Digital Business

Strategy: An Overview

Session 1
Emerging Concept of
Digital Business Strategy

Dr. Surinder Batra

sbatra@imt.edu
Some Preliminaries
• Welcome to the course “Digital Business Strategy” (DBS)
• My journey with your batch in your second year began with the
course “IT Consulting” in Term V
• Some of you are continuing your journey with me on DBS
• Some others have joined me afresh
• Collectively we have expanded into 121 students, chosen on their
merit and their interest to join this course
• Let us make this journey pleasant and insightful for all of us
What has changed after April 2020 when the
DBS Course Outline was shared with you
• Covid19 situation in India continues to be disruptive
• No immediate signs of classes happening in the physical classrooms
• Digital teaching and learning has now become the new norm
• The Course Outline of April 2020 needs to be updated
• New pillars of knowledge about Digital Business Strategy have been
discovered
Pillar of
Knowledge 1 :
The Digital
Matrix
(Venkatraman)
 Pillar of Knowledge 2:
Digital Transformation Playbook
Rogers
Pillar of Knowledge 3:
Platform Revolution
Parker
AND NOW ADDED
Pillar of Knowledge 4:
Driving Digital
Strategy
Sunil Gupta
Your Course Pack
• Soft Copy of “Driving Digital Strategy”, Sunil Gupta
• Digital Business Strategy: Towards a next generation of insights
• What Digital Really Means
• Digital Business Transformation: A Conceptual Framework
• Pipelines, Platforms and the new rules of strategy
• Digital Strategy: The Four Fights You have to win
• And more…..
Cases to study and learn from
• Netflix in India
• Facebook invests in Reliance Jio Platform
• SAP AG: Orchestrating the Ecosystem
• And more…
Support in meeting the Placement Challenge
• Sharing contemporary developments related to the course
• Technologies and their applications
• Debatable Issues
• Global challenges
• Continual Evaluation
• Building your “residual” knowledge
 Emerging concept of
Digital Business Strategy (DBS)
As it evolved from
IT Strategy
Does business strategy drive IT strategy of a firm?
Can IT strategy of a firm drive its business strategy?
Both business strategy and IT strategy are aligned
with each other

However, in this view, IT Strategy, like other

functional strategies, is subordinate to business
strategy
Emergence of Digital Business Strategy

In the emerging paradigm

• Business Strategy is fusing with IT Strategy to

become Digital Business Strategy
• There will be no distinction between IT Strategy,
Business Strategy and Digital Business Strategy
 “Business and IT Strategy will become One: Accenture CTO”
The Economic Times, Oct. 29, 2013
https://economictimes.indiatimes.com/opinion/interviews/business-
and-it-strategy-will-become-one-paul-daugherty-accenture-
cto/articleshow/24839934.cms
What is then digital business strategy?
A Definition of Digital Business Strategy

Digital Business Strategy is an organizational

strategy formulated and executed by leveraging
digital resources to create differential value

18
Attributes of Digital
• Digital is not only about IT
• It transcends various functional areas and business
processes
• Goes beyond the boundaries of the firm to include
alliances and partners etc.
Themes of DBS (The Four S of DBS)
• Scope
• Scale
• Speed
• Sources of Business Value Creation and Capture
What do we mean by “Scope”?
Scope

Refers to the portfolio of products and services and

activities carried out within a company’s direct
control and ownership
Scope
• A firm may have apparently unrelated businesses in
its fold
• Amazon
• Google
• Microsoft
• The scope of a firm’s business gets extended
beyond firm boundaries and supply chains to
dynamic eco-systems
Examples of Scope Enhancement
• Amazon: AWS, E-business, Amazon Alexa, Amazon
Prime; Amazon Retail
• Google: Search Engine, G-mail, You Tube; Maps,
Android, Nest, Google Glasses
• Microsoft: Windows; Office; Mixed Reality
• IBM: IT Outsourcing; IBM Watson
What do we mean by “Scale”?

(The Volume of Business)

Scale
• Cloud computing services provide a strategic
dynamic capability for firms to scale up
• Network effects lead to increased scale and value
(e.g. Facebook, What’s App)
• Scaling through high data volumes/ information
abundance created through Social Media & IoT
• Scaling through alliances with shared digital assets
(e.g. common IT resources of Star Alliances)
What do we mean by “Speed”?
Speed
Time is a key driver of competitive advantage

• Speed of product launches/ Planned

obsolescence (e.g. cell phone launch)
• Fast decision making through big data
analytics (24X7 Social Media Centres)
• Supply chain management on a global basis
• Fast network formation among complementary
products and services (e.g. mobile apps for
specific platforms)

From “First Mover” to “Fast Mover”

What do we mean by “Sources of Value Creation and
Capture”?
Sources of Value Creation and Capture

• Enhanced customer engagement through

personalization based on information available
• Multi-sided platforms for creating value
• Value from the complete eco-system than merely
from one firm
• Coordinated business models in networks
• Control through private architecture (e.g. Apple)
 Group Work
Applying the Digital Lens to your
chosen Business
Suggestions for choosing your business

• Real Estate
• Construction
• Judiciary
• Higher Education
• Sports
• Media & Entertainment
• Office Furniture
• Electrical Goods Manufacture
• Agriculture
• Defence
Apply the “Digital Lens”
For your chosen business, define what is your current
business model in terms of:

• Products & services

• Key processes
• Key resources
• Customer value proposition
Apply the “Digital Lens” (contd.)
• Reimagine your firm’s Digital Business Strategy
through:

• Scope
• Scale
• Speed
• Sources of Value Creation
Apply the “Digital Lens” (contd.)

Submit Group PPTs

by 23rd Sep. 11.59 PM
for discussion on
Thursday, 24th September

File Name Template

Section No_Group No._Assignment_Theme_SenderName_Date
37
Digital Business Strategy
Session 2

What is Digital?
What is Digital Transformation?
Dr. Surinder Batra
sbatra@imt.edu
References for this Session
• McKinsey: “What Digital Really Means”, July 2015

• Global Centre for Digital Business Transformation,

An IMD & CISCO Initiative: “Digital Transformation:
A Conceptual Framework”, June 2015
What are these companies known for?

• Kodak
• Nokia
• Blockbuster
What are these companies known for?

• Kodak
• Nokia
• Blockbuster

They got disrupted by digital disruption

What are these companies known for?

• Fuji Film
• Encyclopaedia Britannica
• New York Times
What are these companies known for?

• Fuji Film
• Encyclopaedia Britannica
• New York Times

They were able to survive the digital on-slaught by

disruptors
What are these companies known for?

• Proteus Digital Health

• Walt Disney Company
• Burburry
What are these companies known for?

• Proteus Digital Health

• Walt Disney Company

They brought in impactful digital technologies to

support their business
Some Terminologies revolving around
“Digital”
• Digital Goods
• Digital Technologies
• Digital Marketing
• Digital Transformation
• Digital Mindset
• Digital Disruption
• Digital Business
Examples of Digital Goods/ Services
• Music, video, movie downloads
• Software downloads
• E-books/ e-newspapers/ pdf
• On-line health services
• Digital money/ crypto-currencies
What Digital Really Means?
Some attempts to define
• https://www.infoq.com/articles/meaning-being-digital/
• https://whatis.techtarget.com/definition/digital
• https://hbr.org/2014/11/digital-ubiquity-how-connections-sensors-
and-data-are-revolutionizing-business
• Digital stands for binary representation of data or
signals in contrast with analogue
Some Attributes of “Digital”
• Digital entity can be communicated to the
incremental consumer at almost zero marginal cost
• The additional cost of producing one more copy is
almost negligible

These properties enable Scalability of operations

What does Digital mean in business
parlance?
• Adoption of digital technologies
• New way of engaging with customers
• New ways of doing business

It is about a new way of doing business using

digital technologies
A new way of doing business using
digital technologies

• Creating value at new frontiers of the business

world
• Creating value in the processes that execute a
vision of customer experiences
• Building foundational capabilities
 Building Foundational Digital
Capabilities

• Digital Mindset
• Bimodal IT (decoupling legacy systems from fast-
moving customer facing interactions)
• Cross-functional IT Teams
What is Digital Transformation?
What is “Digital Transformation”?

Digital Transformation is an organizational change

through the use of digital technologies and business
models to improve performance
What is “Digital Transformation”?

Digital Transformation is NOT about technology, it is

about change

-- Peter Well and Worener Stephanie

Attributes of Digital Transformation
• A Business Transformation is Digital when it is built
on a foundation of digital technologies
• But technologies and business models woven
around them are not fixed
• Hence, Digital Business Transformation (DBT) is a
continual journey

DBT is a competitive necessity

Questions to address in DBT

Why What to How to

Transform? Transform? Transform?
Why Transform?
The need for DBT is driven by
digital disruptors such as…
• Consumers
• Competitors
• Emerging technologies
• Once in a life time events (example Covid19)
Concept of Digital Vortex
What to Transform?
What to transform?
• Business Model
• Structure
• People
• Processes
• IT Capabilities
• Offerings
• How you engage with customers
 Concept of Digital Piano

(Applied to Burberry
– An iconic clothing company)
How to Transform?
Digital Business Agility
• Hyper-awareness : Organizational Capability to
recognize future trends
• Informed Decision Making
• Fast Execution (Speed in Implementation)

Need to balance all the three elements of digital

business agility
Examples

• Barcelona Smart City

• Nationwide Insurers
• Google’s failed innovations
Pre-requisites for DBT
• Digital Transformation requires:
• Building on an IT backbone that is simplified,
modern and secure
• Creating a platform for adopting new processes,
tools and rethinking
• Ensuring an agile, intelligent and resilient IT
Infrastructure to accommodate a growing array of
emerging tools and approaches

Digital transformation is more than an IT Project

There is a difference between pursuing some form
of digitalization versus pursuing a bold digital
transformation strategy at scale

DBT should be Business-led, IT-driven

Concept of Digital Lipstick
Transformation is fundamentally about change

Organizational Change is the foundation of DBT

Examples

• Kodak versus FujiFilm

• Proteus Digital Health

• Walt Disney Company

Concept of Digital Barometer
77
The Digital Matrix:
An Overview
Dr Surinder Batra
sbatra@imt.edu

78
 Based on

Pillar of
Knowledge 1 :
The Digital
Matrix
(Venkatraman,
2017)
 Reference:
Book Review 24th April 2020
https://yourstory.com/mystory/book-review-digital-matrix-venkat-
venkatraman?utm_pageloadtype=scroll

80
A Brief about Prof. Venkat Venkatraman

• Career started from MIT Sloan School of

Management and moved to Boston University, USA
• Architect of the well-known Strategic Alignment
Model
(Published 1993 in IBM System Journal)
• Part of a research initiative of MIT:
“How can businesses transform themselves by
taking advantage of IT and what would it mean for
the discipline of Management?”

81
 Strategic Alignment Model
Four Domains of Strategic Choice
Need to recognize how decisions in one
domain affect the other domains
Strategy Scope Scope
(External) Competencies Competencies
Governance Governance
Strategic
Fit
Structure Infrastructure
Infrastructure Processes Processes
(Internal) Skills Skills

Business Information Technology

Functional Integration 82
Revised Research Question
• From:

“How can businesses transform themselves by

taking advantage of IT and what would it mean for
the discipline of Management?”
• To:
“How can businesses transform themselves by
taking advantage of Digital Technologies?”

83
Well known Digital Brands

• FAANG???
• Microsoft
• IBM?
How about?
• Tesla
• GE
• Uber
• Airbnb
• Any other?
84
 From:
Why Software is eating the world
https://a16z.com/2011/08/20/why-software-is-eating-the-world/
Marc Andreessen, August 20, 2011
To

Digital is eating the world!

85
 Drivers of Digitalization

Moore’s Metcalf’s Gilder’s

Law Law Law

Computing power grows More data is transmitted with

exponentially at lower costs Value of networks increases greater reliability at reduced
cost using cloud computing
as they grow in size
86
Initial Observations by the Author

• Any product, service or business infrastructure

that could benefit from being digitized will be
digital in the near future
• Simply overlaying technology on existing
organizational architecture doesn’t work
• There is a need to develop the necessary acumen
to know how applying different technologies can
challenge your business model

87
The Success Traps of Companies
• The Competency Trap
(Examples: Blackberry, Nokia)
• The Eco-system Trap
(Example: Microsoft?)
• The Talent Trap
(Example: Motrola)
• The Metrics Trap
(Example: Stayzilla?)

88
Key dimensions of digital business
• Nexus of scale, scope and speed
(Scope, Scale & Speed are mutually reinforcing)
• First mover versus fast mover advantage
• The eco-system advantage
• The learning advantage from data analytics
(Example: Starbucks knows where and when its
customers buy the coffee)

89
The New Business Game! Are you game?

• Never played earlier

• Don’t know the rules
• Don’t know the opponents
• Don’t know their skills and ambitions
• Know some of them from a different game of the past
• All of them are not your adversaries; some can be you
friends too
• New players may come at different times and some
existing players may go
• Players develop new capabilities as they progress

90
Three sets of players
• Industry incumbents
• Tech entrepreneurs (disruptors through technology,
examples Tesla, PayPal)
• Digital giants (Google, Apple, Amazon, Facebook,
Microsoft, IBM)

Today’s Digital Giants are yesterday’s Tech

Entrepreneurs

91
Three phases of transformation
• Experimentation at the edge
• Collison at the core
• Reinvention at the root

92
The Digital Matrix (It is a set of 9 Screens!)
Experimentation Collision at the Reinvention at
THE DIGITAL MATRIX at the Edge Core the Root

DIGITAL GIANTS

INDUSTRY INCUMBENTS

TECH. ENTREPRENEURS

93
About Digital Giants
• Are yesterday’s Tech Entrepreneurs
• Have progressively extended their influence beyond
traditional industry
• Deliver digital products and services
• Have partnered with incumbents to help companies
transform their business models for the digital age

94
About Tech Entrepreneurs
• Born digital
• Craft business models to deliver value to
customers by using the power of digital
technologies
• Think beyond defined industry boundaries

95
Experimentation at the Edge
• An embryonic phase during which experimentation
with the digital happen and evolve
• You must look at the landscape of experiments
undertaken by other firms and even by those
beyond your industry boundaries

96
Collision at the Core
• Here, digital rules challenge traditional industry
practices and pre-established rules of engagement
• Occurs because digital products and services
challenge traditional products and services
• Newer organization models come into play
requiring new ways of managing things including
automation, algorithm, analytics, etc.

97
Reinvention at the Root
• Players try to solve core problems for consumers
by using digital functionality
• Every offering is digital and every business is
digital
• Traditional distinctions of B2B and B2C give way to
B2B2C
• Challenge is to decide your relative roles in the
emerging digital eco-system based on your
dynamic capabilities and strategies

98
What can you do now on the Matrix?
• Identify your position on the matrix today
• Assess your relative position among other industry
incumbents
• Ask four questions to yourself:
• What is your company’s relevance?
• What are your company’s distinctive capabilities
• What are your company’s key relationships?
• How should your company mobilize and
transform for the digital future?
To be continued…

99
The Journey
continues…..

100
The Digital Matrix
(contd.)
Dr Surinder Batra
sbatra@imt.edu

101
The Digital Matrix
Experimentation Collision at the Reinvention at
THE DIGITAL MATRIX at the Edge Core the Root

DIGITAL GIANTS

INDUSTRY INCUMBENTS

TECH. ENTREPRENEURS

102
Experimentation at the Edge

103
What did GE learn from Facebook?

104
What did GE learn from Facebook?
• Besides being a social network, Facebook can be
viewed as a platform for real time social
intelligence
• If instead of people, we had machines…
• GE could use data from sensors/ machines/
systems to push the real time information
• GE could become the “Facebook for industry”
• Experimentation to explore real time operational
intelligence
Looking beyond the obvious

105
Experimentation at the Edge
• Scan widely
• Connect the dots
• Develop a compelling narrative to guide your future
business decisions
• Experiments unconstrained by past definitions of
industry or functions or geography
• See how disjointed technologies can interact to
unleash new business functionality
• Make sense of the experimentation and guide your
company to transform

106
Experimentation at the Edge (contd.)
• Future business models lie at the nexus of
seemingly disparate, diffused and disconnected
trends, which may converge
• Understand how, where and when disparate ideas
can become real in prototype and scale

You need a powerful lens that combines a wide

aperture and a long depth of field

107
Select Examples
Taking Uber as an example,
• Should global car companies such as GM, Ford,
etc.. have had experimented with Uber like
services early on?
• Should car rental companies such as Hertz and
Avis Budget have had experimented with this
Model?
• What does the Uber experiment mean for
incumbents in industries far removed from
automobiles and rental cars?
108
Two Types of Experiments
• Those which complement your current business
model
Examples: Netflix; Nike, Under Armour

• Those which challenge your current business

model
Examples: Ford; GE

109
Experiments that complement
Example of Netflix: an undisputed leader in video
streaming and personalization
• Reed Hastings, co-founder of Netflix is a perineal
experimenter
• Focused on developing a recommendation engine
software that would learn an individual’s film
preferences and use that information to suggest
other appropriate titles from its catalogue
• Introduced Netflix prize, an open competition in
2006 for any one to beat the recommendation
algorithm of Netflix
110
Other Examples
• Nike: Connected Shoes
• Under Armour: Connected fitness community with
over 150 million active members

In both cases, their experiments complemented their

existing business models allowing them to test ideas
to refine and adjust their product offerings

111
Experiments that Challenge
Ford
• Has undertaken over 25 strategic experiments to
examine the future of transportation at the nexus
of traditional industrial and digital technologies
• Realization that car is a part of a broader
transportation network
• A subsidiary Ford Smart Mobility established in
2016
GE
• Reinventing itself as a Digital Industrial Company
• Industrial Internet Initiative
• Asset-rich, Data rich industry 112
Nature of Experiments by Digital Giants
Learning from Health Care
• Each digital giant today has at least one health care product
• Alphabet collaborating with Johnson & Johnson to create “Verb
Surgical” a company designed to create:
“the future of surgery at the nexus of machine learning, robotic
surgery, instrumentation and advanced visualization with data
analytics”
Learning from Conversational Commerce
• Microsoft coming up with an experimental chatbot for
Chinese market with a high cps (no of cycles in which the
speakers alternate)
https://www.microsoft.com/en-
us/research/publication/thdesign-and-implementation-of-
xiaoice-an-empathetic-social-chatbot/
https://towardsdatascience.com/development-of-social-
chatbots-
a411d11e5def#:~:text=CPS%20is%20the%20average%20num
ber%20of%20conversation%20turns,interaction%20is%20con
sidered%20as%20a%20decision%20making%20process. 113
In a nutshell, in the phase of experimentation
at the edge..
Two Levels of Response
• Observe
• Establish sense making units in centres of digital innovation
• Conduct “frame-storming sessions” to probe deeper questions
(https://bakerstreetpublishing.com/decisioncoaching/2015/04/19/
decision-engineering-2-0-framestorming-comes-before-
brainstorming/)

• Commit
• Design tactical experiments to examine the business impact
of technologies
• Approach every experiment as a learning opportunity

114
Collision at the Core

115
 Sooner or later, incumbents in every industry are
going to collide with tech entrepreneurs and digital
giants and their own incumbent competitors

116
Types of collisions
• Strategy Collision: Traditional strategic logic
colliding against newer logics that rely more
heavily on digitalization

• Organizational Collison: The structures, processes

and systems in the organization collide against
alternative ways of organizing, born in the digital
era

117
Select Examples
• Honeywell versus Google/ Nest
• Accor Hotel versus Airbnb
• The automotive sector

118
Honeywell versus Google/ Nest
• October 2011: Nest Labs introduced a “learning
thermostat”
• October 2013: Introduced “Nest Protect”
• January 2014: Google acquired Nest
• Early 2016: Created “Nest Platform” as an ecosystem
involving major players (Fitbit, Mercedes Benz…)
sending data to the home thermostat regarding time of
arrival to optimize desired temperature
In 2013, Nest was experimenting at the edge; In 2016, it
was colliding with and challenging Honeywell

119
Honeywell versus Google/ Nest (contd.)

• Honeywell introduced a digital thermostat, Lyric

• Which operating system should Lyric run on?
• Android OS or some other?
• How will Lyric ecosystem compete with or
interconnect with Nest ecosystem?
Key Lessons
• Products get embedded in digital ecosystems with
broader value proposition
• Digitization redefines core organizational
capabilities

120
Learning from the automotive sector
A car is a computer on wheels connected to the cloud

• Google has extended the scope of its Android software beyond

mobile phones to cars with its Android Auto initiative
• Apple has similarly expanded its iOS to automobiles with its
CarPlay App
• Both are courting major car makers to be part of their
ecosystems
• If digital competencies become the differentiators and car
makers don’t excel in them, they may be pushed to the
commodity end of the ecosystem

What should be the response of Auto Makers?

121
Learning from the automotive sector
• Should automakers attack with software?
• Should automakers defend with Apps and App
stores?
• Your challenge is to:
• rethink traditional product-centric decisions to
broader ecosystems
• Work cooperatively and competitively with other
players

122
Two Levels of Response in this Phase

Co-exist:
• Make digital and traditional business models co-
exist and mean time explore alliances/ acquisitions
Morph:
• Divest from traditional business to focus on new
digital core
In early stages, traditional core gets more attention
Over time, core will morph from traditional to digital

123
Reinvention at the Root

124
New business models emerge at the intersection of
industries

125
From design and delivery of products and services
to solving problems and shaping solutions

126
Examples from Digital Giants
Facebook
• To give the people power to share and make the
world more open and connected
• No predefined industry boundary
• Competing with others in different eco-systems
Tesla
• From car making to sustainable energy business
• Solving problems at the intersection of energy,
transportation, mobility and home comfort
127
Tesla is not just an automaker, but also a technology
and design company with a focus on energy
innovation

Both Facebook and Tesla define their missions in

terms of solving problems, unconstrained by
conventional industry boundaries

128
Questions to ask
• Instead of asking “What business are you in?”, we
should ask:

“What problems are we trying to solve for whom in

the world?”

“How are we uniquely solving them by adopting

digital technologies?”

129
Questions to ask
Other Examples:
• Novartis – from producing pills to catering to
complete health care
• GE: from home appliance to industrial internet –
industry 4.0
• IBM: from Big Blue to “Solution Integrator”
• Monsanto: from supplying genetically modified
seeds to solving the problem of maximizing
farmers’ yield

130
 Provide physical or Customizable
virtual space for two Integrative products & services
sides to match Ecosystem to solve specific
problems
Platform Solution

Distinctive Downstream
Upstream
Expertise (Closer to the
(In the Lab)
customer)

Product Service
Supported, shaped
Becoming smart and Focused
and delivered by
connected (single firm)
digital technologies
131
Ingredients of “reinventing at the root”

Problem framing and problem solving tied together

• Inside out thinking : focused on design

competencies such as styling & shape of cars

• Out-side in thinking: focused on problem solving

competencies

132
A single integrated response:
Problem Framing
• Frame the problems from outside in
• Select the problems that match your passion

Problem Solving
• Transcend industry and disciplinary boundaries
• Partner for problem solving

133
 Phases of Digital Business
Transformation • Frame
• Solve

• Co-exist
• Morph
Low to High
(Degree of
Transformation) • Observe
• Invest

Phase 1 Phase 2 Phase 3

134
Typical Time Intervals
• Experimentation at the Edge: 3 to 5 years
• Collision at the Core: 18 months to 2 years
• Reinvention at the Root: 18 to 36 months

135
The Journey
continues…..

136
The Digital Matrix
(contd.)
Dr Surinder Batra
sbatra@imt.edu

137
The Digital Matrix
Experimentation Collision at the Reinvention at
THE DIGITAL MATRIX at the Edge Core the Root

DIGITAL GIANTS

INDUSTRY INCUMBENTS

TECH. ENTREPRENEURS

138
Experimentation at the Edge

139
What did GE learn from Facebook?

140
What did GE learn from Facebook?
• Besides being a social network, Facebook can be
viewed as a platform for real time social
intelligence
• If instead of people, we had machines…
• GE could use data from sensors/ machines/
systems to push the real time information
• GE could become the “Facebook for industry”
• Experimentation to explore real time operational
intelligence
Looking beyond the obvious

141
Experimentation at the Edge
• Scan widely
• Connect the dots
• Develop a compelling narrative to guide your future
business decisions
• Experiments unconstrained by past definitions of
industry or functions or geography
• See how disjointed technologies can interact to
unleash new business functionality
• Make sense of the experimentation and guide your
company to transform

142
Experimentation at the Edge (contd.)
• Future business models lie at the nexus of
seemingly disparate, diffused and disconnected
trends, which may converge
• Understand how, where and when disparate ideas
can become real in prototype and scale

You need a powerful lens that combines a wide

aperture and a long depth of field

143
Select Examples
Taking Uber as an example,
• Should global car companies such as GM, Ford,
etc.. have had experimented with Uber like
services early on?
• Should car rental companies such as Hertz and
Avis Budget have had experimented with this
Model?
• What does the Uber experiment mean for
incumbents in industries far removed from
automobiles and rental cars?
144
Two Types of Experiments
• Those which complement your current business
model
Examples: Netflix; Nike, Under Armour

• Those which challenge your current business

model
Examples: Ford; GE

145
Experiments that complement
Example of Netflix: an undisputed leader in video
streaming and personalization
• Reed Hastings, co-founder of Netflix is a perineal
experimenter
• Focused on developing a recommendation engine
software that would learn an individual’s film
preferences and use that information to suggest
other appropriate titles from its catalogue
• Introduced Netflix prize, an open competition in
2006 for any one to beat the recommendation
algorithm of Netflix
146
Other Examples
• Nike: Connected Shoes
• Under Armour: Connected fitness community with
over 150 million active members

In both cases, their experiments complemented their

existing business models allowing them to test ideas
to refine and adjust their product offerings

147
Experiments that Challenge
Ford
• Has undertaken over 25 strategic experiments to
examine the future of transportation at the nexus
of traditional industrial and digital technologies
• Realization that car is a part of a broader
transportation network
• A subsidiary Ford Smart Mobility established in
2016
GE
• Reinventing itself as a Digital Industrial Company
• Industrial Internet Initiative
• Asset-rich, Data rich industry 148
Nature of Experiments by Digital Giants
Learning from Health Care
• Each digital giant today has at least one health care product
• Alphabet collaborating with Johnson & Johnson to create “Verb
Surgical” a company designed to create:
“the future of surgery at the nexus of machine learning, robotic
surgery, instrumentation and advanced visualization with data
analytics”
Learning from Conversational Commerce
• Microsoft coming up with an experimental chatbot for
Chinese market with a high cps (no of cycles in which the
speakers alternate)
https://www.microsoft.com/en-
us/research/publication/thdesign-and-implementation-of-
xiaoice-an-empathetic-social-chatbot/
https://towardsdatascience.com/development-of-social-
chatbots-
a411d11e5def#:~:text=CPS%20is%20the%20average%20num
ber%20of%20conversation%20turns,interaction%20is%20con
sidered%20as%20a%20decision%20making%20process. 149
In a nutshell, in the phase of experimentation
at the edge..
Two Levels of Response
• Observe
• Establish sense making units in centres of digital innovation
• Conduct “frame-storming sessions” to probe deeper questions
(https://bakerstreetpublishing.com/decisioncoaching/2015/04/19/
decision-engineering-2-0-framestorming-comes-before-
brainstorming/)

• Commit
• Design tactical experiments to examine the business impact
of technologies
• Approach every experiment as a learning opportunity

150
Collision at the Core

151
 Sooner or later, incumbents in every industry are
going to collide with tech entrepreneurs and digital
giants and their own incumbent competitors

152
Types of collisions
• Strategy Collision: Traditional strategic logic
colliding against newer logics that rely more
heavily on digitalization

• Organizational Collison: The structures, processes

and systems in the organization collide against
alternative ways of organizing, born in the digital
era

153
Select Examples
• Honeywell versus Google/ Nest
• Accor Hotel versus Airbnb
• The automotive sector

154
Honeywell versus Google/ Nest
• October 2011: Nest Labs introduced a “learning
thermostat”
• October 2013: Introduced “Nest Protect”
• January 2014: Google acquired Nest
• Early 2016: Created “Nest Platform” as an ecosystem
involving major players (Fitbit, Mercedes Benz…)
sending data to the home thermostat regarding time of
arrival to optimize desired temperature
In 2013, Nest was experimenting at the edge; In 2016, it
was colliding with and challenging Honeywell

155
Honeywell versus Google/ Nest (contd.)

• Honeywell introduced a digital thermostat, Lyric

• Which operating system should Lyric run on?
• Android OS or some other?
• How will Lyric ecosystem compete with or
interconnect with Nest ecosystem?
Key Lessons
• Products get embedded in digital ecosystems with
broader value proposition
• Digitization redefines core organizational
capabilities

156
Learning from the automotive sector
A car is a computer on wheels connected to the cloud

• Google has extended the scope of its Android software beyond

mobile phones to cars with its Android Auto initiative
• Apple has similarly expanded its iOS to automobiles with its
CarPlay App
• Both are courting major car makers to be part of their
ecosystems
• If digital competencies become the differentiators and car
makers don’t excel in them, they may be pushed to the
commodity end of the ecosystem

What should be the response of Auto Makers?

157
Learning from the automotive sector
• Should automakers attack with software?
• Should automakers defend with Apps and App
stores?
• Your challenge is to:
• rethink traditional product-centric decisions to
broader ecosystems
• Work cooperatively and competitively with other
players

158
Two Levels of Response in this Phase

Co-exist:
• Make digital and traditional business models co-
exist and mean time explore alliances/ acquisitions
Morph:
• Divest from traditional business to focus on new
digital core
In early stages, traditional core gets more attention
Over time, core will morph from traditional to digital

159
Reinvention at the Root

160
New business models emerge at the intersection of
industries

161
From design and delivery of products and services
to solving problems and shaping solutions

162
Examples from Digital Giants
Facebook
• To give the people power to share and make the
world more open and connected
• No predefined industry boundary
• Competing with others in different eco-systems
Tesla
• From car making to sustainable energy business
• Solving problems at the intersection of energy,
transportation, mobility and home comfort
163
Tesla is not just an automaker, but also a technology
and design company with a focus on energy
innovation

Both Facebook and Tesla define their missions in

terms of solving problems, unconstrained by
conventional industry boundaries

164
Questions to ask
• Instead of asking “What business are you in?”, we
should ask:

“What problems are we trying to solve for whom in

the world?”

“How are we uniquely solving them by adopting

digital technologies?”

165
Questions to ask
Other Examples:
• Novartis – from producing pills to catering to
complete health care
• GE: from home appliance to industrial internet –
industry 4.0
• IBM: from Big Blue to “Solution Integrator”
• Monsanto: from supplying genetically modified
seeds to solving the problem of maximizing
farmers’ yield

166
 Provide physical or Customizable
virtual space for two Integrative products & services
sides to match Ecosystem to solve specific
problems
Platform Solution

Distinctive Downstream
Upstream
Expertise (Closer to the
(In the Lab)
customer)

Product Service
Supported, shaped
Becoming smart and Focused
and delivered by
connected (single firm)
digital technologies
167
Ingredients of “reinventing at the root”

Problem framing and problem solving tied together

• Inside out thinking : focused on design

competencies such as styling & shape of cars

• Out-side in thinking: focused on problem solving

competencies

168
A single integrated response:
Problem Framing
• Frame the problems from outside in
• Select the problems that match your passion

Problem Solving
• Transcend industry and disciplinary boundaries
• Partner for problem solving

169
 Phases of Digital Business
Transformation • Frame
• Solve

• Co-exist
• Morph
Low to High
(Degree of
Transformation) • Observe
• Invest

Phase 1 Phase 2 Phase 3

170
Typical Time Intervals
• Experimentation at the Edge: 3 to 5 years
• Collision at the Core: 18 months to 2 years
• Reinvention at the Root: 18 to 36 months

171
The Journey
continues…..

172