Is Peloton a Bicycle Manufacturer or a Software Company?
Is Uber a taxi service or a software company? Is Domino’s a pizza provider or a software company?
Peloton, Uber, and Domino’s have leveraged increasing connectivity, combined with an explosion of digitized information and declining computer costs, to rethink their products, services and business models. Peloton offers cycling classes for their stationary exercise bikes with live rides streamlined directly to customers’ homes. Uber has digitized all aspects of reservations tracking, billing, customer service, driver performance, and ratings. Domino’s allows customers to track their pizza from order to delivery.
Hilti, a construction tools company, now provides tool services to construction sites as needed based on an algorithm’s determination of evolving needs. Littler, a global employment and labor law firm, provides clients with dashboards for tracking discrimination charges filed with the Equal Employment Opportunity Commission. The dashboards provide data-driven insights to proactively address business risks. Philips evolved its business model from health device manufacturer to HealthSuite, a digital platform supplier to capture and integrate consumer and patient information using its devices. Philips continues to expand its ecosystem to better compete in its new business. These companies continue to transform their businesses leveraging digital capabilities.
Several common denominators distinguish these companies from others. First, they start with their customers, exploring how they live and work as well as their unmet (and in some cases unrecognized) needs that the company can fulfill by collecting and integrating data, analytics, technology advances, and artificial intelligence.
Second, these companies recognize that software can lead to their future competitive advantage. They ask, “How can digital technology remove traditional constraints and expand the boundaries of the possible to reinvent customer experiences, operations, and business models?” They think digital. They develop digital assets and capabilities that can be reused and recombined internally and externally. McDonald’s, for example, introduced its omnichannel ordering and meal delivery service initiative that enables scale and agility while offering a consistent customer experience across all interaction channels. McDonald’s serves more than 64 million customers every day and, during peak times, it processes anywhere between 250 to 500 thousand orders per hour chain wide. Each order, no matter where it is placed, goes to a cloud service custom built on AWS infrastructure, where it is evaluated and routed to the correct restaurant. McDonald’s claims to be able to enter a new market in 24 hours by reusing its digital capability.
Third, these companies regard digitally enabled business transformation as multi-dimensional. Of course, digital technologies are essential. Specifically, data – and lots of it – are needed to support fast-cycle decision making and actions across business and functional silos. Data sources may vary (from data created internally, often through sensors, as part of doing business and from data created externally by other companies as part of their doing business). Cloud-based computing allows for storage of large quantities of data as well as access and data mining.
However, leveraging enabling technology is relatively straightforward compared with the changes needed to the company’s structure, culture, leadership, and capabilities.
No structure has been confirmed as ideal to best support digitally enabled business transformation, but structures that allow for greater flexibility seem to work best. It’s unrealistic to expect large companies to abandon hierarchies that serve them well in so many respects even though transformation often crosses functional and business unit boundaries. Cross-functional teams that can form and then disband as needed have been touted as a means of gaining flexibility and agility within a hierarchical structure. But if hierarchy abandonment or modification can be considered, Haier, the Chinese manufacturing company that is the world’s largest appliance maker with revenue of $35 billion, can serve as a positive example. Its structure is comprised of about 4,000 micro enterprises, creating an environment in which everyone is directly accountable to customers, employees are energetic entrepreneurs, and an open ecosystem of users, inventors, and partners replaces formal hierarchy.
Haier represents a different culture. And culture may be the hardest organizational element to change. Yet a culture characterized by agility, experimentation, and responsiveness is essential for digitally enabled business transformation. In such a culture, leaders encourage experimentation and ask questions that encourage people to explore how digital technologies can remove traditional constraints and expand the boundaries of the possible to reinvent customer experiences, operations, and business models. Leaders also recognize that staff with different capabilities may be needed either in-house or through external sources. Those capabilities include data acquisition and modelling, analytics, and design thinking.