The digital age began almost 75 years ago, with the invention of the transistor. The internet is more than 50 years old. The IBM PC was introduced 40 years ago. Even companies that we think of as digital pioneers are aging: Apple is 45 years old, and Google is coming up on 25. Since the first commercial internet browser was created (going on 30 years ago), “being digital” has become a business mantra. But that is no longer enough. We must now focus on building new forms of advantage rather than just digitizing what we have done in the past.
Yes, the underpinnings of business today are digital, but digitization has become a long road to equivalency, and an expensive one at that. Creating sustainable advantage requires more than digitization. It requires understanding that the nature of competitive advantage has shifted—and that being digital is not enough.
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Retail shows why. As in most industries, companies took retail digital starting in the second half of the 1990s. Going digital created great efficiencies in managing inventory, sped up the processing of transactions, and allowed for analytics that supported buying and distribution. These changes meant lowered prices and generally improved customer experience—but they didn’t fundamentally change the process of retail. Companies still focused largely on having (and growing) their retail footprint, buying inventory they believed their customers wanted, often over-bought non-staples, and discounted what didn’t sell. They just reduced the quantities involved and made their mistakes faster.
Now look at Best Buy (a big-box electronics retailer based in the United States), which didn’t just digitize its operations in the face of fierce price competition from online retailers. It set out to do something much bolder—going beyond selling electronics to help consumers address the significant challenges they had with everything that followed the moment of purchase. It built the Geek Squad to provide customers both in-home and in-store technical support and service, and leveraged many digital advances to accomplish that task. As a result, Best Buy builds deeper relationships with customers, offers technical help, learns about customer habits and wants, and helps customers realize the full value of their investments in electronics and technology. Best Buy didn’t just digitize what it had been previously doing but reimagined its role in the world and how digital could help it fulfill that role. As a result, it has thrived even as so many big-box retailers have been shuttering stores.
In the world beyond digital, companies can—and must—do things differently. Rather than waste the time, effort, and money producing items that may or may not sell, you can now build on digital connections and create relationships with customers so close that you anticipate their needs and desires in real time and in a very granular way. Like Best Buy, you can provide customers with a tailored experience that makes them feel valued—and willing to trust you enough to share information about likes and dislikes that you can use to further your relationship with them. You can make production processes more intelligent so that you manufacture exactly what a customer wants in time for when they want it. And you can achieve much more, once you stop focusing on just becoming more digital and move to the next level.
All these advances open up the spectrum of what companies can do. They enable—and require—companies to rethink the unique value they can offer customers. Digital technology doesn’t just allow for doing things better but for doing better things—even generating whole new business models as companies reimagine their futures.
The path taken by Best Buy, and by all the companies researched and profiled in this book, is in stark contrast to what many companies seem to be doing. Instead of incrementing their way toward an uncertain future, these leading companies set out to shape their future by serving a more ambitious and relevant purpose and fundamentally rethinking the system of capabilities that allows them to deliver on that purpose.
What has shifted? With product lifetimes shortening, organizations are recognizing that they can’t sustain a differentiated position by focusing narrowly on products and services. Just because you have the best offerings today doesn’t mean you’ll have the best tomorrow. Smart companies now focus on building differentiation in what they do and how they operate, not just what they sell. If you get your differentiated capabilities right, then the flow of products, services, solutions, and experiences will follow.
Think about Apple’s design capability, which has allowed it to disrupt every industry it entered, including computers, music devices, phones, cameras, and watches. Think about Amazon’s retail interface design capability, which, through its sophisticated search, comments, linking, and online payment features, has been the driving force in moving almost every consumer category online. Think about Frito- Lay’s rapid flavor innovation, which lets it quickly produce new ones when it senses demand—for instance, a Mac ’n Cheese flavor for Cheetos.
Technology plays an important role in all of these capabilities— but these capabilities are much more than just technology. They are highly integrated and often complex combinations of knowledge, processes, technologies, data, skills, culture, and organization models that together allow companies to create value in ways that others cannot. The complexity and need for integration make capabilities hard to replicate, which is why companies that define themselves through what they can do tend to be distinctive and create lasting advantage.
In the beyond digital world, the future will belong to companies that are willing to shed past belief systems and define new, much bolder value propositions. It will belong to companies that work with others in networks and ecosystems that create value in ways that no single organization can achieve alone and that continuously push the boundaries of what’s possible. It will belong to companies that have clear and honest answers to two fundamental questions: “What unique value do we contribute in today’s world?” and “What capabilities allow us to create that value better than anyone else?”
Reprinted by permission of Harvard Business Review Press. Excerpted from Beyond Digital: How Great Leaders Transform Their Organizations And Shape The Future by Paul Leinwand and Mahadeva Matt Mani. ©2022 PwC. All rights reserved.
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