Digital: the new competitive advantage
Companies across different sectors are searching for the right ways to exploit digital ways of working and technology to sustain and grow their profitability.
But is the key to maximising the strategic potential of digital actually about subverting this traditional view of company performance? Here are some ideas…
Digital as a market transformer
Amazon has never been about short term profitability – in fact despite its massive revenue growth (reportedly up 21% to $89.9 billion in 2014) over the last twenty years its profits have remained inconsistent. Rather, it’s pursued a diversification strategy by using emerging technologies to penetrate and innovate different markets (including on-line retailing, cloud hosting and media distribution).
This strategic application of digital-enabled market transformation is creating new forms of customer demand and supply chain processes that few competitors can effectively respond to.
Furthermore, not only did Amazon legitimise on-line retailing as a viable sales channel, its focus on revenue/market share growth has empowered it to innovate the whole end-to-end customer experience (to the point where even the rapid delivery of goods using drones looks feasible).
As a result some competitors are adopting or adapting elements of this approach. For example, on-line supermarket Ocado has invested in digital technology to automate its supply chain and use these savings to drive its price competitiveness. Argos is also making an investment in transforming the physical retail experience by trialling integrated stores with Sainbury’s and is now offering same day home delivery for goods ordered on-line.
Arguably, had Amazon primarily pursued a strategy of profitability (over investing in growth through diversification) it would have severely limited the competitive advantage offered to it by digital.
Digital as an asset
Cross platform mobile messaging service WhatsApp was bought by Facebook for $16 billion last year. At first glance it’s not entirely clear how Facebook will make a sufficient return on this massive investment given market saturation of such applications and its limited potential for short-term monetisation (its product-focused approach means it doesn’t carry ads; revenue is generated by an $1 annual subscription fee against low operating costs).
However, there is so much more to Facebook’s acquisition of WhatsApp than exploiting its short-term profitability – Facebook now has complete control of this rapidly growing digital-enabled asset. At time of writing, WhatsApp is the world’s most popular messaging app with an estimated 900 million global user base with an additional 1 million new users registering each month.
Competitors have no direct access to this huge social media channel and the customer behaviour data it generates – Facebook is using strategic asset acquisition to create an unbeatable barrier of entry and opportunities for future profitable growth.
Digital as a public service
Google offers a suite of cloud-based products and services, many free at point of use. Accepting there are usage limits in place (for example, high traffic websites incur fees for using Google Maps APIs) – it can be argued they provide benefits to people that cannot feasibly be delivered directly by the public sector. Consider the educational value of Google Earth for instance – a public sector organisation would probably face a range of political, economic and technology challenges if it tried to implement this tool by itself.
This approach to digital-enabled public services blurs the corporate and community boundaries of Google’s brand; fostering goodwill from its customers and employees alike (so driving demand for its advertising platforms and other paid services while intrinsically motivating employee performance). Google eschews the potential short time profitability of its products and services for altruistic reasons that ultimately confer greater competitive advantage.