Clients that work with digital consultants are, by now, accustomed to hearing the constant refrain that, in order to survive and thrive in the digital age, they must become agile, innovative, and collaborative organizations that inspire passion in customers and employees alike by fostering a fun-loving but hard-working culture and by using digital technology and design thinking to create uniquely compelling customer experiences. And if you can look past the jargon and hyperbole, there is a lot to be said for each of these recommendations. You’d be hard pressed to find a consultant who would seriously advocate that any corporate leader should pursue the opposite approach (after all, given a choice in the matter, few people would want to work with or for a torpid, unoriginal, unilateral organization that inspires loathing or indifference in customers and employees).
The issue isn’t so much the advice itself, or the “strategic vision” this overwrought language is meant to conjure up (although it does all fall squarely into the “easier said than done” bucket). Rather, the issue is that digital consultants so often hold up the wrong examples for clients to emulate. Established companies in mature sectors from manufacturing to mining to banking are exhorted to turn to Silicon Valley technology startups, not just for general inspiration, but as a source of specific strategies and tactics that clients across a wide range of industries can apply to their benefit. And at a superficial level, this idea seems to make some sort of intuitive sense. Certainly there is much to admire from the extraordinary success enjoyed by digital leaders such as Amazon, Google, Facebook, Uber, etc., and who better to look to as a model to follow when navigating the stormy seas of digital disruption than the world’s leading digital technology companies themselves?
But as alluring as this idea may be, the truth is that the value that these Silicon Valley giants hold as a source of practical or strategic advice for established companies grappling with the digital revolution is decidedly limited. This is not because there isn’t important knowledge to be gained from studying these successful companies. Rather, it is turning that knowledge into practical advice that is relevant outside of the unique context of internet technology companies that is the challenge. Unfortunately for executives looking for easy answers, the inconvenient fact is that much less than is generally assumed of the “secret sauce” behind the success of these companies is actually transferrable across industries in any meaningful way.
The extraordinary success enjoyed by the leading internet firms has less to do with their strategic vision and operational prowess, impressive though they may be, and much more to do with the fact that they are “platform” players that can take advantage of the power of network effects (the more users Facebook has, the more users and advertisers Facebook will attract), winner-takes-all markets, and natural monopolies (how many ride-sharing apps or apartment-letting apps does the world need? The answer may well be greater than one, but it’s almost certainly less than five). Network effects, or the lack thereof, are a question of inherent industry structure, and altering industry structure is beyond the capacity of the vast majority of companies (though it is within the power of regulators).
What is often not fully appreciated is the extent to which the exceptional performance of the digital technology leaders comes down to the nature of digital products or services themselves, which are infinitely replicable with perfect fidelity at zero marginal cost, and can be effortlessly and instantaneously distributed across the globe. This is what makes digital technology truly revolutionary, and it’s what’s behind much of what makes the Silicon Valley model unique (and therefore hard to transfer). For example, much has been made of the “asset light” business models of companies like Uber (which facilitates transportation, but doesn’t own vehicles) or Airbnb (which facilitates hospitality, but doesn’t own any hotels), in comparison to their traditional asset-intensive counterparts.
Ultimately, when it comes to grappling with the challenges of digital disruption, there are no shortcuts, and each client will have to forge their own path. In the end, there are still some questions that Google can’t help you answer.
Brendan Williams is Associate Director, Lead for Digital Consulting Research for ALM Consulting Intelligence