Digital transformation has turned the global economy on its head over the past two decades, paving the way for new business models while toppling long-established players unable to keep pace with evolving technologies and changing customer needs.
In order to adequately assess the threats and opportunities in this new environment, IESE Prof. Josep Valor urges senior decision-makers to keep five core concepts on their radars:
- The Power of Platforms
In today’s digital age, successful business models are often platforms, which facilitate communications and business transactions between two distinct populations and capture value by charging one or both of them. Companies such as Uber, eBay and Airbnb have flourished thanks to their ability to attract a critical mass of companies and individuals to make their platforms valuable to clients.
- Leveraging Long-Tail Strategies
By drastically lowering transaction costs, the internet has created fertile terrain for long-tail businesses, which target a large number of niche markets with hard-to-find items, as opposed to those that sell high volumes of popular products to a mass market.
Platforms such as Airbnb and eBay also have a long-tail component: they are able to cost-effectively connect millions of individuals and small sellers, whose businesses would otherwise be unviable if they had to individually bear the costs of attracting customers.
- Capturing Value at Its Source
The unbundling of products and services has radically changed where value is captured, a shift perhaps best exemplified by the music industry. In 2000, record labels captured the lion’s share of value, pocketing 90% of total revenues. Since then, music shipments have plunged and streaming services and concert revenues have skyrocketed.
This evolution highlights the advantage of staying close to where value is captured. Record labels lost out when concert promoters and artists gained ground to the moment when value was added. Businesses that lose control of the value-capture system risk getting sidelined.
- Staying Attuned to Envelopment Strategies
In this classic big-fish-eats-little-fish scenario, small global innovators that offer limited product lines risk getting enveloped by larger players with the capacity to easily replicate their offering at marginal costs. This could spell trouble for the likes of Snapchat and Spotify, as companies such as Facebook/Instagram Stories, Amazon Prime and Apple Music eat away at their markets.
- Keeping Your Eye on Customer Needs
Misalignment between corporate strategy and customer needs can have fatal consequences, as Blockbuster can attest: the firm went belly up after continuing to dump money in their retail outlets when all their customers really wanted was to watch movies in the comfort of their own homes. Netflix, more adept at adapting to a new digital landscape, quickly capitalized on their oversight.
“Digital Mindset: How to Innovate and Lead Your Business for the Future” is an intensive three-day program that helps senior executives lead in increasingly digitally-driven business environments. The next editions are scheduled for November 6-8, 2019, on IESE’s New York campus and May 27-29, 2020, in Barcelona.
Written by business communicator and editor Suzanne Hogseth