Incumbents unlocking value in digital ecosystems
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1) Digital platforms are disrupting traditional industries as companies like Uber, Airbnb and Facebook have grown rapidly despite owning few or no assets themselves. 2) Incumbent companies sit on valuable data, relationships, talent and other resources but many still rely on traditional business models. Some incumbents have transformed into digital leaders by putting customers first, becoming omnichannel, and developing platform business models. 3) To compete, incumbents must shift from a product focus to addressing customer needs, leverage their assets in new ways such as through platforms and ecosystems, and develop core digital capabilities around areas like data analytics, AI and cloud computing. Those that make this strategic shift and develop platform leadership can thrive in
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Incumbents unlocking value in digital ecosystems
- 1. January 2017
- 2. FUNDAMENTAL SHIFT IN STRATEGY MOVING FORWARD INCUMBENT BUSINESS MODELS
- 3. Digital is the main reason just over half the Fortune 500 companies have disappeared since the year 2000. -Pierre Nanterme, CEO Accenture, 2016 Yet..Digital disruption has only just begun.
- 4. Technology replacing Energy and Banking http://www.visualcapitalist.com/chart-largest-companies-market-cap-15-years/
- 5. SMACIT S = Social M = Mobile A = Analytics C = Cloud IT = IoT
- 6. Exploitation Improving existing value creation activities Exploration Developing new value creation activities Adapted from March 1991
- 7. FIRM FOUNDED EMPLOYEES MKT CAP BMW 1916 122,000 $56B UBER 2009 7,000 $62B MARRIOTT 1927 200,000 $32B AIRBNB 2008 5,000 $21B WALT DISNEY 1923 185,000 $172B FACEBOOK 2004 15,000 $369B WALMART 1962 2,300,000 $206B ALIBABA 1999 36,000 $241B Adapted from Parker & Van Alstyne, with Choudary, 2016, and updated January 2017 Something fundamental is changing
- 8. The world’s largest taxi firm owns no cars The world’s most popular media company creates no content The world’s most valuable retailer carries no stock The world’s largest accommodation provider owns no property The Power of the Digital Platform
- 9. The New Multinationals 9 CGE Platform Database with Quid visualization, 2015 Over $3 trillion in firm market cap Selected Platform Companies Emerging platform clusters 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
- 10. • Launched June 2010 • 551 cities in 70 countries • 7000 empl, owns no taxis • USD 62.5 bln valuation (Ericsson, 1876, 114,000 empl, USD 19 bln) “DOING MORE WITH LESS” A technology platform to allow customers to receive easy and reliable access to a ride using the tap of a button
- 12. Pipeline BMs vs Platform BMs • Seller of products and/or services • SMACIT to make linear process efficient • Supply-side economies of scale • Manager of firm with distinct boundaries • First mover advantage • Ownership of resources • Destination for solving customer needs • SMACIT to co-create value • Demand-side economies of scale (network effects) • Leader of ecosystem with fuzzy boundaries • First to scale advantage • Access to resources PLATFORM CONSUMERSPRODUCERS Elements of value exchange Adapted from Parker & Van Alstyne 2016
- 13. 1 connection 2 phones 10 connections 5 phones 66 connections 12 phones Metcalfe’s Law More users = more value = more users… PLATFORMS LEVERAGE NETWORK EFFECTS WikIpedia Demand-side economies of scale
- 14. Enabling retailers to create a personalized experience for each individual consumer across the globe “We want to help small businesses grow by solving their problems.” - Founder and CEO Jack Ma
- 15. Alibaba Group – “Doing more with less”
- 16. PLATFORM CONSUMERSPRODUCERS Ecosystem Leadership Ensure central position within ecosystem Develop deep understanding of users on both sides Define value co-creation opportunities Leverage resources in the ecosystem Create attractiveness through cultivating trust Leveraging network principles 1. Enable interactions across all “boundaries” 5. Scale through operational excellence 4. Create agility through control over and access to resources, not ownership 3. Expand industry boundaries through providing holistic solutions 2. Analyze data from multiple sources Teigland 2017
- 17. It is much easier to add a technology to a community than it is to add a community to a technology. Marshall Van Alstyne, Platform Revolution
- 18. TRUST: The prerequisite to the ability to scale • Third parties attached to platform – Fraud – Operational – Health, safety • Payment systems – Functionality – Fraud • Privacy of data – Cybersecurity – Ethical usage of personal data Trust in Digital Environments
- 19. FUNDAMENTAL SHIFT IN STRATEGY MOVING FORWARD INCUMBENT BUSINESS MODELS
- 20. MANY INCUMBENTS HAVE UNLOCKED THE VALUE OF DIGITAL… Adapted from McKinsey Global Institute
- 21. Nike put the customer first and invested in an end-to-end digital athletics ecosystem x4 10M+ 30M+ Analyst reports, press articles, web search
- 22. Creating more touch- points and data
- 23. MIT study: Four incumbent digital business models Omnichannel business -”Life” events e.g., ING, Schindler Supplier -Products/services e.g., Sony Ecosystem Driver -One stop destination e.g., Amazon, Aetna Modular Producer -Ecosystem plug’n play e.g., Paypal Needs Life Events Demographics Purchase history Control/Influence over decisions on brand, price, quality, etc. * 32% Higher growth * 27% Higher profit margin Weill & Woerner 2015
- 24. Omnichannel Business -Own customer relationship -Multiproduct, multichannel -”Life events” -Integrated value chain Supplier -Sell through another -Low-cost producer -Incremental innovation Ecosystem Driver -Branded platform -Great customer experience -3rd party plug’n plays -Matchmaker Modular Producer -Niche plug’n play -Adapt to ecosystems -Continuous innovation Needs Life Events Demographics Purchase history Control over decisions on brand, price, quality, etc. MIT study: Four incumbent digital business models Weill & Woerner 2015
- 25. % Companies: Larger vs Smaller Firms
- 26. Farm equipment seller to Farm equipment omnichannel to Full service solutions ecosystem driver - Analytics of global data from machinery, irrigation systems, soil and nutrient sources, weather info, crop prices, etc. - Platform access for suppliers, consultants, food processors, food retailers, etc. - APIs enabling customization through third-party development “To enable efficient growth of the global food supply”
- 27. B2B digital leaders: 5Xs more revenue growth than their peers B2B B2B2C Leadership • Commit to digital at strategic level • Create culture anchored on innovation and execution • Shake up organizational structure and metrics to support digital aspirations Digital operational excellence • Create consistent online and offline experiences • Enable and empower sales force through data • Improve insight and decision making through end-to-end connection of processes http://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-b2b-digital-leaders-drive-five-times-more-revenue-growth-than-their-peers
- 28. MIT Sloan CIO Leadership Award 2015 CDOMichael Niles, Chief Digital Officer From elevators and escalators to “Moving humanity digitally”
- 29. Percentage of firms using predictive analytics for maintenance
- 30. Betting on “The winner takes all” Immelt’s goal: “A top 10 software company” by 2020 • Predix: USD 1 bln investment • Open-source model, e.g., Android • 19,000 developers + 3rd party developers • Software building blocks (e.g., blockchain)
- 31. FUNDAMENTAL SHIFT IN STRATEGY MOVING FORWARD INCUMBENT BUSINESS MODELS
- 32. By 2018, IDC predicts that >50% of large enterprises, and >80% of digital transformation leaders, will create and/or partner with industry cloud platforms. https://www.idc.com/getdoc.jsp?containerId=prUS40552015
- 33. INCUMBENTS ARE SITTING ON A DIGITAL GOLD MINE DATA RELATIONSHIPS TALENT BRAND BALANCE SHEET CASH FLOW INTELLECTUAL PROPERTY McKinsey
- 34. Moving up and to the right - Knowledge about customer goals and “life events” - Amplify customer voice inside company - Evidence-based decision making - Integrated multi-product, multi-channel customer experience - Be first choice in your space - Skilled at partnerships and acquisitions - Service-enabled core business transactions (with exposed APIs) - Compliance as competenceWeill & Woerner 2015
- 35. THEY ADDRESS SYMPTOMS, NOT ROOT CAUSES No sense of urgency for “Digital” Decaying supplier business model Siloed organizational structure Missing core capabilities MGI, 2016
- 36. Steel ecosystem Internal innovation unit External innovation unit Vision, Leadership, Governance, IT Relationships (Westerman)
- 38. From a “Product company leveraging data” to a “Data company solving customer needs” Galina Shubina
- 39. “Jobs to be done” – Clayton Christensen
- 40. Pipeline BMs vs Platform BMs • Seller of products and/or services • SMACIT to make linear process efficient • Supply-side economies of scale • Manager of firm with distinct boundaries • First mover advantage • Ownership of resources • Destination for solving customer needs • SMACIT to co-create value • Demand-side economies of scale (network effects) • Leader of ecosystem with fuzzy boundaries • First to scale advantage • Access to resources PLATFORM CONSUMERSPRODUCERS Elements of value exchange Adapted from Parker & Van Alstyne 2016
- 43. 43 Source: P. Evans, “Networks, Data and Platforms,” in Growing Global: Lessons for the New Enterprise, Center for Global Enterprise, 2015. Trends likely to continue and intensify FORCES OF CHANGE Surge in data and tools that can manage and analyze data Networks connect physical, digital, and social Age of Networks Age of Data FIRM Age of Platforms New business models that leverage networks and intelligence 2016 Parker & Van Alstyne, with Choudary – licensed under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
- 44. The Blockchain is the glue that is going to drive a productivity revolution across the globe on par with what Henry Ford did with the automobile. — Paul Brody, Americas Strategy Leader, Technology Sector, Ernst & Young
- 45. “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” - Bill Gates, The Road Ahead, 1996 Scenario Thinking
- 47. Robin Teigland robin.teigland@hhs.se www.slideshare.net/eteigland @robin.teigland If you love knowledge, set it free… If you like this presentation and would like to contribute to our research, we accept bitcoins: 14hs4JbnQLXE87GGzu84uXGaspmxmnLpwC. Thank you!!!!!
- 48. PlatformRevolution.com Geoffrey G. Parker Marshall W. Van Alstyne Sangeet P. Choudary Published by: WW Norton & Co.