The following is excerpted from “Everybody Wants to Rule the World: Surviving and Thriving in a World of Digital Giants” by R “Ray” Wang. Copyright © 2021 by R “Ray” Wang. Used by permission of HarperCollins Leadership. www.harpercollinsleadership.com.
Over the past decade, digital transformation has evolved from being the “new thing” in business to “business as usual.” Before COVID-19, business leaders faced massive pressure to not only embark but also complete their companies’ digital journeys. Most were either trying to play catch up to startups that had come out of nowhere to disrupt their industries or to existing competitors who had gotten an earlier start at digital transformation. Since these leaders had no margin of error, they tried to find a playbook or blueprint to show them exactly how to execute their digital transformation strategy. They sought case studies and examples of successful companies they could model, anticipating their boards’ reaction to the digital transformation plans they were considering: “Has this been done before? Where?” Of course, these boards were missing the point.
Organizations traditionally have prioritized their strategy and budgets according to the “business hierarchy of needs.” Remember Maslow’s hierarchy of needs? This theory, which seeks to define the needs that motivates us, suggests that, at the very basic level, we are driven by our physiological needs for air, food, water, shelter and so on. At the next level, we are driven by our need for safety (i.e., feeling safe, having a secure job, being healthy, having enough resources). From there, the next two levels up focus on our need for belonging and love (e.g., from our relationships, friends, society) and the need for esteem (feeling accomplished, respected, achieving status, having freedom or agency and so on). The top level is characterized by our need of self-actualization where individuals achieve their full potential and also self-awareness.
The business version of the hierarchy of needs also has five levels:
- The base level is the need to be in sound regulatory compliance. The goal? To keep everyone safe by following the rules and avoiding risk.
- The second level of needs is operational efficiency. The goal at this level is to ensure the operation is running smoothly and as lean as possible: focus on cost savings, improvements in throughput and automation.
- The third level of needs is a focus on revenue and growth (e.g., selling motions, pricing strategies, indirect channels, new offerings).
- The fourth level is business model transformation. At this level, organizations focus on improving and optimizing both their monetization models and business models.
- Brand caps off the top of the hierarchy, when organizations zero in on clearly defining their mission and purpose to align with their actions.
In the business hierarchy of needs, business executives have traditionally focused first on regulatory compliance and operational efficiency. Finding ways to mitigate risk and save money always seems easier than growing the business. So, true to form, instead of going for bold digital transformation initiatives, most boards and their complicit executives opted for smaller projects that typically solved … regulatory compliance issues and improved operational efficiency. Bird in hand, they said!
It’s not like these companies were equipped to do much more than that: most of their executive teams lacked the skill set to drive organic growth and invest for long-term innovation, anyway. Instead, they were laser-focused on the short-term, quarter-to-quarter metrics emphasized by their boards. They had gone accustomed to the same tried and tired MBA playbooks and strategy consultant decks. The result? As they focused on the bottom of the pyramid, only a few companies enjoyed breakthrough and sustainable success.
That’s because successful digital transformation requires a fundamental shift from focusing on mitigating risk and operational efficiency to developing a mindset fixed on growing revenue and developing new bold business models. Success requires a complete rethink of the brand. Companies have to ask themselves, “What’s our mission and purpose?” “Why do we exist? They have to differentiate themselves from competitors by crafting new business models. They must sell the right offerings to their customers. What about operational efficiency and regulatory compliance? Sure, these are important, but to effectively transform the company, organizations must automate through software and data much of the work typically done to improve operational efficiency and regulatory compliance. Companies must have their best people focused on the top of the pyramid, not on cutting a penny here and there.
In short, companies must flip the pyramid.
But today, many of us who led full-scaled digital transformation efforts by flipping the pyramid feel that we’ve achieved only limited success for these herculean efforts. Yes, some of us survived to fight another battle. But the investments we made have proven not enough to succeed in our current business environment. So, what has happened? Why did all this effort not result in game-changing transformation? We did all the right things. We transformed business models. We changed engagement. We were supposed to come out winners. And yet, only a few of us have made it past the finish line. Something is off.
Suddenly, successfully embracing digital transformation is not enough. Our competition is no longer who we thought it was. As the number of our direct competitors fall by the wayside and pose less of a threat, competition from non- traditional players continues to increase.
As it turns out, while we were heads down on digital transformation, a very small but clever group of business leaders (helped by investors who took our hard- earned profits to fund startups to compete in our same markets) figured out how to disrupt those of us embarking on digital businesses. They were focused on creating the next big thing. This wasn’t a new methodology nor was it a technology shift. This was much more than a new business model. It was a business built on the power of multi-sided networks and massive amounts of data — and determined to dominate their markets and, maybe, share the stage with whomever won second place. As the coronavirus hit, swallowing with it thousands of businesses that couldn’t survive the economic shutdown that followed, these duopolies simply got bigger and more powerful.
In the wake of COVID-19, duopolies will be more disruptive than any other business force we’ve seen before. We will simultaneously face a massive crisis and opportunity to reinvent our businesses. But to succeed in this post-pandemic age of duopolies, companies will not be able to engage in “business as usual.”
Simply embarking in yet another digital transformation won’t be enough. First, they will have to examine and avoid the traps that lurk within our corporate cultures, preventing them from engaging in meaningful, substantive change. Then, they’ll need to completely rethink how they approach their businesses, so they can truly compete in this brave new world.
“Everybody Wants to Rule the World” is available now and can be purchased via StartupNation.com.