Last year, IBM’s Institute for Business Value published Incumbents Strike Back, a global C-suite study based on survey data from over 12,800 executives from 112 countries, including CEOs, CFOs, CMOs, COOs, CIOs, and CHROs.
“Two decades after the Internet became a platform for transformation, we’re still wondering how it all might turn out,” notes the report. “The signals aren’t always clear. Today, winner-take-all organizations are on the rise, but collaborative ecosystems are flourishing as well. Even in industries where competitive concentration is increasing, innovation hasn’t – as would be expected – flatlined.”
Overall, respondents were evenly divided on whether the key to the future are established markets or new ones. But they stand in close agreement on two areas: 68% of executives said that their organizations will emphasize customer experience over products, and 63% said that they will continue to expand their networks of business partners.
There was also general agreement on the top external forces that will have the greatest impact in the 2-3 year timeframe: 69% said market factors such as increased competition and changing customer preferences; 63% said technological factors; and 61% said people skills, reflecting the increased importance of talent and ideas.
The study revealed three kinds of organizations, each with distinct characteristics reflecting where they stood along their digital journey: reinventors, practitioners and aspirationals.
- Reinventors made up 27% of all organizations. They’ve outperformed their peers in financial results and innovation over the past three years. Their IT and business strategies are closely aligned. They have a well-defined strategy for adapting to and managing disruptions. They have a broad network of ecosystem partners, and are ahead of all others in co-creation and collaboration with customers and partners.
- Practitioners made up 37% of the total. While ambitious, they haven’t yet developed the capabilities to match their ambitions. Half of them plan to launch new business models in the near future. Some are formulating plans to try to disrupt their industry
- Aspirationals made up 36% of the organizations surveyed. They have a ways to go in their digital journey, which hinders their ability to seize new opportunities. They face a number of challenges, including formulating and executing the right strategy, and acquiring the appropriate talent and partners.
The rest of the report is organized around four main topics: incumbents hit their stride; the path to personalization; the pull of platform business models; and agility for the enterprise. Let me summarize the key findings on each topic.
Incumbents hit their stride
“What happened to the threats evoked by the ‘uberization of everything,’ the triumph of the sharing economy and industry boundaries blurred beyond recognition?” A few years ago, many expected that new technologies and business models would lead to major industry upheavals. But, it hasn’t quite worked out as expected.
In general, executives don’t seem all that worried about the impact of disruption on their companies. Only 27% of C-suite executives say that they’re experiencing significant disruption and 23% are concerned with competition from companies outside their industries. On the other hand, 36% of respondents report little or no impact from disruption and 44% don’t see any urgency to fight off disruptive changes by transforming their companies.
Executives are now saying that the biggest competitive threats aren’t coming from fearsome digital giants or fast moving startups. Instead, they’re most worried about “the once lumbering, now innovative, industry incumbents.” 72% say that these innovative industry incumbents now lead the disruption in their industries, and 34% say that the disruption is being led by the digital giants, e.g., Google, Amazon, Apple, Alibaba. 23% say that the disruption is coming from companies in other industries, while only 22% say that it’s led by startups.
What’s changed in a few short years? Is disruption now dormant? “Not likely,” says the report. The key disruptive forces of the past 20 years, - broadband Internet, ubiquitous mobility, e-commerce platforms, digital media, - may well have run their course. In their wake, quite a few companies went under.
“The organizations that weathered recent disruptions have likely grown stronger – and better ready to transform - as a result. Certainly, they’ve learned a thing or two in the 20 years since Clayton Christensen popularized the phenomenon of disruptive innovation… C-suite executives are responding to the changing nature of disruption – dominated by incumbents – by acquiring new skills,” including the acquisition of nascent disruptive startups along with their digital skills and innovation talent. “The Reinventors, who outperform their peers and lead in innovation, have become adept at ecosystem advantage, partnering with organizations in their value chain and even sharing physical assets and people skills with them.”
The path to personalization
The vast majority of organizations believe that the digital transformation of the customer experiences (CX) is one of their top priorities. 86% say that they’re at least somewhat effective at doing so, while 53% consider themselves quite effective. Are they correct in their self-assessment? “There are reasons to believe many may not be,” notes the report. Organizations generally underestimate the daunting complexity of understanding “the motivations, desires, temperament and in-the-moment moods” of their customers.
The survey revealed that the key to success factor for digital CX initiatives is the ability to leverage data. This is a key differentiator between Reinventors and everyone else: 82% of Reinventor organizations say that they’re effective (43%) or very effective (39%) at using data to understand their customers’ unmet needs; 62% of Practitioners say that they’re effective (49%) or very effective (13%); and only 35% of Aspirational organizations say that they’re effective (25%) or very effective (10%) at uncovering customers’ unmet needs.
This is not surprising. Beyond the ability to collect and analyze data, understanding customers’ needs requires a sharp focus on design thinking, that is, on approaching problems with a sense of empathy, - putting oneself in another’s shoes to better understand what another person is experiencing from that person’s frame of reference. Reinventors do this well, but they only make up about a quarter of all organizations surveyed.
The pull of platform business models
Network effects drive the business models of successful platform companies. The more products or services a platform offers, the more users it will attract, helping it then attract more offerings, which in turn brings in more users. Moreover, the larger the network, the more data is available to customize offerings to user preferences and better match supply and demand.
Attracted by their potential for outsized returns, around 46% of organizations are either investing in or considering platform business models. Based on the responses to several questions, the study concluded that successful platform operators need to exhibit three key attributes: cultivate reciprocity and mutual value within the platform ecosystem; leverage data to continuously recalibrate strategy and operations; and commit to innovation, including cloud, AI, IoT and blockchain.
“Whether organizations choose to operate or participate in new platform business models, they will likely be competing with them. As platforms proliferate, every industry seems likely to feel what’s been called the Amazon effect: the endless evolution and disruption of its markets.”
Agility for the enterprise
“Asked to rank the capabilities most instrumental to their success, CEOs… cited two characteristics above all others: a new willingness to experiment and the support of empowered employees.”
Leaders of Reinventor organizations stood out in one important respect… “more of them attributed their current success to learning to think in more agile and flexible ways… [and] have designed their operations and organizational cultures to embody this flexibility of vision.” As a result, these leaders aren’t daunted by all the changes happening around them. 81% of Reinventors said that their leadership has a strong understanding of their industry direction, compared to 66% of Practitioners and 43% of Aspirationals. In addition, Reinventor executives lead from a position of trust. 75% actively solicit ideas from employees, compared to 54% of Practitioners and 38% of Aspirationals.
Collaboration across institutions and industries is increasingly viewed as the surest path to innovation. “Ecosystems are shifting the balance further away from top-down control and toward autonomy. Teams, once locked in place, now assemble on the fly and move in a flash from new insights to smart experimentation and consequent action.”
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