Editorial
In 1980, Michael Porter’s now-classic book, “Competitive Strategy” connected economics and business strategy. The book put forth what would become classic strategy techniques, a framework for competitive analysis, and the competitive barriers to entry by product life cycle stage. It has been clear to business strategists for some time that digital and data business capabilities act like a hot knife against butter when it comes to the classical barriers to entry illuminated by Porter. So, what is a strategist to do to build competitive advantage?
Defining the New Strategic Order
Rita Gunther McGrath, professor of strategy at Columbia University, in an interview with MIT Sloan Management Review discussed exactly how digital is changing business strategic thinking. McGrath provides CIOs and business leaders with a shared language and perspective regarding how digital is changing the fundamentals of business. McGrath said, “a lot of businesses thinking about digital came from the beginnings of the internet.”
To be fair, digitization was taking place before this time through application software, but at that time digital was mainly seen as a vehicle for taking analog processes and making them more efficient. An example that I use in my teaching is Concur, which took the paper expense process and digitized it.
From Marketing to Digitally Infused or Digitally Informed
According to McGrath, business leaders initially thought about digitization through a marketing lens. In McGraths words, “the leaders at the time thought the technology was cute and worthy of the marketing department’s attention.” As such, executives missed the ability for digital to create new business models and new value propositions for customers. McGrath said, “we are now seeing products becoming digitally infused or digitally informed.”
Related Article: That 'Digital Strategy' You Keep Hearing About? It's Just Business Strategy
Legacy Enterprise Challenges
The problem for legacy businesses is that digital disruptors are using digital technologies (social, mobile, analytics, cloud and the internet of things) to gain an advantage and “are quickly coming up with equal or superior products in contrast to prior generations of new market entrants.” And once a legacy company sees the threat, their problem becomes what McGrath calls “digital clock speed.” It is kind of like the time difference Einstein describes in his theory of relativity — the clock of the disrupted runs slower than the disruptor.
Beyond this problem, McGrath said, “legacy companies have the problem of operating by what used to work. These legacy companies are finding a change in the rules.” McGrath suggested, “the rules are things that have to be honed and practiced to be effective.” Here legacy businesses are “effectively operating under a different regime than emerging competition.” They do not see the interconnections. At the same time, digital has become the “digitization of everything” and is ubiquitous.
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Figuring a Way Forward
To react, legacy companies need to plan to the limits of what they know, and figure out what they don’t know. Beyond their classical business investment, they need to consider what other options there are in order to make, what McGrath calls, near-field investments. It is important to recognize here, according to McGrath, that decision-makers need to understand the future is about choice.
And honestly, today it will be a long time before we return to certainty. This is a time for checkpoints and for testing assumptions and for learning. CIOs and business leaders need to make small investments that over time add up to new business capabilities. They need to create an effective incubation process and be able to accelerate ideas when they make sense. This is what Geoffrey Moore calls the “Transformation Zone.” Geoffrey said, “the transformation zone is the mechanism by which an enterprise can free its future from the pull of the past” (Zone to Win, Geoffrey Moore, 2015, page 104). In terms of thinking differently, McGrath said to “think about remote. It would have been something that we were going to get to, but not now, even three months ago. Today, we need to rethink our assumptions about everything including the social contract.”
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It All Starts With Experimentation
In one of her books, McGrath proclaimed an end to the competitive advantage. This is not too different to what Jeanne Ross, Cynthia Beath and Martin Mocker describe in their book, “Designed for Digital.” For legacy businesses, it involves unleashing their business processes and data from legacy strategy and systems. With this and an innovation strategy, legacy businesses have the potential to gain an advantage over the disruptors. But it all starts with experimentation and willingness to charter the teams that will see around corners.
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