The digital world has been transforming the business landscape for the past twenty years. Companies must transform if they want to stay relevant. But how can you stay on top of the wave, ready for the changing winds, in a world full of agile startups?
1995: The first wave of digital transformation
The web 1.0: before broadband, before mobile, the first experiments into e-commerce started around this time. Many went up in flames when the dotcom bubble burst. Do you remember Boo.com? It was a high-fashion e-commerce website that managed to spend more than $70 million in ambitious expansion plans - before the company was even launched, before selling a single item. Once they finally went live, they realized the site was too heavy to load for 98% of their target customers. They famously went bust few years later. Enter entrepreneur and academic Steve Blank. His teachings on lean startup in the 1990s in Silicon Valley, provided the foundation for a new wave of companies. The lean startup approach centers on agility, on staying fresh in the age of continuous innovation. At the same time, to avoid making the same mistakes as the early dotcoms, it requires clear revenue goals from day one, continuous interactions with customers during product development, and scaling only once revenue is pouring in.
2005: The second wave of digital transformation
Digital transformation is now happening very quickly both ways: companies that started as physical are now becoming digital; at the same time, a growing number of companies that started out as digital are opening up physical shops.
From physical to digital and back
The two formats are very different, yet in many ways they could be seen as complementary. Physical companies focus on product and services, while digital ones mainly concentrate on bringing solutions through software. Physical companies’ value derives from their assets and brand equity. They function through decade-old models, and they have an establishment network covering procurement, distribution, manufacturing, sales and marketing. Digital companies, on the other hands, use data rather than people to drive the business. They are agile and can quickly adapt their value proposition based on customer insights. They run on a new business model.
Changing, but not disrupting
Take Uber, a company that has become synonymous to disruption. They are a taxi service with an utterly new model: Uber does not possess any vehicles; consumers and drivers connect directly, via the mobile app. A traditional taxi company trying to go digital will probably add tablets with card readers, so that passengers can see their fare and pay. This superficial change is typical of established companies trying to go digital. To be stay relevant during the changing times, established companies must take bolder steps. They must be willing to redesign their existing business using new technologies and new business models. They must focus on flexibility, following the new customer journey. They must test their vision continuously, and be ready to change based on customer insight. It’s tough, but that’s what is needed to stay on top of the wave.
The power of brand and the burdens of ecosystem
“Brand is among the most valuable financial assets of modern corporations,” said Doreen Wang, Global Director for BrandZ. “Brand contributes more to shareholder value creation than any other asset – tangible or intangible.” Today, brand equity is traditional companies’ biggest competitive advantage over startups. Consumers’ brand awareness, the qualities associated with your brand and the customer loyalty that it inspires took years to build, and they hold a value that a startup could not acquire quickly. Whereas brand delivers value, other traditional assets are not as obviously beneficial. A physical company’s ecosystem - its partners, suppliers, employees - is both an asset and a burden. On the one hand, it supports the company; on the other hand, each single link of the chain has its way of thinking, working, planning. Ecosystems are very hard to change.
So how can a traditional, physical company be innovative?Three types of solutions have been put forward; each has advantages and drawbacks.
- Acquire a startup! Add a startup to your business and you can get all the innovation you need from them! Right? Although it could sound promising, will the startup still be agile once you immerse it in your environment? Or will it perish like a fish in the desert?
- Accelerate startups! Established companies can become innovative by incubating startups and helping them create new products which they can then use. The drawback: it’s difficult to help people who work in a totally different and unknown environment.
- Act like a startup! The ideal situation: redesign your company reorganizing your current resources. It’s easy to say – but in the real world, it’s very hard to replicate the unstructured moves of a small startup while dealing with the complex system and large teams needed to operate on a global scale.
There is no final answer to this conundrum; just different experiences of companies that failed the innovation challenge, and of companies that found their own way in the new world.
How to be innovative
Take Coca-Cola. One of the most recognized brands in the world, with a heavy, established ecosystem. Coca-Cola has 24 million resellers, and almost 2 billion consumers globally. These are great assets no startup can easily recreate. Coca Cola’s size was both a benefit and a problem: they had scale, but they didn’t have agility. Trying new business models and products, repositioning your company, can prove complex and lengthy. In order to gain the agility and flexibility of a startup, Coca-Cola engaged in a co-creation model, where founders, venture capitalists, startups and traditional companies are on an equal playing ground. Coca-Cola used outside entrepreneurs to explore innovative ideas and solve problems derived from the company’s scale of operations. For instance, they worked with a startup to solve the problem of out-of-stocks in supermarkets. The startup came up with an Uber-like solution: they created an app that works as an on-demand staffing marketplace. When the soda shelf is empty, store managers can request a restocking through the app. The new model has paid off: Coca-Cola increased its reach by 25 times and made dramatic cost savings. The app also helped decrease unemployment – not a bad externality! Other established companies have taken different directions. MasterCard has created its very own startups, mini companies-in-the-company which look for quick and disruptive solutions to problems, while leveraging MasterCard’s established ecosystem. General Electrics is coaching its executives, re-programming them into being explorers of new ideas, teaching them to take risks and learn from failure; in other words, they are being taught to think like a startup. Employees are given funding to bring to life new, innovative ideas; in the first 15 months, General Electrics supported 500 projects led by employees and sparked by startup-like agile thinking.