Driving Digital Strategy (Sunil Gupta)

[Music] okay hi everybody my name is Sunil Gupta I'm a faculty here at Harvard Business School for many years my interest has been to understand how technology is affecting business as he saw the Nokia case of course no company wants to be either Nokia or the Kodak of the future so in the process last eight or nine years I've been talking to lots of companies to understand so what are they what are you doing as a result of technology change and by and large I heard three answers the first answer I heard from the companies is we are using technology to cut cost and improve efficiency there is nothing wrong in doing that everybody should cut cost and reduce efficient increase efficiency but if that's all you're doing you're missing the big picture because you might be the most efficient but the most irrelevant bank and Alipay as you know is far bigger as a financial services firm than many other banks the second response I heard from companies is we don't know what the technology has in store for us so we're gonna do a bunch of experiments and again it's doing experiments is a great idea except what really happens in companies is every brand every division every country start doing experiments and suddenly you have hundreds of experiments happening in the organization but they don't add up to anything so you feel the sense of activity but there's really no progress so to speak and if they all become tactical the third approach companies tend to follow it says well we red-clay Christensen's book about innovators dilemma and that tells us that is very hard to do innovation within an organization so we're gonna set up a separate small unit hire bunch of young people give them a couple of hundred million dollars send them to Silicon Valley and hopefully something interesting will happen so now if you go to Silicon Valley every company every large company has an outpost in Silicon Valley with the hope that something great will happen and the reality is the data basically shows that very few successes come out of that and the reason is very simple so imagine you're trying to turn a large ship and you sort of find it very hard to turn the ship so you launch a speedboat which is the Silicon Valley outpost usually what happens if the speed board takes off but the ship is still standing there and that's what exactly what happens that the startup is okay but it doesn't really gel with the large organization so that was that sort of a debate that I was trying to sort of say okay so what do we do so last eight nine years when I'm talking to companies of course there is no single answer no silver bullet if you will so here is my at least version of this which is no rocket science there are four things that you need to think about very differently how you do business strategy differently think about business strategy different be hiring think about your operations differently hurry think about connecting with customers with digital marketing and so forth and organization and this is the the focus of my book which which I'll give you a highlight on the first given the time just about the business strategy so let me first tell you how I learned about strategy and some my strategy professors the hair so I should be careful but when I was in the MBA program this is how I learned about strategy that strategy is about focus you should do one thing and you should do one thing well right I was also told because I read Michel Porter's book that time that there are two paths to comparative advantage either you are cheaper or you're better right like makes sense and the question that I said we started asking is have the rules of strategy change as a result in the digital world so let me give you an example that all of you are familiar which is Amazon so if you ask yourself what business is Amazon in well they're doing all these things and you can argue as to why they're doing all these things well they started with the books and electronics to displace Walmart in Barnes and Nobles and they went into marketplace to build this platform and the network they started Kindle because Kindle was really to sell the books not really make money on the Kindle they're making movies why would Amazon make movies maybe Jeff Bezos wants to go to the Oscars but also movies the Amazon video become a mechanism to acquire customers and retain customers and prime customers extremely powerful if you ask their selves as to who are the competitors to Amazon all these are the competitors so that for series two again obviously this is not focus in the traditional sense obviously Jeff Bezos missed the strategy classes he did so what allows Amazon to do that where is the competitive advantage come from why's Amazon so successful and I think this is also the free defining where the competitive advantage is and it's something that some of my colleagues have already talked about and but Earth has a fabulous book content trap that talks about that inexpensively but let me give you a brief highlight of what we're talking about and what part has also talked about and that is about the old rules of strategy was make it better or make it cheaper this is how we work for a long time but there the focus was on a single customer selling a single product to a single customer I sell my car to you but what if we selling our product multiple products the same customer that's when we have the razor and blade strategy so I don't have to make money on Kindle because I make money on the books right now notice the moment I do that the way I manage Kindle will be very different I don't have a P&L statement for Kindle the manager's job of Kindle is not to make money is to sell Kindle is to sell books similarly you all know about network effects if you sell it to multiple customers the value of whatsapp is zero if you are the only person in the world using it and the more people use it the more it becomes valuable without any change in product and of course if you do both which is what we chat is done it's great now when I show it this to some of the executives that I teach they say that's fine for technology companies but I'm not a technology company I'm a product company so how does it work for me so let's take a product example let's tell pellet on bikes that many of you familiar with so when peloton came with the exercise bike they could come to the market and say I'm better or I'm cheaper that would have been a traditional way of selling but they said no that's not the only thing I'll give you a videos which are my compliments which actually make you because the inside of the founder of peloton was when people knew you guys go to exercise in a gym nobody comes back and says boy my bike was fantastic everybody talks about the exercise routine everybody talks about the people that they did they work out with and that's what really is valuable so they started producing videos which are really the compliments to the bike and then of course now you have the peloton riders we have a community of people and suddenly it becomes much more sticky than the bike itself okay take another example a b2b example in this case the us foods us food is a food distribution company that basically it gets seafood and meat and sauce for from the suppliers and then sell it to independent restaurants very basic business become very price competitive so what is you as food do they could simply say I'm better or cheaper but they are now actually offering services to the independent restaurants by saying how can I improve your food waste management how can I improve your inventory management how can and by the way these are all free services so this is again my razor to give you for free in order to make it more attractive for you to buy from me rather than the competitor and of course now there also have the network because their food market is highly fragmented so now I can build an Amazon kind of a third marketplace or a platform where I connect the buyers and suppliers exactly another interesting thing to think about this here and we won't have time to talk about it is if a company does have a network effects and you are the new player how do you break the network effects how did Facebook break the network effects or Friendster how do we chat break the network effects of a Lipe and that itself is a very interesting question and I have some ideas about that but I don't think we have time to talk about that so that's one basic idea as to how the rules of competitive strategy might be changing and of course these concepts have been talked about but I think it's good to push that in the case of traditional products and businesses as well the second thing I want to talk about is so how the business model changes as a result of technology and of course when you talk about Best Buy you have to talk about when I talk about Amazon you have to talk about the Best Buy so I talked to he was early who was a CEO who's currently the CEO of Best Buy a Frenchman who became CEO in 2012 and asked him so what's your problem what do you think Best Buy's problem is Amazon right it's become the showroom of Amazon all of you guys do that you still go to Best Buy Best Buy still has a lot of foot traffic but all of us go to see the 4k television see the beautiful picture talk to the salesperson get all the advice and then what we do you pull out a smartphone take a picture of bark or check the price on Amazon and lo and behold is cheaper because hey there are the fixed costs of the stores and we said thank you very much Best Buy I'm gonna buy from Amazon so if you're CEO of a Best Buy what do you do and that's what they struggled with so their first thought was let's cut price and match Amazon's price well sure you can do that but you can't afford it because Amazon does not have the fixed cost that you have so if you match the price you would go bankrupt faster unless you find other sources of revenue their second thought was let's improve customer service experience because Amazon can't provide that fabulous idea except what's going to happen as a consumer I walk into the store I get the great customer service the salesperson is fantastic and very knowledgeable and then what I'm gonna do pull out my smartphone and check the price and thank you very much so you improve your cost but nothing happened okay some people say well why don't we focus on repairs and technology repairs like the Geek Squad great idea ask yourself when was the last time you got anything repair on your cell phone or your laptop right so that market is shrinking over time so you go through this whole series of things and say I don't see any solution but let's think slightly differently and ask yourself if Best Buy were to disappear tomorrow will customers miss it people who walk into the store to check the product and the answer is yes a lot of people still want to touch and feel the product so we know we provide value to the customers we just can't capture it they're not willing to pay some of my students say hey why don't you charge the customers to walk into the store I say well try that so then you ask further ask the question if Best Buy were to disappear tomorrow will any manufacturers miss it will Apple miss it maybe maybe not because Apple has its own stores will the Samsung miss it probably yes because as Samsung I don't care whether you the customer by Samson from Amazon or Best Buy I care that you buy Samsung and not Apple and in order to do that I have to shave showcase my product and if Best Buy doesn't exist I have to build my own stores and as very capital-intensive so in some ways the best buy is providing me a great service of showrooming once you recognize that what are you gonna do you charge these guys and you go to them cents thank you very much you can have a little corner and but you pay for me for sure me I don't care I'm not making money on transaction alone but I make making money regardless although the sales happening best by Ramazan and that's exactly what they did they have now stores within stores the different corners or Samsung corner or LG corner and so on so forth which by the way is being funded by Samsung and LG they have their own salespeople in many of these stores and once they have done that they bring in the best technology because now this is a showcase for them which attracts even more customers what has happened as a result of all this instead of losing 1.2 billion they're actually making 1.2 billion so completely turn out so what is the lesson from here that the way you capture value is very different we need to think differently as a world change so I give you one more example at one minute and then I'll shut off and this is the case of a weather company David Kenny who used to work for Akamai was a weather company and as you know weather company many years ago some of you may not even remember we used to check whether on television and they used to advertise against that nobody checks weather on television anymore right so we pull out a smartphone and check that tell whether the good news is you check the weather 10 times the bad news is you check it for two seconds you are done so the question for weather company is how do I make money I'm still providing value because you check the weather but I can't make money in two seconds I can't show you enough ad and by the way those banner ads I'm not sure they work they still claim they have a very high click-through rate but the reason is because you have too fat a thumb but it's Wednesday so how do I make money and this their whole idea rested on the thought process that people check whether in order to plan their activities and their lives and their notion was perhaps weather affects your mood and the purchases you make so they convinced all the retailers in United States to give them data of every product they sold in every store for the last five years and then they did this big data correlation to find out that's the weather in Boston three years ago at at point in time affected the purchase of certain items in Boston at that point in time and they found three sets of correlations one was obvious if it rains you buy more umbrellas one they couldn't explain if it's cold and dry in Boston people eat more strawberries and raspberries why I have no idea and third they thought there was an interesting thought interesting business opportunity and they give cooked an example of shampoos which of course I know nothing about but evidently the way women buy shampoo is very different the way men buy shampoo men of course have no clue but women use shampoo very differently depending on the weather conditions again I have no experts I have no idea but evidently if it's a hot and humid day we're going to use a different shampoo then it's a cold and dry day once they recognize that they say they created this app called hair cast and I said wouldn't it be interesting to tell the women audience that if the weather three days down the road is going to be certain and you don't have that shampoo in your closet you should go out and buy and then went to PNG and P&G say you got to be kidding me and but somehow they convinced PNG to try this in a particular market in a test and control setting and PNG tested it on Pantene shampoo for six months they tried this promoted this app for six months they did the usual way and within six months the sales of Pantene in the test market went up 28% so what does whether company become he's become a data company and David can he hire lots of data scientists have a separate office in New York and that data part of the business was then sold to IBM and David can he move with that business to IBM is right now heading Watson so I'll leave with that saying one is we need to redefine how we compete the second is we need to redefine how we create and capture value and that's basically the story of my book which will be coming out in August so thank you [Applause] [Music]

Channel: HBS Digital Initiative

Views: 89,650

Rating: 4.8935699 out of 5

Keywords: data & analysis, digital transformation, havard business school, hbs, platoforms

Id: y60yeHak5bE

Length: 15min 42sec (942 seconds)

Published: Fri May 25 2018