After traditional retailers enter the e-commerce field, they still can’t compete with the natural digital company Amazon. The sales of electric vehicles of famous automobile companies in history have been lagging behind Tesla. Even though the taxi association has invested a huge sum of money in technology, it can’t resist Uber’s offensive.
Why are only a handful of giants in the 20th century able to take the lead in the new data-driven era?
Scholars such as Clayton Christensen have given some answers. All companies’ internal systems (including indicators, resource allocation processes, incentives, recruitment and promotion measures and investment strategies) are set up to support existing business models. These systems are generally mature, extremely difficult to change, and often run counter to the needs of digital business models.
And the way of value creation in digital economy also brings another challenge. Among the most successful business models in the 21st century, many models are based on the ability to intervene in customers’ lives, using software that can generate information about customers’ habits and usage patterns. These digital relationships push customer intimacy to a new level, prompting companies to launch customized products and services and improve customer service methods.
However, most long-established companies are limited by the existing value chain, so it is difficult to seize new opportunities and expand customer relationships. They have established long-term and stable relationships with suppliers, competitors, partners and customers, and it is difficult to break these relationships. However, efforts in this area are of vital importance to the long-term survival of the company.
Uber’s success has nothing to do with big data. It uses innovative methods to obtain small data directly from customers. The company realized that it didn’t have to collect and analyze massive data about taxi usage; It only needs to capture the most useful user information at the right time — — When and where potential passengers need to use the car. The company also knows that it can judge the connection with the customer’s mobile phone. By connecting with customers’ mobile phones, Uber can simplify and facilitate the experience of taxi passengers.
At present, the most iconic enterprises in society generally have the same growth trajectory: the foundation of success is the ability to deeply intervene in customers’ lives higher than competitors (or 20 years earlier than other companies). Companies in the field of Internet of Things devices are the most obvious examples. Tesla installed sensors and software in the car to understand customers’ driving habits and provide them with automatic driving services. Nest’s "smart" thermostats, smoke detectors and cameras can monitor the situation in users’ homes and improve home energy efficiency and safety. GE monitors the equipment in the customer’s workplace in real time, and provides customers with corresponding service news and adjusts the maintenance schedule through the data collected by the built-in software.
But not only Internet of Things products can help companies expand customer relationships. Netflix’s Approach is to install an app to collect all the information — — From the geographical location of the customer to the time when the audience stops watching the movie, the company can deeply understand the user’s preferences. The streaming media giant uses the obtained data to recommend movies to users in time, and at the same time find (or even create) the content that users like.
The ability to keep close relationship with customers has created great opportunities for companies to capture market data, provide new products and services, and form an indestructible network effect and feedback mechanism. But changing customer relationship is not simple, and it is often necessary to change the business model up and down the value chain.
Most business strategists don’t understand that software alone can’t change the business model. Each of the above companies not only makes innovations in software utilization; They have also changed the product distribution and service mode, even including the way of purchasing raw materials.
Let’s look at the Nest example again.
Tony Fadell, the co-founder, once said that the initial differentiation of Nest was to take the first product — — The marketing target of learning thermostat is directly aimed at the owners who install their own products, bypassing the traditional distribution and installation channels — — Professional contractor.
What’s so important about this? Nest’s team knows that only a small number of thermostats in the current market are programmed to adjust the room temperature according to different times of the day, different days of the week and different seasons — — Such a program is too complicated. To fulfill one’s promise — — To introduce a thermostat that can be automatically adjusted, Nest must let the thermostat "know" the user’s preferred temperature and its schedule. In order to get the best effect of this software, the team must create a user profile, ensure that the thermostat is connected to the wireless network of the house, and confirm that the mobile App of Nest is installed in the user’s mobile phone.
Taking different ways to sell and install products has brought new marketing direction. Nest chooses to bypass the contractor’s link in the supply chain and develop products that are easy for users to use and gain value. The company’s decision to abandon the traditional distribution channels forced the team to formulate a strong retail strategy and establish a consumer-oriented brand. However, professional installers will be at a disadvantage and both ecosystems will be challenged.
Nest’s example shows that when a company uses digital technology to establish a new customer relationship, software development is only a part of the process, because the company will try to change customer behavior at multiple nodes in the customer journey, and sometimes because some data used in the value transfer process is aimed at replacing the original partners. In any case, the business model and channel strategy must change at the same time, which requires the company to make difficult decisions and break the long-standing cooperative relationship.
In some cases, the shift from entity to digital has a great impact on the partnership — — The impact on partners is greater than that in the Nest example.
To understand the specific reasons, we must digress from the topic first. Inspired by the works of commercial historians such as Alfred D. Chandler, clayton christensen found that the value chain will expand when there is a major innovation in the market, and there is often a need for restructuring — — This is not only because the business model is constantly changing, but also because innovative product design is still emerging.
At the beginning of the product life cycle, inventors will not deeply understand that the optimization of the components of innovative products should take into account the links between different elements. For example, the first automobile manufacturer must strictly control the research, design and production links. The change of any part often means that the whole car will undergo great changes. Therefore, the premise of product development is to establish an interdependent partnership network.
With the gradual formation of standard design framework, the company further understands how to make different elements cooperate with each other, such as improving the battery configuration of automobile transmission or strengthening the connection between battery and electronic system. Next, the company can modularize different elements and subsystems. Now traditional automobile manufacturers have the resources and ability to innovate at the subsystem level; Next-generation products can be easily connected to most car platforms. Generally, only in mature technologies and industries will there be such a wide space for the activities of multiple partners.
However, the more eye-catching innovation, the more it is necessary to improve interdependence. In the process of exploring the field of driverless electric vehicles, we found that the interdependence similar to the concept of "vertical integration" once again became the focus. Tesla Motors has the most interdependent architecture in the whole market, and manufacturers control every component in their hands, including hardware, software for managing complex electronic systems, and algorithms and sensors required for autonomous driving functions. Tesla has also shown strong control in other aspects: it has its own distribution channels, services and charging network.
The comprehensive control mode not only helps Tesla solve the problem of fast charging, but also solves all the challenges that the company encountered in the production process of long-distance driverless electric vehicles. (However, this model will also have disadvantages, such as complicated operation, which may slow down the expansion of the company. )
Suppose we agree with the first two arguments in this article:
Thanks to the progress of computing and communication, the company can further expand customer relationships;
Only by creating a highly interdependent framework for innovation can companies make full use of digital technology.
Then the conclusion is clear: companies from all walks of life must reform the original value chain. This reform may have a negative impact on long-term partners.
As mentioned above, Netflix monitors everything customers do, and then uses the collected data to support their own decisions, from content recommendation to content collection. But in order to complete this process effectively, Netflix needs new ecosystem partners, and the goals of these partners are not in conflict. New partners include: trying to use the long tail effect to sell content to content owners of many minority media, such as BBC；; Distributors, such as Amazon Web Services, and platform partners that can host application software, such as Apple and Google.
Sometimes existing partners are eager to transform themselves, and sometimes they will try to adjust themselves to meet the new needs of the company by improving their financial situation. But they often face an unshakable business model. Looking forward to the partners to keep up with the pace of reform will only endanger the company’s own long-term viability. Changing business models is not easy, but in the past year, we have observed the best practices adopted by some companies that have successfully changed their business models.
1. Determine what you must do.
We have heard executives emphasize many times that in order to deliver value to customers for a long time, we must know what we need to do.
Rational people will explore the development trend of the world in the short term (even in the medium term). Most wise executives may agree on the general trend that will have an impact on their industry for a long time to come. By analyzing these trends, we can predict the future consumption patterns of customers. It is not easy to determine the company’s next move, but if we can reach a consensus on the future long-term development trend of the industry and the possible roles of the company and its partners under this trend, it is possible to start reform and make full use of digital technology.
General Electric is one of the outstanding examples of digital transformation. Ge executives met in 2008 to discuss the company’s future long-term development prospects, and agreed that the machinery industry will soon be impacted by the Internet. They also agree that once industrial equipment is connected, software is likely to become the most differentiated part of mechanical products, and the same situation happens in the personal computer industry.
Although the specific time node of the reform has yet to be confirmed, it is a guiding light for General Electric to notice the inevitable reform trend of industrial companies. After determining the direction, the company can clarify its expectations for employees and partners, and even try to guide customers. For example, General Electric pointed out that it is necessary to establish a unified data platform that can integrate the company’s industrial equipment. With this platform, the company can provide software directly to customers in the future, instead of relying on system integrators to provide software one by one. The explanation of the prospect also helps the company executives to constantly ask themselves: Is the current decision based on the long-term interests of the organization?
Business leaders all over the world are coping with the pressure brought by digital reform, so it is extremely important to determine the future direction. If you know what direction you must go in the future, you can easily decide when to subvert your partner’s existing business model.
2. Develop more accurate indicators
Many world-class enterprises have used the same standards to measure success for decades. Whether evaluating internal employees or external partners, these indicators pay too much attention to profitability or total annual income. This indicator that focuses on output quantity is very suitable for mature enterprises, but it is out of date in the context of digital innovation. The key step to realize digital transformation is to change the performance evaluation index. The new indicators should emphasize the company’s current shortcomings and support taking risks and conducting experiments.
Take Ford as an example. Faced with the repeatedly mentioned problem: the risks faced by automakers in the field of driverless cars. Mark Fields, CEO of Ford, admitted that this topic is also the focus of Ford’s consideration. Executives want to be prepared for new service and distribution models brought by driverless cars (these models may break the relationship network of existing partners). Ford no longer takes annual sales volume as the main evaluation basis for executives; The company now also takes the mileage of Ford cars into consideration. Whether Ford sells more new cars (the traditional evaluation method of performance) or extends the service life of existing vehicles (this indicator mainly benefits the owners rather than other partners in the ecosystem), executives should strive to achieve their goals.
Vigorously reforming indicators can strengthen and consolidate the implementation of the company’s digital strategy. For example, Kaiser Permanente now pays little attention to the common indicators such as the utilization rate of hospitals and doctors in its own network; On the contrary, it is committed to maximizing the "healthy years" of patients. Nowadays, the group emphasizes the new index of "always keeping healthy", so it will pay more attention to the partnership with health care and technology companies rather than the employment and optimal allocation of medical staff.
3. Create business opportunities for partners
Some partners in your ecosystem will inevitably be affected. HBO TV network may bypass the set-top box of a cable TV company and directly provide movie-watching apps for consumers. Chanel may want to build a digital store, which threatens traditional retail partners. The software provided by GE or Siemens may directly compete with the products of IBM, Accenture and PTC.
But Patrick Christen, CEO of online payment company Stripe, believes that digitalization is not a zero-sum game. Stripe’s cooperation with traditional financial institutions is very successful. Why? Because the company has reduced the friction between the two parties on digital payment solutions; On the one hand, it has greatly increased the transaction volume through cooperative institutions, on the other hand, it has gained a small market share.
The key is that the company should create opportunities for itself and its partners as much as possible. With the growing "cake" of the global economy, companies can deliver more value to their partners in the value chain, although the share of each delivery will decrease. Therefore, although Accenture or A.T. Kearney may lose some revenue from system integration after GE increases the supply of standard software, GE attaches great importance to communication with them, saying that all parties can gain economic benefits from the new business model. Harel Kodesh, CTO of GE Digital, holds regular meetings with stakeholders to exchange the company’s current concerns and where partners such as Accenture and Kearney want to develop application software.
Determine the future direction, change performance indicators and create opportunities for partners — — By doing these three things, traditional companies can easily reform and implement new digital business models. But we are not suggesting that the transformation will be smooth and unimpeded.
The company must struggle when it decides to give up the original ecosystem members. Some partners are bound to become your competitors, while others may be eliminated. But if the company leaders realize that digitalization should not only be reformed in the software field — — And the reform is often beyond the direct control of the company, so the opportunity is still huge.
[The author of this article, Maxwell Wessel, is the general manager of SAP.io Division of SAP and a part-time lecturer of Stanford Business School; Aaron Levie is the co-founder and CEO of Box, a cloud software company, and a part-time lecturer at Stanford Business School. Robert Siegel is a management lecturer at Stanford Business School. Translate Liu Xiaowei. ]