MANAGING DIGITAL BUSINESS

Spurthy Dharanikota
Information Systems Area

Term 3
 Overview

• Digital Matrix in detail

• Five pillars of Digital Transformation

What is Digital Matrix?
 Digital Transformation
Digital technologies that are existing, prototypes, and R&D phase:
– Massively impact the scale, scope, and speed of any business
– Begin to shape the business strategy in unprecedented ways

Need for Digital Matrix:

• To identify and analyze all types of players intersecting with a business in
building a digital strategy.
• To identify and analyze the three phases of transformation that every firm will
encounter on its journey to business reinvention; and
• Learn three winning moves that will ensure your company’s success.
 Digital Matrix

• “A framework that allows YOU to see how three types of players use a variety of
digital technologies to shape the future of YOUR industry and influence YOUR
company’s strategic actions and responses over three distinct phases of digital
transformation, in which these players adapt and design effective business
models using three winning moves.”
DIGITAL MATRIX
 Note from Venkatraman

“I have written this book primarily for managers of incumbent firms. My hope
is to break you free of the success traps that may be preventing you from
recognizing the power and promise of digital technologies”
 Three Player Types
Industry Incumbents:
– Historical traditional competitors of YOUR company

Tech Entrepreneurs
– Ambitious upstart entrepreneurs with brazen and audacious views on
reordering and disrupting the business world
– Born digital with blatant disregard for management rules from the past.
– Craft business models with digital technologies that offer value to customer
– Automation, data, and analytics guide their thinking and competency
 Three Player Types
Digital Giants
– Yesterday’s tech entrepreneurs who extended their business into multiple
industries
– They progressively have extended their influence beyond their traditional
industry into yours.
– End result: vertical and horizontal integration into certain industries –
including yours!

Examples: Alphabet, Amazon, Apple, FB.

 Ecosystem of Players
YOUR ecosystem consists of industry incumbents, digital giants, and
tech entrepreneurs

Relationships among players in the ecosystem:

Competitive
Cooperative
Coopetitive: Simultaneously cooperative and competitive
 Example: DIGITAL AUTO INDUSTRY
Impact of Digitalisation in Auto Industry:

• Product Architecture (hybrid and electric cars)

• Design (Rapid prototyping using 3D printing
• Manufacturing (Modular platform assembly capable of different permutations
and combinations for different segments)
• Service enhancements (telematics for in-car navigation, safety, entertainment,
and communication)
• Business models (traditional ownership challenged by transportation-as-
service)
 Example: DIGITAL AUTO INDUSTRY

Three kinds of players in the Auto Industry:

Industry Incumbents – Ford, GM, Toyota, BMW, Mercedes-Benz

Tech Entrepreneurs – Tesla, Uber, Lyft, Automatic Labs, Peloton Technologies

Digital Giants – Alphabet (Alphabet’s Android Auto), Apple (Apple’s CarPlay)

 Example: DIGITAL AUTO INDUSTRY
The ecosystem of Players and their interconnections: Cooperative, competitive,
and coopetitive:
• Fiat Chrysler’s agreement with Alphabet (May 2016) to co-create one hundred
prototype self-driving minivans in which Alphabet tests its self-driving
technology
• Apple invested $1 billion in a Chinese car-sharing company Didi (uber
competitor)
• Toyota invested in Uber to explore ride-sharing collaboration and to establish
new in-car apps and services.
• Volkswagen has invested $300 million in Gett, a German cab-hailing startup
 Example: DIGITAL AUTO INDUSTRY

Three kinds of players in the Auto Industry:

Industry Incumbents – Acquire digital capabilities, absorb them into their core
organizations, and form alliances.

Tech Entrepreneurs – Have vertical, specialized expertise to solve problems

innovatively.

Digital Giants – Horizontally extend their competencies into your industry.

 Three Phases of Business Transformation

Phase -1: Experimentation at the edge

– Trying out different ideas, maybe wildly different from current business
– Example: Apple entering music distribution

Phase -2: Collision at the core

– Post experimentation at the edge, incumbents will collide with tech
entrepreneurs or digital giants who have a different idea about how to
design and deliver products and services; and how they can earn revenues
and profits.
 Three Phases of Business Transformation

Phase -3: Reinvention at the Root

With digital encroaching on traditional models
– Need to reinvent the root of one’s own business
– Understand the compelling logic of digitization at the core of your offering.
DIGITAL MATRIX
DIGITAL MATRIX
 Experimentation at the edge: Motive
Tech Entrepreneurs: Experiment to launch and evolve their businesses

Industry Incumbents: Experiment to either complement business or challenge

business

Digital Giants: Experiment to expand their influence across industries

 Experimentation at the edge: Tech Entrepreneurs (Uber)
Experiment to launch and evolve their businesses.

• In 2010, UberCab (now Uber) launched a mobile App.

• Straightforward functionality
• Connect drivers to riders at prices driven by market demand and customized to
both their needs – Unfulfilled marketing needs.
 Experimentation at the edge: Industry Incumbents
What digital companies should industry incumbents track?

Companies where experimentation complements the incumbent’s current

business models – learn how to proactively embrace those ideas

Companies where experimentation challenges the incumbent’s current business

models – learn warning signs to consider
 Experimentation at the edge: Industry Incumbents (Ford)
CEO of Ford has undertaken 25 strategic experiments to examine the future of
transportation and make it better:
– Remote-controlled cars that use 4G
– Apps to find open parking spots
– Control thermostat from car dashboards

Ford: Auto Company

Subsidiary in 2016: Ford Smart Mobility: Auto and Mobility company
 Experimentation at the edge: Digital Giants
Digital Giants: Experiment to expand their influence across industries

Examples:
• Fiat Chrysler’s agreement with Alphabet (May 2016) to co-create one hundred
prototype self-driving minivans in which Alphabet tests its self-driving
technology

• Android auto and Apple’s car play are software programs that allow for
consumers to extend their smartphone experience into cars.
 Experimentation at the edge

Tech Entrepreneurs Incumbents Digital Giants

Vertical focus targeted at a • Complement and extend Scale and scope ambitions
particular industry and traditional strengths
problem Differentiate themselves
• Discard outmoded from direct competitors
Example: Uber business models and digital agents

• Reinvent for future Example: Apple carplay

Example: Ford and its

subsidiary ford smart
mobility
 Response to Experimentation at the edge
Observe:
– Sense and track signals of other players’ and Current competitors’ digitization, experiments,
joint experiments, announcements, and digital impacts on the future of industry
– Sensemaking units and workshops

Commit:
– Experimenting with new technologies using data analytics and committing resources
– Tactical experiments to understand business impacts
– Experiments as learning opportunities
DIGITAL MATRIX
 Collision at the core
The column highlighted here represents the collisions experienced by three
players.

The three players collide!

Competitive Pressures when a collision occurs:

• Strategy Collision
• Organizational Collision
 Collision at the core

“Any organizational structure you have today is irrelevant because no competition

or innovation will respect these boundaries.
Everything now is going to have to be much more compressed in terms of both
cycle times and response times”
-- ???
 Response to Collision at the core
Research finding: Incumbents often fail to respond to these collisions
Example:
– Barnes and Noble’s response to Amazon
– Blockbuster’s response to Netflix
– Blackberry and Nokia’s response to iPhone
 Response to Collision at the core
TWO levels of response to Competitive Pressures when a collision occurs:
• Coexist and then Morph

Coexist:
• Set up a temporary unit charged for creating an effective digital model to
complete
• Set up digital and traditional business models to coexist within the same
structure.
 Response to Collision at the core
3 avenues to examine:
Value-to-cost advantage:
– Create value in untapped markets
– Simultaneously pursue differentiation and low cost
– Customer value as the primary focus to shape business

Example: Accor hotels offer comfortable beds with no amenities for half the
price
 Response to Collision at the core
Alliance advantage:
– Use alliances to defend your core business while examining new options
Example:
Audi + BMW together bought Nokia’s HERE maps as a defensive measure
Tag Heuer + Google + Intel : co-create a digital connected watch
Acquisition advantage:
– Identify potential acquisition opportunities
Example:
Walmart’s e-commerce initiative @Walmart-Labs
 Response to Collision at the core
TWO levels of response to Collisions

Morph: “Morphing the core”- Cross over from Physical to Digital

– Divest from traditional businesses to focus on a new digital core
– Absorb digital acquisitions into the core
– Instill digital business thinking at your core
DIGITAL MATRIX
 Reinvention at the root
Prof Ted Levitt’s famous article “Marketing Myopia” in 1960, poses the question:
What business are you in?

In light of digital transformations and the consequent reinvention, the new

questions to ask are:
• What problems are we trying to solve? For whom?
• How to uniquely solve the problems using digital technologies
 Reinvention at the root
Reinvention phase:
Shift in business logic from delivering products and services to solving business
problems and shaping solutions

Industry Incumbents: Imagine their business products beyond core products and
services
Tech Entrepreneurs: Introduce new business innovations rooted in powerful
technologies
Digital Giants: Extend their platforms and offer relevant integrated solutions
 Response to Reinvention at the root
A single integrated response:
Problem framing and solving tied together

Frame:
Frame and select problems of importance

Solve:
Transcend boundaries and partner
What are the Five Domains of Digital Transformation?
Five Domains of Digital Transformation

Customers

Competition
Value

Data
Innovation
 Customers
ANALOG AGE DIGITAL AGE

Customers as mass market Customers as dynamic network

Mass communication to customers Two-way and dynamic communication
with customers
Firm and product is the key influencer Customers are the key influencers
Mass marketing to persuade customers to Customised marketing to inspire purchase
buy and loyalty
One-way value flows Reciprocal value flows
Economies of (firm) scale Economies of (customer) value
 Customers
Domain:
Customers

Strategic themes
Harness customer networks: collaborate and cocreate

Key concepts:
Reinvent market funnel
Path to purchase
Core behaviors of customer networks
 Competition
ANALOG AGE DIGITAL AGE

Competition within defined industries Competition across fluid industries

Clear distinction between partners and Blurred distinction between partners and
rivals rivals
Competition is a zero-sum game Competitors cooperate in key areas
Key assets are held inside firm Key assets reside in outside networks

Products with unique features and Platforms with partners who exchange
benefits value
A few dominant categories per category Winner takes all due to network effects
 Competition
Domain: Competition

Strategic themes
Build platforms and not just products.

Key concepts:
Platform business models
(in)direct network effects
 Data
ANALOG AGE DIGITAL AGE

Expensive to generate in firm Continuously generated everywhere

Challenge to store and manage data Challenge to analyse and value from data

Firms use only structured data Value of both structured and

unstructured data
Data in managed in operational silos Value of data lies in connecting it across
silos
Data is a tool for optimizing processes Data is a key intangible asset for value
creation
 Data
Domain: Data

Strategic themes
Turn data into assets

Key concepts:
Templates of data value
Drivers of big data
Data driven decision making
 Innovation
ANALOG AGE DIGITAL AGE

Decisions made based in intuition and Decisions made based on testing and
seniority validating
Testing ideas is expensive, slow and difficult Testing ideas is cheap, fast and easy

Experts infrequently conduct Experiments Everyone constantly conducts experiments

Challenge of innovation is to find the right Challenge is to solve the right problem
solution
Failure is avoided at all costs Failures are learned from, early and cheaply
Focus is on the ‘finished final’ product Focus is on a MVP and iterations
 Innovation
Domain: Innovation

Strategic themes
Innovate by rapid experimentation

Key concepts:
Divergent experimentation: focus on creativity
Convergent experimentation : focus on one strategy or poduct
Minimum viable prototype
 Value
ANALOG AGE DIGITAL AGE

Value proposition is defined by industry Value proposition is defined by changing

customer needs
Execute your current value proposition Uncover next opportunity for customer value

Optimise business model as long as possible Evolve before you must, to stay ahead of the
curve
Judge change by how it impacts your current Judge change by how it could create your
business next business
Market success allows for complacency Focus is on a MVP and iterations after launch
 Value
Domain: Value

Strategic themes
Adapt your value proposition

Key concepts:
Concepts of market value
Paths out of a declining market
Steps to value evolution
REFERENCES

• Venkatraman, Venkat. The digital matrix: new rules for business

transformation through technology. LifeTree Media, 2017.

• Rogers, David L. The digital transformation playbook: Rethink your

business for the digital age. Columbia University Press, 2016.