Strategy in the Digital Vortex

Transcription

1 Strategy in the Digital Vortex Presentation Created for: SALGSKONFERENCEN 2016 OVERLEVER DIN VIRKSOMHED DEN DIGITALE TRANSFORMATION 7 Strategies to Compete in a Disrupted Universe Andrew Tarling The Global Center for Digital Business Transformation 2015 IMD International Institute for Management Development. Not to be used or reproduced without permission.

2 Our objective is to become the preferred global source for unbiased research and thought leadership on digital business transformation

3 Digital Vortex

4 Understanding Industry Disruption We assessed industries vulnerability to digital disruption by: Conducting interviews with 941 business leaders across 12 industries and 13 countries. Performing an analysis of market data, looking at investment, timing, means, and impact Ranking the industries according to their proximity to center of the Digital Vortex

5 Industries in The Digital Vortex #7 Hospitality & Travel #8 CPG & Manufacturing #6 Education #5 Telecommunications #1 Technology Products & Services` #4 Financial Services #2 Media & Entertainment #3 Retail #9 Healthcare #12 Pharmaceuticals #11 Oil & Gas #10 Utilities Global Center for Digital Business Transformation. All rights reserved.

6 Number of top 10 dropping out. Executives estimate that an average of 3.7 of the top 10 companies in each industry by market share will be displaced by digital disruptors within the next five years.

7 7 Strategies

8 7 Generic response strategies to digital disruption 1. Block Strategy 2. Milk Strategy 3. Invest in Disruption Strategy 4. Disrupt the Current Business Strategy 5. Retreat into a Niche Strategy 6. Redefine the Core Strategy 7. Exit Strategy

9 1. Block Slow down the disrupter The Block strategy involves the incumbent utilizing all means available to inhibit the disruptor. For example claiming patent or copyright infringement, erecting regulatory hurdles, and using other legal barriers. Blocking works well as an opening strategy and provides a relatively inexpensive way to preserve markets. However it is only effective in the short to medium term. The Block strategy only buys time to develop and implement other strategies. Block Tips for incumbents: Take advantage of relationship with industry regulators and other stakeholders. Unload a legal firestorm if you act fast enough the disruptor is probably still small and (hopefully) poor..

10 173 law suits (and counting)

11 2. Milk - Maximizing Value from Disrupted Business A defensive strategy to maximize gains when a digital disruptor fundamentally threatens a business. The Milk strategy has three sub-components. 1. Maintain margins as high as possible for as long as possible. 2. Elevate the perception of value in the minds of customers. This can be achieved by adding features and investing in brand building. 3. Rationalize, or plan for the necessary cuts and layoffs, and execute them ruthlessly when the disruption arrives. The advantage of this strategy is that revenues and margins for the vulnerable business can be maintained much longer if managed carefully. Milk Strategy Tips for incumbents: Can you pivot from Milk (defense) to Disrupt (offensive strategy)? Strong brand promotion. Strong brands can protect both against superior products and good enough products at lower prices.

12 News media Cable companies

13 3. Invest in Disruption Join the Disruptors This strategy involves actively investing in the disruptive threat, including technologies, human resources & digitized processes, Alternative routes such as acquiring companies are also viable options. The strategy prepares for the disruption head on, but may lead to strong internal resistance from legacy business areas. It can also be expensive, and comes with an uncertain payback. Invest in disruption Tips for incumbents: Build sensing capability. Develop rigorous process to evaluate new acquisitions. Do not be afraid to ramp up quickly, or kill quickly. Are you agile enough to achieve this? Build, buy, or partner?

14 Robo-Advisors Disintermediates asset management segment, one of the most profitable for financial institutions Projected to reach $450 billion in AUM by 2020 Combinatorial disruption Cost value: lower fees, on par with those of index funds Experience value: automatic re-balancing for best value, and limited involvement required Disruptors include Betterment and WealthFront

15 Build Buy Partner $450 Billion Shift in Assets by 2020

16 4. Disrupt the Current Business Cannibalize! Launch new products or services that compete directly with the disruptor - allows the incumbent to leverage inherent strengths such as size, market knowledge, brand & access to capital. Downside is obvious the new lines can severely cannibalize existing businesses. However, if timed correctly, self-cannibalization is a much better outcome than business lost to a competitor. Timing is critical when disrupting a core business, and the likelihood of internal resistance is significant. Disrupt yourself Tips for incumbents: Use a different brand to make comparison less obvious for consumers. Take great care over timing. How can we create new forms of cost value, experience value, and platform value for customers?

17 Netflix Netflix began with DVD-by-mail subscriptions, then disrupted its own business model with streaming video In 2014 the DVD business accounted for 23% of U.S. profits, a decline of 11% To maximize DVD subscription revenues, Netfix optimized the business by streamlining and digitally automating the warehouse The result was 5x increase in disc processing compared to when they were processed by hand

18 I'd rather Apple cannibalize Apple than somebody else cannibalize Apple. Tim Cook iphone 5c v iphone 5s Kindle app v Kindle reader Celeron v Pentium

19 5. Retreat to a Strategic Niche A defensive strategy that involves focusing on a niche segment of the core market where disruption is less likely to occur. The Retreat strategy often results in a much smaller market size than the legacy core segment. However, these smaller niche markets can remain profitable, and existing capabilities can be used to serve them. Inevitably will result in massive restructuring due to the smaller market size, but in conjunction with other strategies, it can provide a profitable business. Retreat to a Niche Tips for incumbents: Identify clear niche positions where it is hard for the disruptor to compete. Build a strong brand associated with quality and luxury. Focus on quality.

20 Antonio Carriero, 2016

21 6. Redefine the Core This strategy involves building an entirely new business model, often in an adjacent industry where it is possible to leverage existing knowledge and capabilities. On the plus side, this strategy side steps the challenges and constraints of the disrupted legacy business But it is extremely difficult to redesign an organization to compete in an entirely new business area. Questions for Leaders Learn about new business, perhaps through partnership or acquisition. Show no mercy with those loyal to old core. What learnings can be gleaned to drive new businesses? Also, complexity in managing both legacy business and new disruptive sectors can be a major challenge.

22

23 7. Exit - Strategic Withdrawal Retreat should be used when the opportunity costs of maintaining a business exceed the benefits. The strategy involves exiting the business entirely and returning capital to investors, ideally through a sale of the business while value still exists. Many companies that fail to avoid disruption wait too long and end up capturing only a fraction of their legacy value. Exit Tips for incumbents: Look for a friendly acquirer while you still have some value left. Maintain strength in the brand it may be the most valuable remaining asset! The valid option for when the market opportunity has been exhausted..

24 Antonio Carriero, 2016

25 Handset business sold to Microsoft ($7 billion) Filed for bankruptcy protection 2010 Sold to Newscorp ($580m) Filed for bankruptcy protection 2015

26 So what s stopping us?

27 The difference between incumbents and start-ups

28 Success Requires a Foundation of Digital Business Agility

29 Hyperawareness Being highly alert to stimuli in the entirety of an organization s internal and external environment, particularly to changes that spotlight opportunities or threats. Active listening

30 Your Hyperawareness.. # Question Very Poor Poor Fair Good Excellent Our ability to recognize new technology trends as they emerge Our ability to recognize new competitive threats as they emerge Our ability to capture new ideas from our employees Our ability to capture new ideas from our customers The frequency that we get out of the office to see our products/services in action

31 Informed Decision Making Active decisions based on real data Collaboration across the enterprise Outside-in approach

32 Your Informed Decision making.. # Question Very Poor Poor Fair Good Excellent 1 Our use of technology platforms to share new ideas and trends (i.e., knowledge management) 2 3 Our ability to make decisions based on advanced analytics Our corporate inclusiveness and ability to gain diversity of insight 4 Our ability to make decisions quickly 5 Our governance process around information management 6 Our ability to do scenario planning and war gaming 7 Our willingness to share negative as well as positive news 8 The stability of our IT infrastructure 9 Our level of cross functional coordination

33 Fast Execution Putting decisions into practice rapidly, Mobilizing resources dynamically, Continuously monitoring options and progress against goals.

34 Your Fast Execution, according to you # Question Very Poor Poor Fair Good Excellent 1 Our ability to act quickly based on new information 2 Our ability to respond to new trends 3 Our ability to turn decisions into action 4 Our ability to move resources quickly to where they are needed 5 An organizational culture that encourages experimentation and tolerates failure

35 Review VALUE DRIVERS STRATEGIC RESPONSES DIGITAL BUSINESS AGILITY

36 The Digital Business Transformation Journey For more information and research papers: