The competitive landscape is rapidly changing, and your position in it hinges on your ability to harness the power of emerging digital ecosystems, says Mohan Subramaniam. Subramaniam distills complex issues into actionable frameworks that will help you shift your strategic mind-set and build the frameworks and strengths you need to thrive amid digitization. There are billions of third-party assets and entities generating new data-driven opportunities. Why not take action to future-proof your legacy firm today?
- Legacy firms must adapt to today’s data-driven business world – yet many aren’t.
- Activate new digital ecosystems using application program interfaces (APIs).
- Leverage the potential of “production ecosystems” to unlock new data opportunities.
- Reach the highest level of digital transformation by harnessing “consumption ecosystems.”
- Transform legacy customers into digital customers with today’s sensor technology.
- Remain competitive when facing new, unfamiliar rivals and contexts.
- Keep pace with your competition by developing new digital capabilities.
- Act now, unlocking an ethical, data-driven future at your legacy firm.
Legacy firms must adapt to today’s data-driven business world – yet many aren’t.
After The Economist labeled data the world’s “most valuable resource,” eclipsing oil, it became clear that legacy firms would need to embrace new strategic approaches. According to 2019 research from McKinsey Global Institute, firms could use today’s digital technologies to add $13 trillion to the world’s GDP by 2030. However, few legacy firms are taking the necessary action to benefit from this opportunity. If legacy firms want to maintain their competitive advantage, they’ll need to powerfully position themselves within today’s digital ecosystems, maximizing the value of data.
“A legacy firm suffers from digital myopia when it continues to rely primarily on a product-industry mind-set for competitive advantage.”
Legacy firms must do three things to thrive in the emerging data-driven business world:
- Cultivate an understanding of how digital technologies are transforming modes of utilizing data.
- Expand their understanding of their surrounding business contexts, viewing them as emerging digital ecosystems.
- Develop new frameworks and mind-sets to support a data-driven competitive strategy.
Activate new digital ecosystems using application program interfaces (APIs).
Remain competitive by following the lead of “digital titans” (such as Google) by using application program interfaces, or APIs, and developing the cutting-edge management capacities you need to unleash the power of their networks. An API is essentially a mechanism that enables communication between software programs, providing rules and functions to govern the flow of communication. For example, the digital travel booking platform Expedia integrates data from multiple airline, hotel, resort, automobile rental companies and digital payment platforms, providing users with a seamless experience.
“Whether in production or in consumption ecosystems, APIs are powerful mechanisms to channel data for new digital experiences.”
Legacy firms can expand the functionality of their customer relationship management (CRM) and traditional enterprise resource planning (ERP) systems using APIs. With the growth of sensor technology and the Internet of Things (IoT), APIs have an increasing number of available software units to connect to, making it possible for firms to activate digital ecosystems. The production ecosystems you activate harness links between different activities and groups (involved in multiple product production and sales aspects, including research and development and your distribution channels). New data-driven opportunities can emerge from these connections.
Leverage the potential of “production ecosystems” to unlock new data opportunities.
In digital ecosystems, production ecosystems refer to internal data-generating and sharing networks “built on the foundations of a legacy firm’s value chains.” There are three “tiers” of a production ecosystem: In the first, firms increase their operational efficiency by harnessing data from value chain assets; in the second, they further boost operational efficiency by using data from users and products; and in the third, they create data-driven services. It can be difficult for businesses to pass “Tier 1,” especially if they face challenges acquiring interactive data about users and products. If your legacy firm is navigating this reality, ponder the following questions: Have you exhausted the possibilities of interactive data capture from your assets? Have you instituted processes to optimize data sharing? Are there any creative data-collection processes you’ve neglected to consider?
“Legacy firms must see the coming years as full of exciting new opportunities. These opportunities can help them build new productive relationships with their customers and excite them with innovative digital experiences.”
Many businesses cannot see opportunities to pass “Tier 2.” In Tier 2, you’re tasked with creating a digital customer base which you can glean interactive data from. When in this tier, reflecting on the following can help: How do you find digital consumers? Could you embed sensors into your products to help with data capture? Are there creative ways you could enhance data mining possibilities and create new data-driven services?
Your firm will reach “Tier 3” if you create data-driven services via digital platforms. For example, a dishwasher company may cross this threshold by equipping dishwashers with sensors to generate new data-driven services. The algorithms that power smart services become more effective if you have access to more data, so aim to attract more digital users to harness network effects and better serve consumers.
Reach the highest level of digital transformation by harnessing “consumption ecosystems.”
Digital ecosystems contain an additional layer beyond the production ecosystem, known as the consumption ecosystem. After creating product-generated data from sensor technologies, build a consumption layer by connecting your data-generating and sharing activities to third-party entities, unlocking “Tier 4” of your digital ecosystem – the highest tier on your digital transformation journey. You can reach this tier by asking yourself the following questions: How would you describe the state of your consumption ecosystem? How can you digitally complement data gleaned from sensors with a network of third parties? And how do you make your APIs more accessible to your digital complements, better leveraging their potential? Although it’s possible to find complementary third-party entities, activities and assets to enhance the services you offer surrounding nearly any product, many firms fail to make doing so a strategic priority.
“Unlocking value from consumption ecosystems entails substantial changes from prevailing business models.”
Shift your operations onto digital platforms, positioning your firm to exchange data with third parties. For example, a company selling light bulbs could seize new digital opportunities by embedding bulbs with motion-detecting sensors, connecting data to a digital platform, and then exchanging the data with third-party security companies (for example, those connected to smartphones and security alarm systems), making the bulbs part of a smart home security system. To benefit from moving operations onto digital platforms, rethink your firm’s business model and strategy, reflecting on the following: how you’ll optimize sensor technology; how you’ll attract digital platform users; and how you’ll derive a competitive advantage via your users and sensor data, offering data-driven platform services.
Transform legacy customers into digital customers with today’s sensor technology.
Equipping products with sensors is a vital but challenging step for legacy firms. Although digital leaders such as Google and Facebook exploit long-term network effects by giving away services for free initially to generate advertising revenue, legacy firms can’t do the same as customers must pay for the standard product, so they must consider alternate approaches. TV manufacturers such as Sharp and Sony collaborated with sensor-manufacturer Samba TV to convert legacy customers into digital customers. Samba actually paid the TV manufacturers to use its sensors, generating revenue instead from the advertisers and producers interested in collecting viewer data.
“Sensors are ubiquitous today. They are also poised to open opportunities for all kinds of products to be sensor-equipped. Yet these opportunities may not be equally apparent to all legacy firms.”
Convincing legacy customers to choose sensor-embedded products is easier when they see benefits. For Samba TV, customers will eventually benefit from data-driven recommendations, much like what Netflix provides. However, such benefits often take time to materialize, as they’re contingent on accruing massive amounts of data. When rethinking your strategy to create digital customers, legacy firms must balance recouping fixed costs and encouraging the adoption of sensor-equipped products. They’ll need to identify creative ways to engage digital customers while generating revenue.
Remain competitive when facing new, unfamiliar rivals and contexts.
As you embrace your digital transformation, you’ll encounter digital competitors. Some rivals will be familiar industry competitors, while others may be unfamiliar, especially if you acquire data that’s not unique to your product category. For example, if you’re selling data to security companies from motion-detecting light bulbs, you’ll do so in competition with companies such as camera providers and smart-home assistants (for example, Alexa). Competitors trying to offer comparable digital experiences will remain competitive by striving for “ecosystem parity,” which means maintaining symmetric strengths in their consumption and production ecosystems. For example, companies Oral-B, Colgate and Phillips compete to sell smart toothbrushes with data-driven services by maintaining symmetric strengths: Toothbrush users can get data on how to brush better from all three companies via smartphone apps. If one company were to upgrade its algorithms, its competitors would need to follow suit.
“Digital competitors may even outdo legacy competitors. Key reasons include the failure of legacy firms to develop adequate ecosystem parity.”
Legacy firms may face competitors with asymmetric strengths and dramatically different ecosystems. For example, Alibaba and Tencent – two digital leaders offering storefront and payment processing services – can compete with traditional Chinese banks in offering loans to users, due to their access to users’ financial data. Legacy banks face new competitive hurdles, as new digital competitors can offer loans with considerably less paperwork involved. Develop an understanding of your firm’s new competitive context, drawing on the competitive strengths that helped you in the past while cultivating new capabilities.
Keep pace with your competition by developing new digital capabilities.
Build new digital capabilities to strengthen the following attributes within your firm:
- Strategic objectives – Aim to expand the role of data and its value scope to create a parallel value stream to that of your traditional products.
- Resources – Enhancing data strengths requires drawing on resources from your digital ecosystem on a production and consumption level. These resources should be both “infrastructural resources,” or those that enrich your digital ecosystem, and “data resources,” which refer to those that your ecosystem generates, shares and amplifies.
- Processes – Build processes that maximize your digital ecosystem’s resources, deriving the most value from your data. Processes in production ecosystems can aid in delivering more optimal operational efficiencies and offering new data-driven services and product features, while those in consumption ecosystems should generate new services for users on digital platforms.
- Strategic scope – Expand your firm’s range of opportunities for value creation, moving beyond products to data-driven services and identifying new revenue-generating opportunities.
Act now, unlocking an ethical, data-driven future at your legacy firm.
The following action plan can help firms prioritize digital ecosystems and data:
- Map your ecosystem – Visualize your value chain network, all its connected aspects and physical interdependencies. Create a plan to embed sensors into your products, blueprinting your potential complement network and visually plotting how to connect them. Reflect on the digital technologies you will need to create your desired digital ecosystem.
- Assess your digital foundation – Assess the infrastructure of your production and consumption ecosystem, the scope of data your value chain network generates, the percentage of your customers who are currently digital (and the value of their data) and the scope and quality of your API network.
- Visualize your desired digital ecosystem – Where can you improve value chain efficiencies? What data-driven services and features can you provide? What can you learn from your competitors? How can you strengthen ecosystem barriers to ensure your competitors can’t easily copy you? How can you maximize the potential of sensor data in creating tethered digital platforms?
- Create a clear goal – Choose a realistic target for your digital competitive strategy.
- Build capabilities – What will you need to achieve your strategic goal? How can you create digital ecosystem infrastructures and generate the data assets required to reach your desired outcome?
While remaining competitive requires firms to leverage the full potential of data, it’s also important to consider data ethics and governance, respecting users’ expectations of privacy. Embrace best practices by doing the following:
- Make structural changes in your organization (for example, appoint a chief data officer who is responsible for the legal, ethical and security ramifications of your data use).
- Create processes to help you stay informed about evolving societal expectations regarding data and regulatory changes.
- Impose “data quality” processes and measures to help you encrypt data and ensure anonymity and customer opt-ins.
- Improve transparency regarding data usage.
About the Author
Mohan Subramaniam is a professor at Lausanne, Switzerland’s IMD Business School, who specializes in strategy and digital transformation. He is an MIT Sloan Management Review editorial advisory board member and regularly contributes to Harvard Business Review.
“The Future of Competitive Strategy: Unleashing the Power of Data and Digital Ecosystems” by Mohan Subramaniam is a groundbreaking book that delves into the profound impact of data and digital ecosystems on the field of competitive strategy. It provides a comprehensive and insightful analysis of how organizations can harness the potential of data and leverage digital ecosystems to gain a competitive edge in today’s rapidly evolving business landscape.
Subramaniam begins by setting the stage, highlighting the transformative nature of data and its exponential growth in recent years. He emphasizes the importance of data as a strategic asset and how it has become a critical driver of competitive advantage. The author further explores the concept of digital ecosystems, explaining how interconnected networks of organizations, platforms, and customers are reshaping traditional industry boundaries and creating new opportunities for innovation and collaboration.
With its insightful analysis and practical frameworks, this book provides a comprehensive guide for organizations looking to stay ahead in today’s rapidly changing business landscape.
- Timely and relevant: Subramaniam’s book addresses the pressing need for organizations to adapt their competitive strategies in the era of data and digital ecosystems. By examining the latest trends and developments, the author offers an up-to-date perspective on how organizations can leverage data and digital platforms to gain a competitive edge.
- Analytical approach: The book takes an analytical approach to understanding the role of data and digital ecosystems in shaping competitive strategy. Subramaniam provides frameworks and models that enable readers to evaluate their current strategies and identify opportunities for improvement in the digital age.
- Practical insights: The author offers practical insights and actionable recommendations throughout the book. From understanding the dynamics of digital ecosystems to designing effective data strategies, Subramaniam provides readers with tangible steps they can take to enhance their competitive position.
- Case studies: The inclusion of real-world case studies adds depth and context to the concepts discussed in the book. Subramaniam examines how leading organizations have successfully utilized data and digital ecosystems to drive innovation, create new business models, and outperform their competitors.
- Thought-provoking ideas: The Future of Competitive Strategy presents thought-provoking ideas that challenge traditional notions of competitive advantage. The author encourages readers to think beyond industry boundaries and explore new ways of collaborating and creating value within digital ecosystems.
- Accessible writing style: Subramaniam’s writing style is accessible and engaging, making complex concepts easy to understand. He avoids excessive technical jargon and presents ideas in a clear and concise manner, ensuring that readers from various backgrounds can grasp the content.
- Forward-thinking perspective: The book offers a forward-thinking perspective on the future of competitive strategy. Subramaniam explores emerging trends such as artificial intelligence, blockchain, and platform-based business models, providing readers with insights into how these technologies can shape the competitive landscape.
The core idea is that data and digital platforms are fundamentally changing how businesses compete. Companies now have immense amounts of customer and product data that they can use to develop new insights and dynamically optimize their operations. They can also leverage extensive digital ecosystems of partners, suppliers and customers.
Subramaniam proposes a new framework called “data-driven connected strategy” that businesses should adopt to succeed in this new environment. It involves four key dimensions:
- Data primacy – Gaining a deep insight into customers, products, processes and the market using data analytics.
- Dynamic optimization – Constantly optimizing processes, products and prices using real-time data and algorithms.
- Ecosystem leverage – Leveraging digital platforms and ecosystems of partners, suppliers and customers for mutual benefit.
- Velocity – Moving at the speed that data, algorithms and digital networks enable.
One of the key strengths of this book is Subramaniam’s ability to provide practical frameworks and actionable insights. He offers a systematic approach to leveraging data and digital ecosystems, guiding readers through the process of identifying and capitalizing on strategic opportunities. The author also illustrates his concepts with real-world case studies and examples, making the book highly relatable and applicable to a wide range of industries and organizations.
Another notable aspect of “The Future of Competitive Strategy” is its forward-looking perspective. Subramaniam explores emerging trends and technologies that are likely to shape the future of business, such as artificial intelligence, blockchain, and the Internet of Things. He discusses their potential impact on competitive dynamics and offers strategic recommendations for organizations looking to navigate these disruptive forces successfully.
The writing style in this book is accessible and engaging, making it suitable for both business professionals and academics. Subramaniam strikes a balance between theoretical concepts and practical implementation, ensuring that readers not only understand the theoretical underpinnings but also know how to apply them in real-world scenarios.
While the book primarily focuses on the positive aspects of data and digital ecosystems, it could benefit from a more balanced exploration of potential challenges and risks. Addressing issues such as data privacy, security, and ethical considerations would enhance the book’s overall credibility and relevance in an increasingly data-driven world.
In conclusion, “The Future of Competitive Strategy: Unleashing the Power of Data and Digital Ecosystems” is an insightful and thought-provoking read for anyone interested in understanding how data and digital ecosystems are reshaping the competitive landscape. It provides a clear roadmap for organizations to unlock the full potential of data and leverage digital ecosystems to gain a sustainable competitive advantage. Mohan Subramaniam’s expertise and practical guidance make this book a valuable resource for executives, strategists, and researchers seeking to stay ahead in the rapidly evolving business environment.