If your organization is busier than ever “digitizing,” you’re not alone. Digital efforts have been proliferating for years as companies strive to catch up with technological innovation. Covid-19 massively accelerated the pace, as many of our most basic activities, from grocery shopping to “going to work” moved online.
However, this accelerated wave of digital initiatives must not be confused with the real business transformation needed for success in the digital age. The former is mostly about enabling business as usual and “staying in the game,” while the latter is about building real, long-term competitive advantage to succeed.
Despite so much energy and investment in digitization, we are hearing many executives express concern that they are actually falling behind on making the important choices that lead to differentiation. They’re right to worry, because winning in the post-Covid world will require re-imagining not just how you work, but also what you do to create value in the digital era. No matter how many digital initiatives you implement, you can’t expect to win by being the same as your competitors — and they’re are all doing similar things, albeit at different speeds.
Instead, companies need to step back and fundamentally reconceive how they create value. They need to reimagine their place in the world, rethink how they create value through ecosystems, and transform their organizations to enable new models of value creation. The bottom line is companies need to shape their own future, recognizing that the world has fundamentally shifted, and that they must find their purpose in it. If you can’t answer the questions “Why are we here?” or “What unique value do we add for our customers?” then you are likely at best just staying in the game.
We’ve researched more than a dozen companies who have been hard at work to transform in this way since well before the pandemic struck. These companies have kept the momentum up amidst the worst recession and public health crisis of our lifetime, and their collective experiences contrast starkly with those focused on merely digitizing what they already do.
Exhibit one is Philips, which pre-Covid had looked at the future and decided to transform from a multi-industry, manufacturing-centric conglomerate to a company focused on health technology services and solutions. It shed its foundational business (lighting) and evolved from manufacturing and distributing products at scale, to bringing together hardware, software, data, clinical expertise and AI-enabled insights to support the delivery of better quality and lower cost health care.
When Covid-19 hit, Philips not only quickly designed and mass produced a new ventilator, it complemented it with biosensors that fed patient information into a remote monitoring platform to enable the safe care of highly contagious Covid-19 patients. Philips also deployed an online portal to help physicians in Dutch hospitals share related patient data. Despite Philips’ business being challenged by the demand crash post Covid, its new model of doing business has supported a quick pivot to solutions that contributed to the company ending the year with stable revenue growth.
Construction is known as a traditionally asset-heavy and “non-tech” industry, but Komatsu has been evolving from selling construction equipment to becoming a leader in digitally enabled smart construction solutions. This is helping their customers dramatically improve productivity and value realization in an industry that has experienced virtually zero productivity increase in the last 20 years.
Komatsu initially launched construction machinery that utilizes GPS, digital mapping, sensors, and IoT connections to enable its customers to use Komatsu equipment more efficiently. The company has since gone further and opened up its Landlog platform and data that allows customers, competitors and other companies in the construction ecosystem to better coordinate their activities and improve total productivity across a construction project. These pre-Covid business model innovations have since allowed Komatsu to scale up new sources of revenue via managed services and automated platforms, and even accelerated the rollout of new offerings after Covid hit, despite the slump in construction activity.
Another example is Microsoft, which over the past five years has been transforming itself from the world’s largest software vendor to offering technology-enabled solutions (hardware, software, services and cloud computing) to help B2B and B2C customers improve their operations and their experience of daily living. The company totally reinvented its legacy organization, shifting from a focus on pushing products into the mass market, to client solution-oriented teams charged with bringing together the many cross-functional skills needed to tailor services to specific customer needs.
Having clarified its purpose and radically reorganized around solution-oriented teams, Microsoft was in a position to “act as digital first responders to the world’s first responders,” when the pandemic hit, as Nadella noted in an email to employees. It achieved historic levels of cloud revenue growth from solutions such as supporting universities to move their entire “business” online. This level of speed and responsiveness to unique customer needs had been lagging at the Microsoft of 10 years ago, despite its legacy of digital leadership.
What we’ve learned from these three examples and the other companies we’ve studied is that leaders who want to secure their organization’s future must:
