Amazon is revolutionising publishing, bookselling and retail; Uber’s smartphone-integrated taxi service threatens established taxi firms in cities around the world; and Airbnb is blindsiding the hotel industry.
Companies like these “own” the customer experience. By harnessing big data and technology they create digital-business platforms that meet the customer’s every need. They are “digital ecosystem drivers”, and they’re catching the incumbents napping.
Writing for MIT Sloan Management Review, Peter Weill and Stephanie Woerner present their research into digital disruption. Based on evidence gathered from roundtable discussions with 30 large corporations, they explain the risks and show how to assess your readiness for the digital onslaught and turn it to your advantage.
Seventy per cent of firms in the survey say digital disruption poses a high risk to their organisation while a third of firms admit it threatens their core business.
The advantages of mastering the customer relationship are clear: companies that earn over half their revenues from digital ecosystems benefit from revenue growth and profits nearly a third higher than other firms.
But almost half the biggest firms surveyed admit their revenues continue to rely on a narrow value chain – the weakest performing business model according to the research. So why is that?
Smaller, younger companies are better at analysing and exploiting customer data. They have fewer legacy systems, they’re geographically less global, they’re less rigidly structured, they’re more willing to take risks and they tend to suffer less from internal wrangling.
Becoming an ecosystem driver means being the first choice destination for, at the very least, a subset of your customers. Like Amazon, you need a great brand that uses big data to create a world-beating customer experience. But there can only be a small number of first-choice companies, so here’s what you can do to try and become one of them:
1) Focus on life events. Find out about your customers’ life events. Who is getting married? Who is expecting a baby? Whose birthday is it?
The United States Automobile Association (USAA) puts its customers’ life events at the heart of its business. Whenever a member experiences a life event – like buying a house or getting married – it triggers an integrated package of products designed to match the customer’s needs at that time. “Customers buying cars are offered car loans, extended vehicle protection, car insurance, month-by-month maintenance guides and assistance selling their current car.”
2) Base your decisions on facts, not hunches. Names, addresses, IP addresses and purchase histories from both your company and others provide the big-data source, while social media interactions will tell you exactly what your customers think of your brand and its products and services. Analyse and debate the data and use what you learn to inform decision making.
Procter and Gamble (P&G) services a multitude of company supply chains worldwide, but digitisation has made it much easier for firms to source materials from elsewhere. That puts downward pressure on prices and raises the prospect of lower growth and loss of brand power. P&G’s response is to connect directly with its four billion customers.
Managers make decisions based on a continuous data feed from social media, databases and direct-to-consumer communications. They track the impact of those decisions over time, creating more data that managers use to inform future decisions.
3) Integrate products and services. Change your mindset – stop selling products and instead create integrated services that satisfy your customers’ needs.
The Commonwealth Bank of Australia (CBA) realised that its customers’ aim wasn’t to secure a mortgage, but to buy a house. The company developed a smartphone app that enables users to find out more about house prices in their favorite neighbourhoods. By pointing their phone at a house, users can see its price history and details for similar properties nearby.
In the first six months after CBA launched the app, 1.2 million searches generated new business that returned over 100% on the investment.
4) Cultivate partnerships. Become a “one-stop shop” for customers and clients by joining forces with firms supplying products and services that complement – or even compete with – your own.
Worth $47bn, managed-healthcare company Aetna has expanded to the point where it also interacts with clients on behalf of the companies it represents, and sells direct to customers.
The firm integrates its own products with those of its partners by making health content, data and services securely accessible. Smartphone app iTriage, for example, allows users access to data rented from Aetna to assess their symptoms, learn what medications might help and find a hospital in their area.
5) Be efficient and compliant. Recognise and act on the necessity of digitising your core business. Your systems must be secure and they must comply with multiple regulatory frameworks around the world.
PayPal is the world’s number-one online payment system. Cloud based and mobile enabled, it works on any hardware. In 2014, more than half the company’s $7.6bn revenues came from outside the US, showing just how well the company adapts to different technical and regulatory systems.
“As you ponder how a digital future will change your business, it’s worth remembering the words of computer visionary Alan Kay: the best way to predict the future is to invent it.”
Are you ready for digital?
Here are the seven questions the researchers put to company execs. Answer the questions in relation to your company’s core product or service. Score your responses on a scale from 0 (low) to 7 (high). Double the total to give a final score out of 98.
To what extent is your product or service …
1. electronically specifiable and searchable?
2. ordered digitally?
3. delivered digitally?
4. augmented (or potentially augmented) with valuable information?
5. threatened by enterprises in other industries that have relationships with your customers, offering competitive services to yours and disrupting your business?
6. at risk of being replaced with an alternative digital offering?
7. going to be delivered digitally in five years?
The authors report that 55% of the companies they surveyed scored 70 or higher – “a range in which an enterprise faces significant revenue impact from digital disruption”.