Companies with leadership that is determined to do business the way it’s been done for the last several decades and focus only on selling more products to customers may be destined to fail. That’s because the traditional focus doesn’t take into account the new way that value now is being created – through networks of customers, employees and business partners.
That’s the assertion of a new book, “The Network Imperative: How to Survive and Grow in the Age of Digital Business Models.”
One of the problems in the failure of companies to make this transition is “that there’s a pretty significant skills gap among leadership teams, “says Megan Beck, co-author with Barry Libert and Jerry Wind.
“These leaders are often older and have a really strong skill set, but in a completely different place. They may not be savvy with the right technology, they may not be following the very bleeding edge of their industry. And then there’s the mental piece – there’s just sort of a gap in observation,” Beck says.
Unfortunately for some companies, that lack of awareness of the critical importance of digital is a blind spot that may not be easily remedied.
“I don’t think it’s fear that’s holding some leaders back from making the transition – I think it’s a bit of overconfidence,” Beck says. “These are leaders who have been very successful in the past, and it’s hard for people to believe that the skill sets they’ve had for the last 20 years” are not going to provide the results they need.
“There’s a lack of savvy,” she says. “They think that it (digital) is a flash in the pan.”
Beck says that because of those mindsets and the fact that digital transformations are a big undertaking, many companies will fail as a result.
“That doesn’t mean you shouldn’t try,” she says. “For many companies, it means refocusing and give up some long-held assets, such as IBM divesting their computer business. You have to give up the things that are dead weight you’re just dragging along. For many, the path forward will look different.”
One of the solutions for the lack of leadership knowledge and skills is for companies to turn to their customers, business partners and employees for innovative solutions, Beck says.
“I think you have to give employees the autonomy they need to make decisions, because many of them have the skills that are needed,” she says. “You’re always going to need the C-suite, but I do think C-suites and company boards need new blood by adding minorities and women.”
Nigel Fenwick, vice president and principal analyst at Forrester serving CIOs, has said that the understanding a company has of digital will determine if they are digital predators – or prey.
“I agree,” Beck says. “There are a lot of industries right now that are ripe for disruption.”
In the book, the authors examine 10 principles they say are critical for creating digital network value for any company of any size in any industry. They are:
- Creating digital capabilities. Technological breakthroughs, along with the fact that more than half of Fortune 500 companies have fallen off that list point to an inescapable truth: Going digital is mandatory. “The only people you make happy by delaying action on the digital front are your competitors,” they write.
- Investing in intangible assets. Intangible assets include people and the services they provide; ideas and information; and relationships and access. While railroad barons once filled the ranks of the richest people, it’s now technologists. This almost complete reallocation of value and capital means that companies and leaders need to focus on digital, intangible assets.
- Actively allocating capital. Any leader that feels nervous about reallocating resources only has to look at Blockbuster and Kodak to see that not diversifying carries great risk. Starbucks and Nike remain competitive because they’re willing to innovate and invest beyond their historical business model.
- Leading through co-creation. As digital puts the world at our fingertips and information is available as never before, we are also interacting more socially through online networks. While leaders still need to command, they also must work to be available to others as co-creators and encourage employees to find solutions to problems they understand first-hand.
- Inviting customers to co-create. Digital enables companies to interact with, and learn, from customers as never before. Companies like eBay, for example, have realized that customers “are remarkably valuable resources, not only for the money they spend on products but also for their advocacy, insight, talent and assets,” they write.
- Focusing on subscriptions, not transactions. A subscription revenue model not only provides ongoing revenue, but companies can collect a data that provides a better picture of customers, their desires, wants and interests. The relationship with subscribers can help companies develop a new product or service.
- Embracing the freelance movement. Companies are seeing the benefit of short-term, project-based work as independent contractors are found to be engaged and high-performing. Such workers can bring expertise perhaps not found within a company’s regular workforce and are able to work more independently.
- Integrating big data. While companies track sales numbers and inventory, they must also learn to track things like network members and what they can offer and how they want to interact. Learning to maximize real-time data can help companies spot opportunities before the competition, and big data can provide key industry insights.
- Choosing leaders who represent your customers. The “mismatch” between those who manage, govern and advise businesses and the employees, customers and networks of those organizations hurts businesses. The most successful companies, they write, are those that look “outward” and “create mutually beneficial relationships with them.”
- Opening your mind to new possibilities. Diverse initiatives in various business units, cross-functional communication and collaboration and a culture that supports change can help even the most entrenched, traditional leaders and employees learn new strategies and think more innovatively.