“There are tech companies, and then there are dead companies.” This statement is the hard-hitting truth Gregory LaBlanc has for companies mulling over whether to implement a digital transformation strategy or not. Gregory is a Distinguished Teaching Fellow at the Haas School of Business at UC Berkley. We recently caught up with him to ask him what companies can do to survive the fourth industrial age. “If you think about it,” Gregory says, “there’s no such thing as a tech sector on the stock market anymore. While the media and Wall Street like to call the likes of Google and Apple tech companies and others like GM and Monsanto non-tech companies, the reality is these are all tech companies.”
Gregory is right. A company like GM, while categorized as an automaker, has more software developers than Google. United Airlines and UPS utilize more technology than most tech-first companies. According to Gregory, the notion of what a tech company represents is fast disappearing. What is emerging are tech companies that do other things. For instance, Google is a tech company that does advertising; UPS is a tech company that delivers packages; Amazon is a tech company that sells merchandise; GM is a tech company that sells cars, and so on. This distinction is important, Gregory asserts, for businesses that want to survive in a digital era.
While most businesses think digital transformation is all about technology, Gregory disagrees. “Digital transformation is a management problem, not a tech problem,” Gregory says. Looking back at the history of technological revolutions, the companies that were able to respond from a management and operational perspective to integrate the technology of the day were the ones that won. This demarcation is essential for business leaders concerned with what technologies are emerging and how best to take advantage of them. Gregory advises that the first step to digital transformation is to optimize management and organizational structures to better assimilate and utilize new technologies.
Building on this perspective, Gregory points out that organizations do not need any new conceptual skills or models to thrive in the digital era. Instead, they must adopt tried and tested management strategies centered around a learning organization. These are organizations that learn and adapt in response to new information. Management structures must, therefore, be optimized to support the requirements of a learning organization. In Gregory’s words, leaders must become “human APIs,” able to assimilate technical information and apply domain expertise to glean actionable insights on how to move the organization forward.
“All industrial revolutions have been driven by increases in resource utilization,” says Gregory. What has changed with this new industrial revolution is that the availability of data has made it possible to increase resource utilization to levels previous revolutions did not manage to achieve. Consider the sharing economy. While most commentators may point to the consumer habits of millennials as the driving force of the sharing economy, this is not the complete picture. What we see with millennial behavior is a symptom of the structural changes occurring across industries and not the cause. Through improved real-time data-driven resource allocation, the need to own things is fast becoming obsolete, a factor that is propelling the sharing economy. For businesses to take advantage of this new trend, they must move away from being product companies to being service companies.
Gregory explains, “The product business model is on its way out, and this is being driven by ever-increasing capacity utilization.” For instance, the current utilization of motor vehicles in the US stands at around 5%. Digital transformation, through ridesharing and other similar technologies, has the potential to drive this number up by reducing the number of hours vehicles remain idle through the day. This shift will not be reflected in Gross National Product (GNP) numbers but in the increased satisfaction consumers have. This trend will simultaneously increase customer satisfaction while cutting the number of car units sold, number of parking lots needed and so on. This level of resource utilization will not only reshape the automotive industry but create new industries like autonomous car manufacturing and supporting technologies like charging stations and idle car park retrofitting.
Data-Driven Business Model
“The company with the most data wins.” That’s Gregory’s summation of how important data is to the modern organization. He continues by pointing out that it’s not data about specific customers that matters, but data about an aggregate marketplace. Take Facebook for instance. The amount of marketplace-specific data they have makes them untouchable in their space. The Climate Corporation, a subsidiary of AgTech giant Monsanto, has an app called Climate FieldView that has mapped out close to 70% of all arable land in the United States through IoT enabled farm machinery. These sets of data act as an insurmountable moat against competitor threats. So, how can companies utilize data to win?
“While large companies can afford to perform data-driven discovery where they manipulate mountains of data to try and find trends, this is the wrong approach for smaller companies,” Gregory intimates. Instead, he says, they should start by asking how more data can help them find answers for existing and hypothetical questions. Put another way, how can data better offset the limitations of ignorance that every company faces? To get this approach right, companies must invest in balancing out their teams to better interpret this data. If the organization is too technical then business cases will be missed; if the team is too business heavy, then technical opportunities derived from data interpretation will be missed. The right mix will ensure a company has a truly functional team in place to take advantage of data-driven decision making.
“How can businesses start the process of reinventing themselves for the digital era?” we asked Gregory. “It all starts with how you think of your business,” he says. If you are a product business, what would it mean to become a service business? If you consider yourself a non-tech company, what would it mean to become a tech company? If you make hardware, what would it mean to be a software-first company? What would it mean to be a fundamentally data-first company where information and data are at the heart of your competitive advantage? Asking these questions will help reorient a company’s thinking about what their business model is. Gregory concludes, “This is the first step to reinventing your business for the digital age.”