Companies playing long-term bets are easy to disrupt.
The era of R&D as a source of competitive advantage is over. Betting on multi-year investment programs, unless perhaps they are scientific, in the hope you will continue to be a leader in that market no longer works.
Digitization, access to global knowledge bases and workforces, and the ability to rapidly innovate means it’s much easier to disrupt companies playing long-term bets. They’re easy prey for the nimble and the agile. The paradigm of R&D advantage was really little more than senior executives making strategic bets on where the market was going. The market is simply moving too fast for these strategic bets to pan out.
Business guru Rita McGrath of the Columbia Business School says it’s time companies surrender their pursuit of these sustainable growth advantages. They’re elusive in today’s environment. Many of the barriers to entry that once insulated enterprises and even whole sectors have been stripped away. Companies can no longer structure an enterprise around a competitive advantage by fortifying it and milking it for profits.
Build Better Bets
To succeed, you need a two-pronged approach:
- Strategic bets on a shorter time frame
- Agility enabled by digital technology
Bets must be fluid and adaptable. Strategies have to accommodate course corrections and the ability to rapidly refocus based on market signals. Product companies, for example, can run simulations and/or create early prototypes with digital tools to gauge market acceptance and make adjustments.
Yet the agility component is much easier to execute for enterprises that were born digital and aren’t saddled with legacy processes and hardware. Traditional enterprises have other advantages, though—scale, assets, and rich content. These take the form of products, physical buildings, people, and years of gathered data on customers and markets.
But if you only work within your current value chain, you won’t be able to mine value from these assets. Keeping content cooped up in legacy systems is not going to give you a competitive advantage and help you drive innovation.
Instead, strive to identify your core assets. Expose the information so you can monetize it. The challenge is how to expose these assets in a way that you can protect but also share them. This means leveraging new tech. Tools include open source communities, APIs, information services, and digital platforms with software interfaces that third-party developers can access.
Bottom line: You need to digitally transform your legacy systems. If all you do is work within your current value chain, you’re constraining your enterprise. For example, if I’m an aircraft engine manufacturer and I want to construct a digital twin of that component, I could start by gathering all of the existing data and creating a virtualized engine. A single holistic view could reveal product upgrades and new products or services.
A medical group could potentially transform the doctor-patient-pharmacy value chain by equipping patients with wearable sensors and merging the resulting data with medical histories and other information. The information could help determine if a patient is taking the right medication in the right dosage, if it’s yielding the desired effects, or if it’s interacting with other medications. Such information would be extremely valuable to healthcare service providers, doctors, patients, pharmaceutical companies, and even governments.
To succeed, enterprises must determine their existing and potential value networks. Enterprise assets can’t just be a physical product; they have to expose these assets to fuel customer engagement. In today’s world, competitive advantage is achieved by structuring information assets to monetize them for the business opportunity, or the business moment.