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“The business world is rapidly digitizing, breaking down industry barriers and creating new opportunities while destroying long-successful business models,” write Peter Weill and Stephanie L. Woerner, both of MIT Sloan School of Management’s Center for Information Systems Research.
Weill and Woerner call this process “digital disruption” and make the case that it is one of the critical forces in today’s business world. “Although sweeping technology-enabled change often takes longer than we expect, history shows that the impact of such change can be greater than we ever imagined,” they write. “Think steam engines, cars, airplanes, TVs, telephones and, most recently, mobile phones and e-books.”
To help senior managers evaluate the digital threat facing their own companies, Weill and Woerner developed a quick self-assessment. The online tool is a short questionnaire about how digitization is impacting a business. The higher the score, the greater the threat the company faces — and the more urgent it is that the company experiment with new business models.
“We had an important insight in the course of our research,” Weill and Woerner write. “In this period of digital disruption, businesses focused narrowly on value chains were at a disadvantage; they needed to think more broadly about their business ecosystems. Indeed, we found that companies that had 50% or more of their revenues from digital ecosystems and understood their end customers better than their average competitor had 32% higher revenue growth and 27% higher profit margins than their industry averages.”
Weill and Woerner’s article, “Thriving in an Increasingly Digital Ecosystem,” is in the Summer 2015 issue of MIT Sloan Management Review. Weill is chairman and senior research scientist at CISR, and Woerner is a research scientist there.
Their article presents a framework for helping managers reevaluate their competitive environments in the digital era. “The combination of moving from value chains to ecosystems and increasing consumer knowledge provides business leaders with four distinct business models, each with associated capabilities and relationships,” they write.
Weill and Woerner recommend that companies determine the extent to which they want to control the value chain or be part of a more complex ecosystem, and how much they want to invest in knowing their end customers. Then they can choose to operate in one of four roles: as either suppliers, omnichannel businesses, ecosystem drivers, or modular producers.