The time it takes from making a strategic or operational decision to its full implementation will directly impact an organisation’s competitive advantage. By leveraging digital ways of working and technology an organisation can potentially affect this process dynamically. So what are the strategic benefits of such Digital Elasticity? Here are some ideas…
First Mover Advantage
Getting an innovative product or service to market first potentially confers a monopolistic position for an organisation that generates sustainably higher revenues than competitors. B2C markets, where customer switching costs are low (such as telco) or where governments are actively intervening to reduce barriers of entry to increase competition (like utilities and personal banking), are key battlegrounds to exploit such an approach.
Adopting a User Centred Agile approach to delivery or to change an organisation can enable First Mover Advantage capabilities. It should be noted that Agile isn’t necessarily faster or cheaper than a staged, gated Waterfall approach. However, it is far more responsive to changing market conditions because it drives the design and release of a product or service through a series of customer-focused iterations – rather than the “all at once” functional requirement focus typical of Waterfall. Consequently, an organisation can use the Digital Elasticity of User Centred Agile to get to market first and then use this approach to further enhance its offering dynamically to sustain profitability (and also create other barriers of entry for competitors).
The Digital Transformation challenges an organisation faces in embedding a scalable User Centred Agile approach across its value chain should not be underestimated. A key challenge is sustaining effective collaboration and alignment of pace (or velocity) between different, complex business areas of its operating model in an environment where these stakeholders’ goals may be materially divergent.
Second Mover Advantage
Exploiting the lessons learned from a competitor going to market first through imitating (or bettering) their design, pricing and brand positioning can be a source of sustainable competitive advantage. Players within the consumer electronics industry often demonstrate such competitive behaviour – for example, the fierce competition between next gen gaming consoles during the last couple of years, where rival companies played off each other’s hardware design, pricing information and launch date announcements to try to exploit Second Mover Advantages.
For an organisation choosing to delay going to market (by possibly months or even years) a key risk is the negative impact on its strategic (or non-current) assets. These under-utilised assets (such as IT property or equipment that drive its supply chain processes) will not generate revenue or value during this period but continue to generate costs and depreciation of commercial value. However, an organisation could lever Cloud Computing Capabilities to transform its IT asset base. Such a move transfers the risk of obsolescence of these assets to a third party while materially reducing operating costs. They should also become highly Digital Elastic through on-demand availability to enable Second Mover Advantages, and they shouldn’t create sunk costs or other liabilities like their on-premises equivalents.
This strategic move to be effective requires an organisation to select the right Cloud Services provider as a partner who can deliver these mission-critical capabilities competently short and long-term – successful Second Mover Advantage becomes contingent on “moving parts” beyond the direct control of an organisation.
If Artificial Intelligence (AI) can live up to its promise to make effective business decisions using the complex data it rapidly consumes from potentially any source (including social media and Internet of Things sensors), an organisation could lever the Digital Elasticity of Automatic Advantage to eliminate human error, touch points or process bottlenecks to gain sustainable competitive advantage. An example could draw from usability testing data where an AI could make a design decision about a website and implement this change instantly to drive up conversion rates. Alternatively it could implement a new pricing strategy across all customer channels based on forecasted patterns of demand and anticipated competitive behaviour (AI algorithms are currently being tested as a way of predicting the stock market to help pilot such an approach).
Other applications could include the use of AI to apply Six Sigma or Lean approaches to eliminate defects or reduce wasted effort in manufacturing processes.
However, the Digital Elasticity of Automatic Advantage would mean an organisation accepting new forms of risk not previously encountered – such as who is accountable or responsible if the AI makes a bad business decision? How can tacit knowledge or experience gained by the AI be effectively shared with other systems or its human counterparts to drive sustainable competitive advantage? What are the implications for human resource talent management and retention within an organisation?
Despite these challenges however, the potential of an AI to make and implement informed strategic or operational decisions without the risk of “human delay or error” could potentially render First or Second Mover Advantages obsolete.
If you would like more information about how digital transformation can benefit your organisation please contact the Sopra Steria Digital Practice.