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How to Make Digital Disruption Work For You

by Esme Learning

By the early 2000s, Amazon had all but decimated brick-and-mortar retailers. While most specialty stores succumbed to the Amazonian onslaught, consumer electronics retailer Best Buy took a stance. To counter showrooming (checking out an item at a physical store and buying it cheaper online), they disrupted their business model with a price-matching guarantee.

They harnessed their vast knowledge of electronic products to offer customer consultations, while behind-the-scenes, they implemented policies to grow their skilled and loyal employee base and closely integrate their omnichannel experience. Best Buy may be one of a few specialty retailers to successfully compete with giants like Amazon. 

Digital disruption is not about technology

The MIT Center for Information Systems Research (CISR) points out that when it comes to digital disruption, “it's about change. And it is not whether that change will come, but a question of when and how. In the new digital economy, many enterprises won’t succeed by merely tweaking the management practices that led to past success. To thrive in a digitized universe, businesses of all sizes will need to reinvent themselves and substantially change their organizations.” 

Facing digital disruption requires serial innovation and continual experimentation

As businesses large and small continue to feel theseismic waves of digital disruption, MIT CISR suggests that the best way forward is for companies to become “serial innovators,” leveraging technology to engage in multiple fast-paced experiments. According to research scientists Nils Fonstad and Martin Mocker, serial innovation is the pathway to developing "revenue-generating solutions to what customers want and are willing to pay for, inspired by what is possible with digital technologies.”

Mocker says that businesses “have got to experiment and many of these experiments will fail.” If a company is trying out only three new experiments with a 90% failure rate, they’ll be gasping for success.

The above researchers cite thecase of 140-year-old German insurance company Munich Re, who, by 2020, had launched 70 digital offering initiatives. Ten of these are on the market or about to be released, and several have led to new sources of revenue. Dirk Heiss, head of digital platforms at Munich Re, says that without its innovation initiative, “we’re the incumbent who will be attacked by new players.”

Develop a “test-and-learn” mindset to make digital disruption work

This test and learn approach gives team members the freedom to try new things, test new ideas in incremental ways and evaluate if they’re worth pursuing long-term.

In today’s digital economy, a long-term development process for a new initiative would be too restrictive. Businesses need to quickly discover whether their customers are onboard with their changes and if it would be profitable for the company to scale up those changes. Researcher Nils Fonstad says, “If they learn that in fact their effort merits the next round, the next stage in development, fantastic. Go for it.”

Employee buy-in and internal capabilities are crucial for digital disruption 

Companies looking to build digital initiatives work with startups, invest in new firms or use external corporate accelerators. As important as these options are, they don’t build a company's internal capabilities and only focus on external solutions.

In the case of Munich Re, the company asked employees to find common challenges in their services and then build offerings around them. Offering employees a chance to participate in the process gave them a sense of ownership and responsibility. Building their internal resources helped Munich Re gain a competitive advantage against startups and other companies. The test-and-learn mindset would hardly work without employee support.

Focus on value you’re getting out of your digital initiatives 

For digital initiatives to lead to new sources of revenue, a company’s strategic target should focus on providing value. Top management needs to clarify how digital offerings will bring value to the organization, such as by offering new services to customers.

As Munich Re’s Heiss points out, “What we're trying to do is develop new technologies, develop new offerings, which always link back to our core business.”

In the face of mountainous change, businesses need both a startup mindset as well as a grounding in its core business. How do you plan to respond to the incoming digital disruption? Learn more in our Oxford Platforms and Digital Disruption programme.
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