NACDonline.org / The Digital Industrial Revolution

JULY 1, 2016
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LEADERSHIP

We are in the throes of a digital industrial revolution, and every company must contend with the rapid pace of change. In this environment of innovation and upheaval, companies cannot just defend their products against this newest wave of competitors. Instead, they must learn how disrupt themselves.

But in this day and age, even the concept of a product is in flux. The customer experience has become more important than products in a traditional sense of the term. But who is the customer, and how are they engaging with the 21st-century marketplace—and why are certain companies already ahead of the curve in answering these questions?

Take Out the Friction

The new business models exemplified by Apple Pay and Uber have proven that when you remove transaction friction—i.e., simplify the process of trading goods and services—you delight users and can rapidly convert huge chunks of the market at unimaginable speed.

Look at how quickly consumers embraced Uber—now a $10 billion company—because it removed the steps of payment and tipping from the taxi experience. Apple Pay similarly pared down the purchasing process: you pull out your phone and place your finger on the pay button. That’s it—no fumbling with a wallet, personal identification numbers, or signing receipts.

Some large, well-established companies like Disney understand this need to remove friction. In 2013, the company rolled out MagicBand, a digitally enhanced bracelet that allows the wearer to enter Disney theme parks, unlock their Disney resort hotel room, buy food and merchandise, and access passes to theme park experiences.

Enterprises need to examine how customers conduct transactions, map the entire customer journey, and uncover the places where friction can—and should—be taken out of the system.

For these companies, reducing friction can be extraordinarily difficult. These enterprises likely have legacy information technology systems that were designed without today’s digital marketplace in mind. These systems must be re-orchestrated to integrate with mobile devices, cloud computing, and front-end, customer-friendly software experiences.

The other hard part of reducing friction is overhauling an organization’s well-ingrained work flows. Cross-functional teams of senior executives must be empowered if these changes are to happen. Your chief information officer now needs to be your chief innovation officer.

Finding Clarity

The line between marketing and engineering is becoming less defined—and that’s a good thing. Merging these disciplines will destroy silos and make product teams more nimble and consumer-insight driven.

Digital marketing using big data analytics will require investment in experiment-driven marketing and research, either through building internal capabilities or partnering with specialists. This kind of work will demand executive-level acceptance of (small) failures as part of uncovering scalable opportunities. A culture of experimentation will yield fast wins or fast fails through quick proof of concepts.

Blurring borders. The ease of e-commerce continues to accelerate by reducing friction. This also results in greater integration of web, app, and e-commerceplatforms. Marketplaces integrate application interfaces from other companies so consumers will visit one marketplace to book all the services they need. For example, using the United Airlines app, you can book a flight and an Uber ride to get you to and from the airport. Social media platforms are already tying e-commerce features into their networks, from Instagram’s “Shop Now” to Pinterest’s “Buyable Pins.” This practice will be increasingly used in the coming years. Ask yourself how to apply this practice to your business-tobusiness or business-to-consumer strategies. Traditional marketing has held that people don’t shop on social media, but as mobile technologies, social media, and e-commerce become more integrated, the possibilities open up to hit the right combination of buying and browsing buttons to capture this “quick digital” revenue.

The sharing economy. Globally, the sharing economy’s size was roughly $15 billion in 2014, and it’s projected to reach $335 billion by 2025. Far from a fad, this is the new way of doing business.

In addition to examples like Uber and Airbnb, look at TaskRabbit, an online, mobile-optimized marketplace that matches local freelance labor with demand, allowing consumers to find immediate help with everyday tasks such as cleaning, moving, and delivery. This company has created affordable solutions for cash-conscious consumers and offered unique income streams for people needing extra money or flexible work schedules.

The sharing economy’s story doesn’t end with taxis, vacation rentals, and freelancers. As consumers share and recycle their belongings, overall product demand might decrease. Companies will compete with millions of consumers willing to rent the same product for a fraction of the cost.

The gig economy. Just as a musician plays temporary engagements, companies going forward won’t hire head count directly; they’ll outsource it through, for example, companies like GlobalLogic, a digital product development services provider. According to a 2015 Pew Research Center study, the Millennial generation has the greatest representation in the American workforce: 53.5 million people, or approximately one in three workers. And according to PwC global survey of some 4,300 college graduates, this generation greatly values training and development programs, competitive pay, and flexible hours. As a result, employment will fluctuate radically as a larger portion of the employee base seeks jobs that offer more flexible arrangements.

Profit for purpose. Millennials now drive a significant amount of our economy. They’re active, informed, and building discretionary income.

In 2015, consumers demanded more authenticity and transparency from the brands they use. Without a clear purpose and high ethical standards, companies will find themselves floundering.

How incumbents experience change. Long-lived “incumbent” companies generally experience disruptions to their business model very slowly at first; then, when it’s too late, they can’t recover. For example, it took Blockbuster six years to realize that Netflix was a threat, but by that point it was too late to correct course.

Traditional market intermediaries are also losing their relevance. Look at the travel agent industry, where revenue collapsed from $160 billion to less than $40 billion between 2000 and 2014, but during the same period online hotel revenue soared from $10 billion to $130 billion.

What Does This Teach Us?

These new innovators get traction because they create a frictionless, efficient experience that improves our lives. They have also proven themselves adaptable to changing demographics and market trends. Incumbents currently hold the power because they own customer relationships, brands, intellectual property, and strong financials. There are large companies that have innovated and adopted new models that embrace collaborative efforts with other companies. We must all learn from those that haven’t—like Polaroid, Borders, Blockbuster, and Circuit City.

What were some of the causes and indicators of the companies that failed that you can look for in your company? Here’s how to win:

Create a culture of external orientation. Focus on your customers’ needs and desires first, then build a set of tactics and strategy around that customer profile.

Take the best ideas, test them, learn from the results, and repeat that process. Tolerate failure. Use data-driven decision making. Invest in connectivity, create relevant resonating content, and be bold. Let go of your past.

Succeed in the future. Companies must have a program to iterate until they find new ways to innovate. Ultimately, if you don’t disrupt your business, a competitor will.

Your company will become irrelevant if you are not actively observing and listening to your customers—“business as usual” no longer exists. If you try to follow a trend in half-step or react to behavior, you are not sufficiently thinking in terms that will ensure the long-term success of your company. To remain relevant, plan to compete for the future by being proactive and adaptive and creating meaningful consumer experiences.