According to a recent article by McKinsey, top performing companies have high ambitions about continuing to make investments in technology. This is not surprising. But how companies plan to leverage technology to differentiate their companies is what is noteworthy.
There are several reasons why top performers usually keep an eye on tech – to maintain their position of strength and to keep pace with industry change. To jump into the top quintile of performance in today’s market, however, gross margin needs to reach the top 30% in your industry over 10 year period.
Digital technologies are being leveraged to innovate on business models, products and services. At the heart of tech is a focus on analytics – leveraging data to produce organizational insights. For example, Coca-Cola’s analysis of social networks and engagement led to enhanced customer acquisition and retention. Amazon’s analytics of customer buying habits and supplier interaction led to their partnering with Whole Foods. Marriott’s analytics of buying patterns has resulted in dynamic pricing which has resulted in a 5% revenue increase per room. Digital menus in the drive thru’s at McDonalds has resulted in mass customization roll outs and cost savings. Rewards programs at Starbucks leverage big data to provide customers with customized options based on season, weather and location.
In addition to offering insights into customer preferences, technology and digital continue to be avenues through which companies can make big moves to outperform their competitors. These include:
- Delivering digital products, services and experiences – digital products and services are intangible goods that exist in digital form and offer some type of utility to someone. Digital products include things such as e-books, photos, music, research, software, recipes, apps, podcasts, etc.
- Focusing on lean innovation – lean innovation is about discovering how to discover, create and deliver value to customers in ways that are efficient and valuable to the customer. This can occur through capturing customer feedback and experimentation throughout the development process.
- Investment in differentiating technology – investments in tech to enhance product or service offerings can offer enhanced value to customers. For example, leveraging tech to deliver instruction can result in higher customized and tailored experiences to students as they learn.
- Leveraging technology to reduce capital expenditure – investments in automation, digital architecture, and applications can help save money and enhance productivity. Examples such as automation of invoicing and payroll, leveraging cloud technology to remove physical servers, or using VOIP instead of physical landlines can provide significant savings over the long term.
- Using insights from analytics to uncover areas of value to guide reallocation of resources – descriptive, diagnostic, predictive and prescriptive analytics all provide information about various aspects of your business in order to enhance decision making. These insights can also be leveraged to guide future strategies, determine areas of potential profit, and guide day to day adjustments within business operations.
- Considering digital capabilities when determining mergers and acquisitions – the existence of digital capabilities can significantly enhance the value proposition when looking for the right deal. Digital capabilities can assist with centralization, acceleration in maturity, enhanced value generation and speed, and an increased ability to execute.
Competitive differentiation has historically originated from a variety of activities, and these change over time as societies mature. As many companies nowadays undergo digital transformation, value is increasingly derived from digital capabilities and technology. When combined with agile delivery, which is focused on finding iterative ways to understand problems and identify solutions, both tech and non-digitally native companies are able to uncover new areas of strategic differentiation, and achieve new capabilities that contribute toward their success.