Competing in a digital world
In 2013, veteran business consultant Ram Charan was discussing Amazon’s negative earnings of the previous year with the chief executive officer (CEO) of a large company. “The chickens will come home to roost,” the CEO predicted.
But contrary to the prophecy, Amazon has since progressed steadily upwards to profitability. Its current market capitalisation is $1.6 trillion, with it has wide-reaching tentacles spread across diverse domains, ranging from e-commerce to cloud computing and logistics. Amazon is not alone in its achievements. In recent times, tech giants such as Google and Netflix and other digital natives such as Uber have radically changed the business landscape, blurred the conventional lines of separation of industries and forced executives at traditional companies to rethink competition and the sources of competitive advantage.
Jeff Bezos once said, “We don’t have a single big advantage so we have to weave a rope of many small advantages.” What, then, are the competitive advantages of these digital companies and how can other players leverage them?
Dr Charan, who is an advisor to CEOS and an author of various best-selling business books, has had a ringside view to the digital transformations occurring across industries and is well placed to reveal the answer. In Rethinking Competitive Advantage, cowritten with Geri Willigan, he identifies six new rules for competition in the digital age. Designing personalised customer experiences at scale and using data and algorithms to build robust digital platforms feature among these new rules.
The author argues that existing wisdom about competitive analysis, strategy and advantage is now outdated. The digital age has brought on an increased speed of competitive action and reaction and the time horizon for advantages has compressed. But he does concede that “some conventional competitive advantages persist, such as brand, reputation, patents, and proprietary technology. And for capitalintensive businesses like steel and car manufacturing, scale still matters.” The author contends that the digital giants “discovered these new rules by accident” as many of the founders do not possess the pedigree of conventional companies or business schools. Mark Zuckerberg, Steve Jobs and Bill Gates, for instance, were college drop-outs. They allowed technology, imagination, and intuition to guide them.
The book outlines the key role of data in developing a competitive advantage. Data is the new oil as the saying goes. But acquiring data can be a challenge for start-ups and even some legacy companies. Not only that, but companies need to effectively tap into it and also ensure its security and protection. The book notes the efforts of Apple in trying to create its healthcare ecosystem by stitching together data from a variety of sources.
As he lays out the building blocks for competitive advantage in the digital age, the author acknowledges the role of funders in creating an edge for digital companies by facilitating large-scale investments, playing the patient game and shaping the ecosystem. Japan’s Softbank, for example, has invested in 88 digital companies through its Vision Fund, including Chinese vehicle-for-hire company Didi Chuxing, Uber, Ola, and the Singaporean transport and delivery company Grab, as part of its huge bet in the mobility space.
If the competitive landscape is changing, then so should the leadership, and Dr Charan stresses the need for a new kind of leader — the digital leader. He draws attention to the efforts of senior executives such as Bob Iger of Disney and Kathy Murphy of Fidelity Personal Investing who have successfully morphed themselves into digital leaders and boldly taken their traditional businesses into the digital space. The author also urges companies not to shy away from considering as a potential leader a young digital expert even if she is short on experience of running an organisation.
With Rethinking Competitive Advantage, Dr Charan has managed to distill a relatively dry subject into a readable handbook. Reading the text feels like learning at the feet of a patient, sagacious master. The examples of Netflix, Amazon, and so on documented in the book to illustrate key points are engaging and inspiring. On occasions though, the disquisition appears to be fairly abstract. For instance, the author advises leaders “to seek new big ideas by discussing with your team, with external experts, and with your peers.” And, it would have been helpful if the book had addressed the challenges companies are likely to face in a future when society is fully immersed in digital technologies, and humans and sophisticated algorithms are competing with each other in the workplace. This book is a stimulating read; offering, perhaps, a better payoff to executives from legacy companies that are in early stages of their digital journey.