We live in an exponential world fuelled by disruptive innovation. As humans, we’re accustomed to thinking linearly; however, the world is growing at an exponential pace, requiring a non-linear approach. The simplest way to approach exponential is by comparing it to the conventional linear mindset. The business planning metric companies usually deploy involves an incremental growth trajectory. We plan for incremental growth, and through operational efficiencies and economies of scale, we get better returns for our investments. This is quite different in an exponential world driven by the intersection of two key trends – disruptive technologies and business model innovation.
As an enterprise aiming for exponential growth, how do you know if your strategy leverages the full potential of today’s digital era?
Is there a litmus test for us to decide if we are on the right track?
How do we challenge ourselves to ensure we are exploiting the full potential the digital era has to offer?
For starters, the litmus test for a digital strategy is its ability to deliver a non-linear return on investment in resources. It should deliver exponential growth in returns as compared to a traditional incremental approach (Figure 1).
In the digital era, we should be able to delink the return from the investment in physical resources and leverage the ability of new disruptive technologies to deliver value at scale.
Uber, Grab, Airbnb, Amazon, Facebook, and Google perfectly illustrate exponential growth, sharing these characteristics in common:
- High annual (even quarter-on-quarter) revenue growth
- Exponential profitability model
- Asset light and software driven
Before undertaking an exponential growth plan, it is vital to lay a strong groundwork for success. In understanding the rapid growth trajectory of successful companies, research firm, Twimbit pinpoints four fundamental components to executing an exponential growth curve (Figure 2). This is applicable for large businesses embarking on their digital transformation journey as well as fledgling start-ups.
- Vision & Purpose: Essentially, the “Why” or larger purpose of the digital transformation journey as Simon Sinek so effectively articulated in his famous TedTalk. Understanding purpose is not just crucial for the company and its customers, but also to society. Uber, for example, set out on a mission “to bring reliable transportation to everyone, everywhere”. Google aims to organize the world’s information and make it universally accessible and useful. One of the first things Satya Nadella did as CEO was to announce Microsoft’s mission to “Empower every person and every organization on the planet to achieve more”, capturing the transition of the company as one that will partner and collaborate to help people achieve more through technology.
- Disruptive Technologies: Artificial intelligence, blockchain, 3D printing, big data, cloud computing, mobile, mixed reality, Internet of Things, and robotics are at the heart of digital transformation. We are in the early stages of the evolution and use of these technologies by companies. Even the all-pervasive mobile phone has yet to be optimized fully by businesses although they’re increasingly used in existing products and services offered by vendors. Unlocking the biggest impact of these technologies is only possible when they are made central to the transformation. What does a mobile-first strategy mean to your business? How can you build your business around the mobile device rather than just leverage it?
- Financial Strategy: Are you backing your digital strategy with a financial one? Most companies price their new digital offerings on par with existing ones, assuming that customers will adopt the new approach due to its incremental benefits. It fails to capture the switching costs and motivation needed to change decades-long habits. A financial strategy should encompass the ability to acquire and integrate new companies and technologies continually. Keeping an eye out for companies, talent, and intellectual property is now a bare minimum needed to stay relevant. Uber’s success is mostly attributable to a targeted financial strategy underpinning its business and customer-centric innovation. Uber is valued at US$70 billion today, managing to raise a total of US$24.7 billion in over 23 rounds of funding since its inception in 2009. Uber’s investors backed the company’s digital strategy with a financial one, investing billions of dollars into driving a change in the customer habit of owning a car to using an Uber. By drastically subsidizing the cost of providing the service via a simple app to create the marketplace, Uber has managed to grow consumer adoption exponentially.
- Business Model Innovation Strategy: Disruptive technologies have the potential to usher in new business models and new ways to deliver value to customers. Business model innovations offer greater opportunity to create long-term value than just product or service innovation. Major business model themes driving digital transformation include:
- Pay-As-You-Go/Subscription Economy: Technology is driving the provision of products and services on consumption rather than an acquisition model. The subscription economy offers predictable recurring revenue streams and promotes ongoing engagement with customers.
- Platforms/Ecosystems: Companies are building platforms where buyers, sellers, and partners can collaborate. A software-based platform helps remove inefficiencies affecting the industry and spurs innovation. It also helps encourage what is popularly referred to as the network effect, allowing every new user or partner that joins the platform to have a non-linear impact on the overall business.
A new set of rules are coming into play as companies aim for a non-linear growth future.
- Communicate to stakeholders – Ensure all major stakeholders have a common understanding of the vision, associated risks, and potential roadblocks. Transforming a company in the digital era cannot be delegated or done on a piecemeal basis. Microsoft CEO, Satya Nadella, drove home this point in his book Hit Refresh, indicating the importance of consistent communication of milestones, however small, along the way in times of transformation and change.
- C-suite convergence – Digital transformation has huge implications on organization structure. The convergence of careers and functions are all at play, entailing significant collaboration and integration among leadership teams across various departments. IT, Strategy, Sales, Marketing, and Technology roles are all becoming integrated like never before. This is typically easier to execute in a start-up environment where purpose and future development is more evident without many of the legacy roadblocks larger enterprises encounter. A good leader with the courage and conviction to take bold actions is pivotal to bringing about exponential growth.
- Decentralization of IT – A highly effective approach to accelerating the digital agenda is to decentralize IT for more efficient operations. Many of the world’s leading banks are empowering various business units to have their own IT and innovation teams to drive digital projects. Commercial business unit leaders are mandated and measured on their ability to lead successful projects.
In the coming weeks, we aim to dig deeper into what it takes to develop an exponential mindset by exploring the exciting transformation journeys of several forward-thinking companies. While start-ups embarking on the digital transformation journey face fewer legacy issues in terms of business, infrastructure, and teams, the road ahead for legacy companies is trickier. We’ve often observed legacy companies attempting the digital journey by applying legacy thought processes and management principles to their digital initiatives, severely limiting the potential of becoming a truly digital business. That stated, legacy companies have the advantage of tremendous infrastructure, customer base, and intellectual property, which if leveraged well, can deliver the same success we have seen in companies like Adobe, Microsoft, JP Morgan Chase, Domino’s Pizza, and DBS Bank.