Why are some companies more successful and profitable in the digital era? With long experience of companies in the digital arena, it is possible to draw some conclusions. It is all about creating temporary monopolies based on boosting customer experience and value creation. Revenues is a result of how you operate in this market. Digital companies have change as part of their corporate DNA and allow for more agility, creativity and empowerment to react quicker and with more force to new trends.
I often get the question: how to be successful and make money in the digital era. During the last couple of years, we have seen companies in the pinnacle of the digitalisation tsunami struggling to make money and are frankly fighting for survival. The digitalisation journey has been (and still is) very painful and question the core reason for existence in the market. For example, we see newspapers and media companies constantly struggling how to make their readers and consumers to buy their product and services. Shouldn’t the digitalisation journey improve the financial statements and revenue streams? Why is it so difficult to be successful in the digital arena? Well, let us examine why digitalisation is difficult to master and why some companies are more successful than others.
Let us start from the beginning to examine the true effects of digitalisation. From my perspective, I see three main themes when it comes to digitalisation of industries and markets. First, the barriers of entry of many industries are disappearing. In the traditional era (pre-digitalisation), it required enormous amounts of capital, time and influence to challenge traditional (IT intensive) industries such as banks, insurances, media, travel/airlines, print, etc. Today, most of these barriers are gone (or at least heavily reduced) and it’s possible to start a competing digital business utilisation the latest digital technology and social media – from a distance location on the globe. With less loyalty among consumers and new business models, it is easy to attract customers to new products and services. Secondly, the customer behaviour is changing quickly with more and more consumers willing to test and try new digital offerings through digital channels. Fifteen years ago, the internet was still considered “unsafe” and “difficult” for most consumers – but today it’s the other way around. We see digital sales sky rocketing and the expectation is today on new cool apps and digital solutions making my life better and more efficient. We also see that the digital consumer is not willing to pay for services or products that do not create an experience or value. It is a waste of money! Thirdly, the technical evolution is faster than any time in history – and it will not slow down. Ideas and concepts impossible to realise a couple of years ago are now going into production. What we need to understand when it comes to technology is that each forward movement in evolution creates hundreds of new ideas and innovations – leading to new technical innovations. It is a technical tsunami that we changing our society from its core.
My themes of digitalisation:
- Reduced Barriers of Entry
- Changed Customer Behaviour
- Rapid Evolution of Technology
To understand the true impact of digitalisation is very difficult and complex, and we do not know how industries and market will evolve and progress the next couple of years. It is the great unknown. What we do not is that it is more and more crucial for business to react quicker to trends, threats and opportunities. “Time to market” is not limited to Sales and Marketing but include the whole company in a fast-moving value chain. Here we see a difference between digital and traditional companies. Digital companies are designed to react quicker to trends and threats than traditional companies. A traditional company requires 18-24 months to react to a new trend or threat while a digital company react in less than 6 months. This is a governance and leadership issue. Digital companies have change as part of their corporate DNA and allow for more agility, creativity and empowerment to react quicker and with more force to new trends. Fast change in the market is the starting point for these companies.
Being successful in the digital arena is all about creating temporary monopolies with new services that competitors are not able to address. A few months ago, I had a discussion with a traditional telco company about how long time it took them to react to a new digital trend or threat (for Google). After a bit of calculations, the reaction time was set to 18-24 months. That is how long time is would take for this company to respond to a digital trend (new service or product) in their market – creating a temporary monopoly for the competitor. During this time, the competitor has the possibility to redefine the market (setting new norms of market), attract customers and revenues while the tradition company is stuck in its own governance processes. The situation is more severe than that! What if the digital competitor launched a new service or product every 6 months – it would create a constant monopoly and the traditional company will sooner or later be force out of business. By not mastering the true nature of digitalization and failing to react fast enough with agile and efficient governance and leadership – they create temporary monopolies for their competitors. Even companies invest millions in digitalizing process with latest technology, it is in governance and leadership that determines whether temporary monopolies will occur or not. I think you all can identify a dozen digital companies that has been very successful in disrupting industries by creating temporary monopolies. Worth thinking about!
It is important to understand that all corporate functions and units are part of a game of optimising customer value and experience – and responsible for eliminating digital waste.
The creation of temporary monopolies does not tell the whole truth. It is important to recognize that successful digital companies focus how to create optimal experience and value for their customers. I visited a company where they struggled to harmonize their IT landscape. My question was simple – “is the consumer on the street will to pay extra for your service/product because of you not running IT harmonized”? In other words, is the consumer ready to pay 1 EUR extra for a magazine because you have your own service-desk in a native language? The answer was clear – “no”. We could then harmonize the IT organization and cut 30-40 % of the IT budget – boosting digital initiatives that would create more experience and value for the customer. It is important to understand that all corporate functions are part of a game of optimizing customer value and experience. This is not concentrated to marketing or sales but maybe even more important for IT, logistics and production units. Functions and processes that do not create value or experience is pure waste and need to be eliminated.
My point of view is that digital revenue is the effect of mastering the digital arena and adjusting the whole company to its pre-requisites. It is based on in-depth understanding of the mechanics of the market and how to react fast to treats – eliminating temporary monopolies – and focusing on customer experience and value. To be honest, most companies (70%) I see do not address the true challenges of digitalisation but rather follow what others are doing or doing nothing at all. That is not good enough in the digital era! Without the right approach and mindset, these companies will soon disappear from the market.
- Ask yourself the following questions: What is your current reaction time to new digital treats and opportunities? What is required to compete in the market and avoiding “temporary monopolies”? What is hindering you to reduce the reaction time?
- How can your company create a temporary monopoly? It is important to have a strategy for how to drive the market with new value-adding and innovative services/products – over time. How is that done in practice?
- How are your current consultants supporting your digital ambitions? Do they support you in creating a favorable temporary monopoly?
- Contact Hans Gillior – expert in digital transformation and how to hinder temporary monopolies. Looking forward to discuss this topic further with you.
So, back to the original question: how to be successful and make money in the digital arena? It is a very common question that has been debated and discussed intensively for the last 10-15 years. The answer is quite simple. Companies make money by focusing on creating temporary monopolies through boosting customer value an experience. Revenues is a result of how you operate in the digital market – not the primary focus! Therefore, I am fascinated with companies that spend millions on innovation and purchasing new digital companies – with a single purpose of making more money and forgetting about how to play the market in a different way – from the customer’s perspective with fast reaction. A traditional company with new fancy tools – is still a traditional company. So, what can we learn from this? Digital business is a continuous shift in temporary monopolies where each player tries to minimize the effects of being in the shadow. The question Is: do you ever see the sun? Are you willing to do what it takes to step out of the shadow?
Hans Gillior – DigitalGuru/Senior Advisor