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In the digital economy that’s now upon us, many enterprises won’t succeed by merely tweaking the management practices that led to past success. This is especially the case with larger enterprises, which are particular targets of digital disruption because of their large customer base, juicy profits, and sometimes patchy customer experience.
Indeed, in a 2017 survey conducted by the MIT Center for Information Systems Research (CISR) with senior leadership from across the globe, 413 senior executives reported that over the next five years their companies may be at risk of losing an average of 28% of their revenues because of digital disruption. This means that many companies may need to figure out how to replace over a quarter of their revenues — and figure it out soon.
In order to succeed, companies need a new playbook for how to do business, new ways of engaging customers, and new forms of leadership.
The New Playbook: To Become a Destination
A new playbook requires companies to move beyond Michael Porter’s idea of controlled value chains, where companies focus on control and doing one thing really well. In a value chain, companies know a lot about their products, including where they are physically and when they are sold.
In the digital world, companies need to move to more complex, networked systems. They must create ecosystems or webs of relationships with partners that help them become a go-to for customers. The key is using digital to differentiate a company, offering customers something new and compelling — to create a destination they want to visit.
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We recently conducted workshops on digital disruption with CEOs and senior leaders from four companies: a bank, an insurance company, a law firm, and a real estate company. All four groups separately came up with the same model: to become a destination for customers to find and acquire a house. Instead of just providing a mortgage, or insurance, or legal contracts, or home search services, they all wanted to provide integrated bundles of services for the home buyer, creating an attractive, Amazon-like ecosystem for home buying. This vision has the potential to upend the real estate market — but it’s unlikely that all four companies will succeed.
Deciding on a new business model requires an honest assessment of current capabilities.