Credit by Venkat Venkatraman
In the digital age, when competitive landscapes can be transformed overnight, the need to spot and react to changes early has never been greater.
Adapting to Change
Based on my research of more than 30 companies facing the challenges of responding to digital shifts, there are three steps companies need to follow to successfully adapt to changes in their environments. First, they need to search for weak digital signals that indicate things are shifting. Second, they need to assess the potential impacts of the changes. And finally, they have to develop a coherent response.
1. Search for Weak Digital Signals
Automakers and key suppliers in the automobile industry now recognize self-driving cars as strong digital signals. But one can argue that they could have noticed the weak digital signals more than a decade earlier, just as they should now be considering the impact of driverless taxis and mobility subscription services. In media and entertainment, content streaming and personalized recommendation engines are strong signals for incumbent companies such as Disney and CBS. But the same companies also need to be scanning their environment for weak signals, such as augmented reality and virtual reality, and the potential effects of artificial intelligence and blockchain.
How should companies go about identifying the weak digital signals? Managers are finding that it’s critical to encourage everyone in the company to imagine how different digital technologies could influence the business, both positively and negatively. Companies should invite people to use a wide lens and consider weak digital signals that may seem far-fetched and distant. They should systematically review patent applications and recent venture capital investments to identify possible developments that might trigger new ideas. The goal should be to engage the collective curiosity of people at all levels to contemplate how digital technologies could influence their business models.
For many companies, the list of emerging technologies that could enhance or disrupt their business model is continually changing. A company such as Nike, for example, needs to assess, among other things, the broad implications of 3-D printing on areas as wide-ranging as its product offerings, how customers engage with the business and the brand, and the overall design and structure of the global supply chain. A fashion business like Gucci will want to consider the effects of using digital technology to personalize products beyond niche segments and how this capability — if and when it is scaled up — might alter the fashion sector.
2. Assess the Potential Impacts
Early identification of weak digital signals gives companies more time to assess and seize competitive advantage against companies that might be evaluating how to react to the same set of weak digital signals. To an extent, a company should study the various signals as if using a zoom lens, trying to detect how, when, and where the signals might affect its business models. How, for example, might 3-D printing change the economics of aircraft maintenance in specific situations? In other words, managers need to go beyond an understanding of the emerging technology and consider the business impacts. How might a company be able to take advantage of voice computing and digital chatbots to differentiate its customer service? Different companies will have different answers. The only way to figure out what the weak signals mean is to conduct experiments.
Eventually, of course, companies need to make choices about how to allocate their resources. In 2005, under former CEO Mark Fields, Ford launched more than two dozen experiments to explore weak signals in automobility and to probe factors that could affect the future of transport (including, for example, new models for insurance and the rise of shuttle services, shared vehicles, and e-bikes). Based on insights gleaned from such experiments, in 2018 Ford announced the formation of a new subsidiary named Ford Autonomous Vehicles to spearhead the transformation of its business beyond designing and delivering cars and trucks.
The ability to understand the potential impacts of digital signals is critical. While GE’s Immelt saw the need for an “industrial internet,” the company didn’t fully appreciate the effects digitization would have on its core business units, and it didn’t invest the financial resources required to realize the vision.
3. Develop a Coherent Action Plan
Over and above developing capabilities to identify weak digital signals and assess their effects, companies must also be able to follow up with smart implementation plans. These plans should be flexible and allow companies to shift scarce resources from areas of past success to those that are essential for winning in the future.
Some companies have found it useful to think of implementation as a process that takes place over multiple time horizons: short-term activities to support the existing business; medium-term activities to adapt current product offerings to new technology; and a long-term effort to remake the core of the business. Although the different stages may not have precise time periods, the organization’s ability to scan and sense weak digital signals should provide direction. Daimler, for example, is currently deploying digital technologies to enhance the safety and driving performance of its current crop of internal-combustion cars. Over the next few years, it plans to transition to electric cars and trucks with self-driving capability. Eventually, it anticipates moving further afield from the established business, offering driverless cars connected to the cloud as well as mobility services. In preparation for becoming a digital company, it is allocating its resources along the three different time horizons. Identifying the signals early should help companies such as Daimler and Ford line up the right partners to scale up their initiatives.
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