2018: Companies grow through digital business extensions

In 2018, companies will increasingly leverage data and other digital capabilities to create new markets, blur industry boundaries, and cross into other industries. This creates an opportunity for digital leaders not just to implement or optimize existing business strategy, but to drive and change business strategy. That is exciting but also tough, because the strategic flow in an enterprise is often from top level business strategy to IT and digital strategy. But the rewards for overcoming this structural challenge are potentially huge.

Digital capabilities are increasingly important across all industries

Increasingly, the capabilities that companies have, and need, to compete are digital capabilities. Like companies in the mobile industry having amazing granular, dynamic data and insight about consumers. Like big ecommerce and content companies having amazing cloud platforms. Like those in factory, vehicle and process control industries having great internet of things platforms.

Hence, it increasingly makes sense that companies will grow by a specific kind of capability extension — the digital capability business extension, or digital business extension for short. Amazon’s journey — from online bookseller to online everything marketplace, to cloud platform, to online and offline everything platform — is not a company being irrationally greedy and trying to put a finger in every pie. It is a story of smart digital extensions. In other words, Amazon can run some of those businesses better because of their digital capabilities. GE’s big plans around the Industrial Internet of Things and its Predix platform can also be seen as a digital business extension.

All businesses should be thinking about what digital assets and capabilities they have that could be leveraged into other businesses (extensions) including completely new businesses (blue oceans).

 

Some common digital assets worth considering are:

  • Data throughout the supply chain, including data about your suppliers and how their products are performing, the supply chain itself all the way to the end customer, and of course your customers and their use of your products and services
  • Analytics, algorithms and artificial intelligence capabilities that can generate insight from certain kinds of data
  • Robust, scalable digital transaction platforms that can form a better transaction/operations backbone for similar businesses
  • Deep understanding of customers’ digital behaviours and preferences, and superior digital customer experience platforms
  • Digital talent that is scarce (e.g., some forms of data scientist, digital anthropologist, IoT security expert, cloud architect)

Of course, digital extensions into other industries have risks that shouldn’t be underestimated or ignored, such as:

  • underestimating the capabilities needed in the new industry that you don’t have (a common issue when moving between B2B and B2C, and between product to service businesses)
  • underestimating the strength needed for that capability to serve multiple/external customers (often experienced when internal service organizations get exposed to the harsh winds of external competition and customer expectations)
  • underestimating the distraction effect when using your digital capability beyond your core industry

Nevertheless, there are also hidden rewards, as well as the direct revenue opportunities, including the benefits to your existing business of making the digital capabilities in question more robust. There may also be a cost synergy — spreading your digital costs across a greater number of areas. And there may be opportunities to springboard further from those new industries into yet others.

But the biggest challenge is ensuring the digital capability opportunities are being considered.

Letting the digital tail wag the corporate dog

A big criticism of IT organizations and technical people in years gone by was that the IT agenda was not sufficiently aligned with the business agenda. IT organizations were sometimes pursuing technical/architectural perfection/elegance, rather than optimizing based on business needs. This (largely appropriate) perspective envisages strategy flowing down from business strategy to IT strategy.

But in a digital world, and especially when thinking about digital extension opportunities, we need to have a “strategic backflow” from digital capabilities to corporate strategy. Digital informing and changing corporate strategy, not only digital optimizing and implementing an already-decided business strategy.  Indeed, for some this difference is a way of thinking about digital as opposed to IT.

We have to make sure this backflow is industrialized in strategic planning, rather than based on heroic behaviours, water cooler conversations and special relationships. The key to winning with this trend is to ensure that the corporate strategy, and ideally all functional strategies (like marketing, manufacturing and logistics), have mechanisms to consider digital extensions. Let’s let the digital tail wag the corporate dog, at least a little, in 2018 and beyond.

This post is a deeper dive into the fifth trend of our 2018 Technology Trends. Check out all six trends at 2018 Technology Trends.


 Dave Aron is global research director for the Leading Edge Forum (LEF), DXC Technology’s independent think tank. Dave’s key areas of research include digital business, strategy and new business models. Prior to the LEF, Dave spent more than 12 years at Gartner as a Gartner VP and Research Fellow, focused on strategy and CIO leadership issues. Dave has more than 30 years of experience in the IT business and has been writing, speaking and teaching on digital business, IT strategy and other topics for more than a decade. @davearon

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Comments

  1. Great piece of insight. Digital talent is scarce – I still haven’t had the pleasure of meeting a Digital Anthropologist. If you know one or are one yourself do ping me a line on LinkedIn.

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Trackbacks

  1. […] These information ecosystems are very valuable, whether owned or partnered. GE’s Predix platform for industrial IoT is a good example of a digital business extension and a strong ecosystem. Learn more. […]

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