CM: In light of the dot-com collapse, how have companies altered their approach to e-business?
Slywotzky: It's no longer about e-commerce. It's now about using new tools to change the fundamental way you do business. The major driver here is to try to understand when the rules of the game change, and to try to anticipate that. This thing started about 24 months ago, when certain companies began to change how success happens in business, and these changes came from initiatives that began, in some cases, back in 1996. To better view the changes, we started studying value creation among competing companies, like Dell versus Compaq. Cisco versus Nortel, Schwab versus Merrill. We know for the last decade, or decade and a half, that business design innovation has been driving value growth. But certain companies were so far ahead of competitors that we asked ourselves whether this was just business design innovation, or was there something else going on here?
CM: How do you measure the impact of these changes?
Slywotzky: Fourteen months ago, there was still no evidence that shifting from a conventional business design to a digital one really made a significant economic difference. But now we see companies that have moved to a digital business design achieving profit margins that are ten points higher than their strongest competitors'. So, we're beginning to enter a period where we're seeing incumbents preoccupied with this shift from conventional business design to digital business design, and e-commerce is really only a subset of this, because e-commerce is really how a company goes about digitizing its selling function or marketing function or some part of its customer interface. Meanwhile, what incumbents are now focused on is how to fundamentally change the way they do business in a way that takes advantage of digital options for building a better business model.
CM: But how is the application of these digital options any different from a new ERP package or even sales automation software?
Slywotzky: This is not about just efficiency, but a fundamental redefining of how a company relates to its customers. If you're familiar with our book Value Migration, it showed that the rules of success had changed, and being product-centric and market share leader was no longer going to be enough. That's a little bit of a tough message, because the track record of using technology for business purposes is pretty weak. There's been a ton of money spent on information technology, but very often with unpromising results. And what this is about is companies that have begun to think about digital options, but in a profit center way.
CM: Needless to say, companies shouldn't expect the payoff 12 months later.
Slywotzky: The fact is, even if you are very energetic and focused and obsessed with making a change, the companies that have truly digitized their businesses started in 1996, and only four years later are we seeing the result. So even in the best of circumstances, making this transition is, at least, a three- and probably a four- or five-year process. So, unless you understand the principles and get started very soon, the risks of being out-competed are very high.
CM: What are some of the characteristics of companies that have changed how success happens?
Slywotzky: The most important one is that these are companies that started with the question, "What are the most important business issues facing my company?", and not with the question, "What can technology do?" The second characteristic among these companies is how they sought to use these options to create a better and unique value proposition for the customer. So, this is very different from creating back-end efficiency; it's creating a unique reason why you should do business with me and only me. Another characteristic is that they have sought to answer the question, "How do I use these technologies to create new sources of profitability in a world where the old sources get commoditized in 24 or 36 months?" And the last characteristic is that they each sought to do a better job of protecting their customers as well as their own profitability.
CM: How about communication within the management team?
Slywotzky: Well, one common characteristic that is visible among these companies is an effective and genuine partnership between the chief executive and the chief information officer. That's a very tricky subject, because they come from two different worlds and speak two different languages. We find that within these companies where they have learned each other's language, the IT agenda is now being driven by business issues and businesspeople within the organization. And because of this communication, they now understand what digital options can do for them strategically. For most companies, in terms of the customer perspective, this is highly significant.
CM: Where are the hurdles that need to be overcome?
Slywotzky: Unless the people who are experts in the digital technologies understand what we're trying to do for the customer, and how profit happens, and how we need to improve that, and how we protect that profitability, they will not have the ability to sort out what's really needed and what's ideally doable. Ten years ago, there was a breakthrough when companies began to have people in R&D and marketing speak to one another, so that they could develop customer-relevant products. This is what we now see happening with the business side and the digital technology side.
CM: So, again it comes down to technology finally being viewed as strategic?
Slywotzky: There is a great deal of material out there as far as what technology can do from a technical performance perspective. I think that the challenge for consultants is to develop an understanding of what technology's business implications are. What are the kinds of "bit engines" that have already been developed? What are the economic and, more important, customer functionality characteristics of the technologies out there? Which of these options are better from a customer convenience and economic perspective? Where do we see not 10 percent but tenfold differences in costs, and an economic advantage?
But it's not about understanding the bits and bytes. It's understanding what this stuff means for the customer, and very often the new stuff is 10 to 20 times cheaper than the old way of doing things. Yet, that's not really the point — the point is that this has become a point of departure.
CM:
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