Digital Disruption

Digital disruption comes from surprising places. Giants such as Deere & Company and Goldman Sachs are reinventing themselves in the digital realm and claiming new territory on the business frontier. In this Top Ten Technology Book of 2018, Harvard Business School professor Sunil Gupta advises that your firm’s best path is to reimagine its core competencies and to knit digital technology into each process.

To reinvent your business in the digital space, distill the ‘core essence’ of your organization. Sunil Gupta

In this overview of sweeping, transformative change, Gupta offers companies a comprehensive digital framework. He only hints at the nitty-gritty details, but his useful examples of firms that got digital transformation right will spark ideas for executives and strategists.

Your Core Essence

Consider your company’s scope and business model as you explore the opportunities of having a digital platform in an aligned ecosystem of products and services. Gupta describes how Deere & Company, for example, evolved into digital services while expanding its scope and remaining authentic to its brand and its history of providing heavy machines for agriculture and construction. Deere leverages its machinery, Gupta explains in concrete terms, by using installed sensors and software to automate usage and to collect and analyze data to help farmers manage their business.

Rather than treating digital strategy as a separate exercise, you must embed it into the operations and DNA of your organization, in a way that touches all aspects of your business.Sunil Gupta

Incumbent companies must recognize that as technologies change, customer desires change. Ecosystems of connected products and services win customer loyalty and discourage price or quality competitors.

For instance, Tencent developed the messaging app WeChat for the Chinese market in 2011. As the app’s popularity grew, Tencent added capabilities, such as paying bills, ordering food and making appointments. The WeChat payment service now threatens China’s market leader, Alibaba’s Alipay. 

Product As a Service

The New York Times once charged low prices for print subscriptions while profiting from advertising sales. As advertising fell, the NYT transformed into a digital platform with a content paywall, as Gupta reports from an informed perspective. Between 2000 and 2017, the newspaper switched its revenue stream from 70% advertising to 70% subscriptions. 

As we move toward a demand-based economy, access, not ownership of products, will drive the success of businesses.Sunil Gupta

Amazon and eBay, platforms for buying and selling goods, drive down prices and offer customers a large variety of goods. The virtuous cycle of network effects means that having more sellers attracts more buyers, which in turn attracts more sellers.

Complementary

Gupta chronicles how NASA ran an open, global contest to solve a problem with solar panels on the International Space Station. Of 2,185 potential solutions, about half proved better than NASA’s internal ideas. The contest cost significantly less than NASA would have budgeted for addressing such a problem.

Retailers now must manage their physical locations and their online presence as complementary. For example, L’Oréal owns Kiehl beauty products, so it trains salespeople at its physical locations so they know how to introduce customers to Kiehl products. Then it uses email campaigns to remind customers to buy refills.

Lifetime Values

Chart your customers’ decision journey from when they first agree to buy your product to when and how they use it. Your marketing must align with your brand’s values. As you promote your company, measure what you hope to accomplish, such as increased transactions. Online likes and views have no value.

While incumbents should always learn from others, they should stay true to their core DNA and leverage the assets they have.Sunil Gupta

Consider Unilever’s experience in the least-electrified regions of India, where even the poorest households had basic mobile phones. Unilever launched an entertainment and news channel. People call a toll-free number, and the channel calls back and gives them 15 minutes of free, branded content and news. Only six months after its debut, the channel had eight million subscribers. 

Vision and Execution

You need a vision and the ability to execute it, Gupta insists, advising companies to integrate technologies in ways that increase their productivity and efficiency. Goldman Sachs, for example, integrated seven independent units onto a common digital platform while allowing each one to retain its experts and expertise. Then, it shared this platform with its internal and external customers.

Digital technology is not necessarily a threat to incumbents. It often provides a new set of opportunities if the companies are willing to rethink their business models.Sunil Gupta

In a final phase, Goldman Sachs will move to a marketplace strategy by opening its platform to third parties. 

Experiment

CEO Garry Lyons had free rein to tinker with MasterCard Labs, which established incubators worldwide to fund start-ups using MasterCard’s infrastructure to solve problems, thus granting the credit card corporation early glimpses of possible future opportunities, partners or acquisitions.

Make sure exploratory units and experiments periodically realign with the larger organization.Sunil Gupta

MasterCard also experimented with digital development by building a “landing dock” so “speedboat” units could share innovations and integrate them with the “mothership.” Smaller ventures had to use the company’s infrastructure.

Knack

Data analytics and computing advances will transform every business. For instance, the talent recruiter Knack developed a game to find the right people for a variety of jobs. It shows various stimuli, learning modes and challenges, and then it evaluates candidates’ response times to predict their ability to learn, lead and be creative.

Pedantry, Passion, Enthusiasm

Gupta shifts from the long view to highly specific examples with ease. At times, he states rather obvious conclusions aloud, as when describing Uber’s life as a platform. But he uses these examples as springboards to showcase more sophisticated and forward-looking companies that have embraced necessary change without melting down.

Gupta’s expertise, insight and ability to depict complex situations with clarity comes to the fore, for example, when he describes Goldman Sachs’ bold makeover. His slightly pedantic, professorial style disappears, and his language reflects his passion and enthusiasm for the coming world of digital business. Entrepreneurs, CEOs, small business owners, business students and investors will benefit from his comprehensive overview and in-depth insights.

Sunil Gupta also co-wrote Managing Customers As Investments: The Strategic Value of Customers in the Long Run with Donald R. Lehmann.

Other insightful works on digital transformations include, Why Digital Transformations Fail: The Surprising Disciplines of How to Take Off and Stay Ahead by Tony Saldanha; Digital Business Transformation: How Established Companies Sustain Competitive Advantage from Now to Next by Nigel Vaz; Beyond Digital: How Great Leaders Transform Their Organizations and Shape the Future by Paul Leinwand and Mahadeva Matt Mani; and The Digital Leader: Finding a Faster, More Profitable Path to Exceptional Growth by Ram Charan and Raj. B. Vattikuti.