Exclusive Excerpt

Digital Business Transformation: How Established Companies Sustain Competitive Advantage From Now to Next

This book uses the term "digital business transformation” rather than the shorter and more generic “digital transformation.” There is a good reason for this.

Often, “digital transformation” was and, for some, still is associated solely with technological change. Digital business transformation is nothing but business transformation for the digital age. Rather than digitizing parts of the business or adding some limited digital revenues as a stopgap, the focus of this book is on how to become digital at the core: to build and sustain a digital moat that is complete, wide, and deep. Digital business transformation is a holistic approach to changing the way an organization thinks, organizes, operates, and behaves.

Four forces of connected change are causing companies to rethink everything about how their businesses operate:

• Customer behaviors
• Technological change
• Business models
• Societal change

As disruptive technologies and companies continue to raise consumer expectations, business environments (stretching from products and services to manufacturing and marketing) are constantly changing. Digital business transformation closes the gap between what consumers expect and what their traditional business models can deliver.

Digital business transformation is a journey that trumps its destination, a journey that asks businesses to reimagine and rapidly realize new ways of working and satisfying consumer expectations. It has a slightly different meaning for each organization and uses different tools to address the unique challenges of each business. Most important, digital business transformation could mean the difference between an organization surviving the next five years or not.

What’s particularly challenging for established businesses is that acquiring technological capabilities alone will not be sufficient to create the kind of moats you see surrounding the most successful digital companies. The competitive advantage of digital companies comes from their integrated set of capabilities, what they are able to create with those capabilities, and the cultural principles that underpin the systems that create their outputs. Digitally native companies consistently challenge established brands in platform business models, network effects, convenience, agility, and customer experience. These are the outcomes of their “digital moat” – the competitive advantage created through their digital capability.

While it is one thing to talk about the digital moats of digitally native companies, changing an established organization’s orientation to how they create value is incredibly daunting. One recent example is the Walt Disney Company’s launch of Disney+. Bob Iger, Disney’s CEO, had spoken about the importance and challenge of maintaining “relevance” and being open to disrupting yourself, even when that means changing some of the foundational aspects of what made you successful to begin with. With Disney+, the company disrupted the licensing, sales, and distribution of their most core asset: their content. To enable this new model, in 2018 Disney announced a reorganization of the business, placing the management of their direct-to-consumer distribution platforms, technology, and international operations under a single leader to support not only Disney+, but ESPN+ and Hulu through more connected technology, data, and experience capabilities. The integration of these capabilities surfaced greater customer insights that enabled more personalization and improved user experiences.

When Disney+ was launched in 2019, Disney projected it would have between 60 million and 90 million subscribers by 2024. However, by May of 2020, it had 54.5 million, accelerated by demand from the COVID-19 pandemic. By comparison, Hulu was reporting 31.2 million subscribers and Netflix reported 182.9 million internationally. During the 2020 Q2 earnings call, when the COVID crisis shut down revenue from its parks and cruises, Disney reported positive overall growth, much of which was attributed to the new Disney+ business model.

What Disney did was to launch a successful digital streaming business, which now increases its relevance. But that was also only one step in creating a competitive digital capability. Disney will be taking on the challenge of evolving their new subscription-based streaming service, the consumer content demands associated with the likes of Netflix, and creating an experience that reflects their brand and meets the expectations of consumers over time. From here on, Disney+ will need to nurture and support an operating model that will continuously evolve and create value over time.

Successful digital business transformation requires a different understanding of, and approach to, your strategy capability and the role it plays in your organization. It should guide your “where to play” and “how to win” but also how you determine funding, connect capabilities, and bring new products and services to the right market, profitably.

One of the first shifts your strategy capability must make is to move your organization’s primary strategic focus away from your competition and toward your customer: Are you meeting their needs consistently, and are you operationalizing that strategic shift? Your digital vision should connect the purpose you serve in a customer’s life to the solutions you can create from your digital capabilities.