As digital continues to drive rapid advancement in the way we do business, very little escapes change. Product development, product delivery, and product support models continue to evolve at a breakneck pace. As once flagship product lines become commodities, many companies now ponder what digital is all about and what it means to their company. As addressed in the previous paper, Survival of the Fittest, digital in a business context can be viewed merely as advancing multiple technologies that work together to allow companies to rethink their products, manufacturing, and services in ways that were not previously possible. One frequently asked question is “where to start?” Whether you are a startup or a Fortune 500 company, one way to begin your digital journey is to redefine the current popular focus on the Three P’s of Management: People, Process, and Product. A more digital-friendly focus of Management is a mix of People, Process, and Platform.
There should be little doubt that people will continue to be vital to the success of business for the foreseeable future. Without good people, proper processes and a deliverable that fills a need can only do so much. Assuming a company has hired the right people, the second element necessary for success is having processes that make sense. How well a business develops and executes its processes will still be essential. These processes will most likely change significantly as the company embraces its new digital reality, but they will remain critical. The real game-changer for a company will be switching from an end product focus to a platform focus, with the product being a subset of the platform. The product is still essential because the end product will need to benefit the end-user. However, now within a platform, the product will need to be redefined in terms of how it delivers value, how revenues are generated, and how malleable the product needs to be for the new business model.
As digital continues to drive business change, it will become even more imperative for products to communicate, share data, and build synergies within the platform. More and more products and services are no longer acceptable as stand-alone deliverables. To avoid the inevitable commoditization of stand-alone products, companies will need products that standout due to the synergies created by making them easy to plug into a platform and connecting them to the world. The platform where products plugin and how that platform interacts with other platforms within an industry will determine the additional value-add a product can bring to the market. A platform focus will allow a business to adapt more rapidly to changing demands, open up new revenue streams, and will allow for a more rapid rollout of supplementary products. In contrast, stand-alone products will continue to become commodities and eventually irrelevant.
Amazon may be the most exceptional example of how a digital platform allows a business to dominate competitors and rapidly expand its business offering with minimal additional investment. Amazon started as an online bookstore and has now completely changed the face of retail. Further, the global pandemic has increased its dominance over non-platform-driven retail competitors.
Apple is another success story for creating value around a platform. Before the iPod, Apple was primarily a computer manufacturer. They realized they needed to change their business strategy away from creating value around heavily commodity-driven personal computer markets towards creating new markets through its digital platforms. When Apple launched the iPod, they didn't invent anything. They merely took an existing data compression algorithm used to compress music files, modified it slightly to make it their own, coupled it with a laptop hard drive, a small display, and created an intuitive way to navigate songs, artists, and playlists. Nothing from a hardware perspective was revolutionary. What was novel was how it allowed a user to shop for, purchase, and store their music. The popularity of the iPod helped drive down the price of solid-state memory, which helped make the advent of the smartphone possible. We all know what the smartphone has done for Apple. The key to all of this happening was the launch of iTunes, Apple's platform for promoting, selling, and storing music. The iTunes platform helped reinvent Apple and ultimately disrupted the entire music industry. This disruption put a significant portion of the revenue into Apple's bank account. And Apple continues to expand its revenue streams through digital platforms.
Adopting a platform-centric business strategy allows businesses to take on a digital-friendly mindset with the following benefits:
- Create a differentiating value for a commoditized product: Companies that once had best in class hardware products are now falling behind as customers expect more than stand-alone products. If your customers tell you they want more from your business, and you can not figure out how to expand your scope, it is probably time to rethink your entire business strategy.
- Develop new revenue streams and business models: As the value of stand-alone products continues to fall, businesses need to look for additional revenue streams through integrated products, as well as services that add value through data-driven features such as advanced data analytics.
- Reduce costs to develop new products: Software products are faster, cheaper, and less risky to develop than hardware products. An adequately designed digital platform has a significant overlap between products that have zero or near-zero cost for the overlapping functionality. The economics are also attractive for a business built around a digital platform versus a hardware product. There is a reoccurring component and manufacturing cost with each unit sold for hardware-based products. In contrast, digital platforms and products have an initial up-front cost for development, but they can be scaled with little or no additional investment.
- Design an appropriate digital platform that can future-proof your products and allow you to surf the upcoming waves of digital change: Well thought out software and data-driven products should be hardware agnostic, portable, and migrate easily to newer technologies, which avoids product obsolescence.
- Keep pace with rapidly evolving markets: Customer and market requirements are quickly changing and much easier to keep up with through regular software updates versus hardware redesigns.
- Adapt to unforeseen changes quickly: It is not a coincidence that restaurants with a strong online presence offering delivery and pickup are doing better than restaurants that are primarily dine-in only during the COVID-19 pandemic. Wall Street has also noted that during this pandemic, two economies have clearly emerged, the regular economy and the "digital economy."
Taking the first step is often the hardest part of any journey. It may only be a baby step, but what is important is starting the journey in the right direction. Whether your products are tangible items, software, or services, there are significant benefits to analyzing how your products can plug into the world and what type of platform makes sense for adding customer value. This analysis is a critical first step in your digital transformation journey.