digitally native companies consistently challenge established brands in platform business models, network effects, convenience, agility, and customer experience. These are the outcomes of their “digital moat” – the competitive advantage created through their digital capability.
Contributed to Branding Strategy Insider by: Nigel Vaz, excerpted from his book Digital Business Transformation with permission from Wiley. Copyright © 2021 by Nigel Vaz.
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