It is often said that senior executives in the public and private sectors should acquire digital expertise - and this does not mean Excel and mobile apps.
Digital expertise involves more than simply using Excel, mobile apps and social media. Above all else, it involves understanding that competitiveness in the digital world is based on other parameters that open up entirely new opportunities in terms of value creation and growth – and also accepting the business consequences of this.
In my view, there are three central concepts to digital expertise: customer-centric ideas, smart algorithms and dynamic networks. These concepts constitute my digital ABC.
The customer or the egg?
Customer-centric ideas in the digital world enable far more than can be achieved with classic business models. Anyone who has studied business will have heard of Fredrick Taylor and Michael Porter. According to traditional thinking, subcontractors, production, logistics, distribution and marketing follow one another neatly. Customer service is the final part of this model, and last of all the end-customer, with organisations promising quite correctly to put the end-customer at the centre of what they do. With this classic framework, who would ever think of launching a taxi company without owning a single taxi?
Yet this is what Uber did. I will leave the regulatory issues to one side, and simply point out that Uber has adopted the customer’s perspective in order to improve the experience of taking a taxi. By using an app to order a taxi, you avoid having to wait on the telephone and to explain where you want to go, and you also see how much the journey will cost and can pay directly. Also, if you are not satisfied, you can use the app to give feedback that other users can see.
Why had nobody thought of this before? The answer is that nobody had put themselves sufficiently in the customer’s shoes and seen how the customer experience could be simplified and improved. This is what customer-centric organisations think about, without concerning themselves too much with what they might otherwise lack in terms of the rest of the value chain.
Uber is now worth over USD 50 billion, which is equivalent to NOK 400 billion, making it approximately the same size as Statoil. In Manhattan, where 80% of New York’s taxi journeys start, Uber is now responsible for as many journeys as traditional taxis.
Recipe for success
The significance of smart algorithms is the second thing we need to understand. In simple terms, algorithms are series of codes that make a digital solution accurate. They are the recipe for its success. Developing, implementing and continuously improving the algorithms that are used in digital business models have become significant competitive factors. Amazon is a good example of this. According to our experts, Amazon’s core algorithms are updated every 11 seconds. On the basis of your previous transactions, searches and clicks, Amazon constantly works to find products that you might, or perhaps even should, be interested in. If a lot of other people in your category choose a specific item, then this item will be promoted to you even more strongly. Amazon is like a shop in which all the items continually move around, are made more or less prominent, and are reordered to suit whoever comes into the shop. Pricing offers, quantity discounts and cross-selling opportunities can be developed just as flexibly. Smart algorithms enable every customer to be treated in a wholly unique way, and we have only seen the start of this. The combination of global scale and individual customer experience is challenging traditional competitive thinking and segmentation strategies.
Networks are key
Google, Amazon, Facebook, Uber and AirBnB take full advantage of the dynamics of the network. This is not about a passive landscape of networks such as railways, roads, junction boxes, base stations and cables. This is instead about a network that, by its nature and continuous development, is far ahead of the physical distribution and communication networks of the industrial age. This is a living, expanding network of information, business opportunities and partnership possibilities where smart algorithms and customer-centric ideas make it possible to jump from one industry to another. The Uber of tomorrow could be for home help services or for fighter jets, as the principle – the interconnections made possible by the network – and the digital implementation involved is basically the same. Networks and network effects are core to all disruptive businesses.
Understanding network effects, the significance of algorithms and the development of intelligent systems, and going on to understand what opportunities and threats these represent for existing businesses is, in my opinion, essential to digital expertise at the executive level. Executives must also engage with questions concerning the significance both large and small dynamic networks can have for their own company’s business models and the industry in which they operate. The most significant aspect of this is network dynamics. This means everything that goes on behind what we actually see, which is what readily catches our attention.
Sensors, smartwatches, 3D-glasses and other such gadgets are only simple pieces of equipment on top of a network that is more and more alive every day, and we are only at the beginning of this process. Recognising this can be profound step forward.
CEO of EVRY
(Also published in Björn Ivroth’s column on E24.no)
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