Digital Disciplines. Wiersema Fred

Netflix, and Apple, utilize one or more of these strategies, but so can companies in other verticals and with century-old legacies.

       Information excellence , as signaled by the transcontinental telegraph, exploits information technology, sophisticated algorithms, and the synthesis of digital and physical worlds to drive better asset utilization, better physical operational excellence, and better business processes: processes that are faster, more cost effective, higher quality, more flexible, more sustainable, or otherwise create differentiated value. Assets can be optimized with information through techniques such as better operations planning to reduce idle time and through predictive maintenance to reduce unplanned downtime.

      Uber is a good example of information excellence: It rethought transportation processes by using mobile devices and matching algorithms, and improved asset utilization by using on-demand drivers and their vehicles. Other companies use similar approaches: Airbnb for living spaces; Topcoder for developers. Other examples of information excellence include optimized operations for package delivery firms such as UPS and at ports such as the Hamburg Port Authority and integrated online-offline omni-channel experiences at retailers such as Burberry, featured in Chapter 7.

       Solution leadership represents the evolution of standalone products and services to smart, cloud-enabled product-service systems and ecosystems, where firms focus on customer outcomes, one-time sales become ongoing relationships, and competitive advantage evolves from mere product features to ecosystems, communities, and future potential. Products such as cars, thermostats, and dishwashers are being connected to the cloud, but so are services. For example, healthcare services are becoming delivered in part by medical equipment such as connected pills, pacemakers, and CT (computed tomography) scanners.

      The Nest Learning Thermostat is a smart device that connects across Wi-Fi to the cloud. From there, it can be remotely controlled by a smartphone, and perhaps someday through smart electric grid demand response and dynamic-pricing based algorithms. Other examples include jet engines from GE that tie to cloud-based analytics and wearables from Nike and its partners that link to cloud services and social networks. Nike's digital strategy is covered in Chapter 10.

       Collective intimacy is where independent anonymous transactions become intimate, long-term relationships thanks to “big data” analytics run on detailed customer characteristics and behavior. Relationships become win-win, and products and services become predictive, contextual, and personal.

      Examples include upsell and cross-sell of products at etailers such as Amazon.com, improved retention and customer lifetime value at entertainment services such as Netflix, reviewed in Chapter 13, and improved health outcomes through personalized medicine leveraging repositories of genomic data such as at the Mayo Clinic.

       Accelerated innovation enables companies to innovate products, processes, and relationships faster, cheaper, and better than their competition by complementing internal resources with ad hoc external ones, through open, external innovation, published big data sets, crowdfunding, open source, platforms and agile development, and crowdsourced challenges exploiting contest economics. Accelerated innovation may be viewed as a meta-discipline, since it can be applied to improve operations and information, products, services, and solutions and customer relationships.

      Uber, Nest, and Apple are certainly innovators, but so are Netflix with its Prizes; Procter & Gamble, highlighted in Chapter 16, developing its next billion-dollar blockbuster brand through a combination of internal and external innovation; and GE with its Quests, featured in Chapter 17.

      Most of these companies are doing something in each discipline, but GE is applying all four disciplines across its numerous businesses. Opower, a company that is also arguably pursuing all the disciplines, is an interesting case of a company whose strategy is based on applying gamification – leveraging behavioral economics and human cognitive biases – to the business of reducing energy consumption, and is overviewed in Chapter 19.

      Immense wealth is being created through the strategic, disruptive application of information technologies in these ways, or lost through the failure to do so successfully: consider Netflix vs. Blockbuster, Wikipedia vs. Encyclopedia Britannica, Amazon.com vs. Borders, Yelp vs. Zagat, Facebook's WhatsApp vs. cellular service providers' text messaging services, Uber vs. taxis, or Google vs. any number of newspapers. Upstart startups have overtaken established brands, seemingly overnight. The digital disciplines offer a blueprint for new companies to disrupt current ways of doing business as well as for established firms to reinvent themselves via compelling, digitally enabled value propositions.

      Digital disciplines are the latest incarnation of a popular strategy framework – called value disciplines– originally developed by Michael Treacy and Fred Wiersema 20 years ago in their seminal article for the Harvard Business Review titled “Customer Intimacy and Other Value Disciplines”1 and their bestselling book The Discipline of Market Leaders.2 They proposed three value disciplines: operational excellence (i.e., better processes), product leadership (i.e., better products and services), and customer intimacy (i.e., better customer relationships).

      Treacy and Wiersema argued that companies should ideally pursue one discipline, and that different companies can dominate different niches in the same industry by pursuing different value disciplines. Consider retailing: Wal-Mart offers convenience and low cost through operational excellence, including a global store footprint and optimized logistics; Tiffany offers product leadership by selling high quality objects of desire in elegant settings; Amazon's Zappos unit competes on customer service and relationships.

      Treacy and Wiersema's insights are timeless, but the ascendance of information technologies – including the cloud, big data, social, mobile, and the Internet of Things – enables disruptive applications of the value disciplines approach which couldn't have been anticipated at the dawn of the Internet era, when the cloud was an atmospheric phenomenon, a social was a mixer, cell phones were bricks, and online meant dial-up.

      Fortunately, the Treacy and Wiersema framework permits digital extension, evolution, and elaboration. As just one example, customer intimacy implied dedicated, onsite account teams in business markets and a personal touch in consumer markets: think avuncular corner butchers or personable sales clerks. In other words, customer intimacy required an organizational, people-based, cultural approach. Today, it is just as likely to entail applying sophisticated algorithms to customer transaction or other data to provide offers that maximize customer satisfaction, consumer and business customer outcomes, retention, and profitability through upsell/cross-sell and reduced churn. IT is increasingly, inexorably, inextricably intertwined with the creation and delivery of customer value. And we are just at the beginning of this digitally enabled journey.

      Market leadership based on implementing these strategies can be measured in terms of traditional business metrics such as market share, revenue, profitability, labor productivity, and return on invested capital. One study3 showed that a dollar invested in IT returned almost two, mostly through revenue growth rather than cost reduction. Moreover, this return was substantially higher than investments in R&D (research and development) or marketing, making it somewhat ironic that marketing budgets are currently4 three times larger and growing twice as fast as IT budgets, although the CMO (chief marketing officer) is increasingly funding digital initiatives due to their strategic importance.

      However, the benefits of the digital disciplines can also be measured in terms of environmental, community, and societal benefits. For example, IT can reduce carbon footprints through substitution, such as when videoconferences replace physical travel; synchronization, as with electricity demand response;

2

Michael Treacy and Fred Wiersema, The Discipline of Market Leaders (Reading, MA: Addison-Wesley, 1995).

3

Sunil Mithas, Ali Tafti, Indranil Bardhan, and Jie Mein Goh, “Information Technology and Firm Profitability: Mechanisms and Empirical Evidence,” MIS Quarterly 36, no. 1 (2012): 214.

4

Lisa Arthur, “Five Years From Now, CMOs Will Spend More on IT Than CIOs Do,” Forbes.com, February 8, 2012, www.forbes.com/sites/lisaarthur/2012/02/08/five-years-from-now-cmos-will-spend-more-on-it-than-cios-do/.