10 Lessons for the Digital Age
From New York Prof. Josep Valor shares how to get the most out of digital
25/01/2016 New York
Josep Valor: “Companies need to develop a digital transformation strategy to survive” / Photo: IESE
By the time you’ve finished reading this article more photos will have been taken than the entire 19th – and 20th – century. But digital transformation stretches way beyond photography. In recent years economic activity in all sectors has felt its impact.
Today we’ve gained enough perspective to look back and learn from the best – and worst – examples.
With over 25 years experience in the field of digitalization research, Prof. Josep Valor gave the inside track in 10 key lessons during his session at IESE New York. His conclusion was clear: “Companies need to develop a digital transformation strategy to survive.”
Clients’ user habits are changing. New digitally-led business models are popping up. And the underlying threat of an onslaught of digital competitors forces traditional companies to innovate – while being more efficient, says Valor.
Here’s a rundown of Valor’s 10 digital business lessons:
1. Good Times for the Long Tail
Reduced search costs has led to the long tail model – sell less units more often – gathering force. It’s easier for clients to find and buy products that satisfy specific needs. This prevents them buying a generic alternative.
For example, take the 54.000 million US dollars worth of publicity sold by Google on a yearly basis. Most isn’t from big brands like Proctor & Gamble or General Motors – but long tail companies.
It’s estimated that the biggest Google advertiser invests less than 500 million US dollars on search publicity.
2. Stand out From the Competition
The online entertainment company, Netflix, ended up competing for its price with other intermediaries which offer the same service, such as Amazon and Hulu. If you’d rather not die trying, you need to generate your own assets. Netflix did this by producing their own series – for instance House of Cards.
You need to create active leverage which makes you stand out from the competition. Products and services that don’t deliver reduce your profit margin.
3. Instantly Capture Generated Value
In the past, record labels only made money when they sold records. Managing artists and creating brands brought no revenue. Which is why some record labels now manage artists and organize concerts for profit. This way they capture value when it’s created – instead of waiting to sell records.
In an ideal world, artists would reward record labels for their groundwork – and later on find other ways to recoup this investment.
4. Watch out for Aggressive Neighbors
Sharing clients with another company – when yours is the marginal product – runs the risk of them cutting you out of the market.
Spotify only sells music. It shares most of its clients with Apple iTunes. Given that this is a marginal product for Apple and crucial for Spotify, when Apple launch streaming Spotify is in danger of being ousted from the system due to the low cost streaming package strategy offered along with other products.
5. Cutting Costs Isn’t Enough
Business models based on reducing transaction costs alone are in trouble. In the case of the Lending Club, the business model consisted of finding people willing to lend other people small amounts of money – with no guarantee of getting it back. This system had the company moving millions of US dollars.
Examples like Lending Club pose a threat to companies who base their business on reducing transaction costs (search and coordination) between different parties. It’s time to rethink their value.
6. Ensure Your Platform Delivers Value to Your Customers
How did Blackberry go from being the biggest player in smartphones to a company in freefall? Their users didn’t have many options. While Blackberry focused on producing the best device on the market, Apple and Android were one step ahead. Not only were they selling phones, they were creating ecosystems with applications to add value to their platforms. Making them much more attractive for the users.
We must ensure our products are of value to our customers. A platform’s perceived value lies in the accessories – not the product. Just think of Mattel’s Barbie doll.
7. Use Your Data
IBM Watson is an intelligence system that helps oncologists and other specialists in cancer diagnostic and treatment. It cross-checks the data of each patient with thousands of case histories and scientific articles to help doctors make more accurate and faster decisions.
In the business world, big data allows us to understand our clients’ needs better so we can offer products and services tailored to their personal preferences. It even gives rise to new business models.
8. Digital Transformation Can Render Your Business Model Useless
Kodak’s business model was based around charging a percentage for each and every photo taken in the world (through the sale of film, developing photos etc.). Digitalization changed everything. It multiplied exponentially the number of photos taken globally – but not the profit.
Technological evolution can render business models useless to the point that they have to be completely overhauled and reinvented. Continual updating and improvement is essential for survival. Also, we mustn’t limit ourselves to thinking only about the digital version of our product and service.
9. The Best Technology Doesn’t Guarantee Success
Webvan was launched as a supermarket able to deliver goods purchased within 30 minutes. Over optimistic sales projections coupled with vast unsustainable investment in infrastructure were its downfall. Not only that, the project had serious flaws in its business model, such as selling in areas with a scattered population.
Webvan’s failure stands as testament to the challenges online companies face when it comes to transporting consumers’ shopping preferences. And the internet’s limited capacity to change consumers’ habits.
Business models which combine a deep understanding of the sector and technological possibilities have the potential to prosper.
10. Remember: Anyone Could Be Talking About You
It’s worthwhile working on a digital communication strategy to manage social media for positive interaction with customers and stakeholders. And monitor who says what. This helps avoid cases like Nestlé. In 2010 they suffered serious damage in social media when they weren’t prepared for Greenpeace accusing them of malpractice in the elaboration of their products.