[This article originally appeared in the Q3 edition of Digitalist Magazine Executive Quarterly. To learn more about how your enterprise can execute the critical digital transformation, download the app for free from the Apple and Google Play app stores (tablet only).]
More CEOs are realizing that outsiders who offer a completely different approach to their business aren’t the only – or even the biggest – threat. These outsiders may be changing the game by disrupting the way things are done, thought about, or made, but the more formidable opponents could be established competitors.
For every Airbnb or Tesla in your industry, there are many more companies that have been working for years to push you out of the arena. One thing is clear: sooner or later, disruptions are coming to your industry. How should you react?
You have to decide what game you are playing
In his book The Marketing Imagination, marketing guru Theodore Levitt quotes Leo McGinneva as saying, “People don’t want quarter-inch bits. They want quarter-inch holes.” People don’t want a product, they want the benefits of a product: what it does and how it makes them feel.
What does your company really do for your customers? And how do you ensure that your employees are aligned with that need?
“At the beginning, everybody in a company understands the job to be done, but over time, well-managed companies lose that ability,” Harvard Business School professor Clayton Christiansen, author of The Innovator’s Dilemma, explained in a recent presentation.
As the company grows in size and complexity, he added, it organizes around products or types of customers, rather than its reason for being. Complexity also leads to a greater dependence on metrics to measure performance, yet the KPIs of each department become increasingly disconnected from real customer needs. As a result, the company slowly loses sight of its original goal, leaving the business ripe for disruption.
Game-changing innovation requires three things
- Step outside your silo
First, you have to step outside your existing organizational silos. Design thinking (a business methodology that helps with problem solving and solution creation) can help you rethink your products and services from a customer’s point of view, taking advantage of new technology opportunities.
For example, many manufacturers are embedding connected sensors into their products. The sensors enable new business models, such as charging customers for using, rather than buying, equipment. Instead of selling drill bits, companies can start to sell those holes as a service.
- Use the right metrics and incentives
Next, make sure that you’re using the right metrics and incentives to help your organization make the necessary changes. In practice, this can be extremely difficult, since it often means cutting gross margins. But long-term survival is ensured only if you cannibalize your own market before somebody else does. Your employees must be able to see how their efforts link to the overall company strategy and help generate momentum for change
- Become faster and more flexible
Finally, changing the game isn’t about one-off opportunities. You need to become faster and more flexible in order to respond to inevitable shifts. By simplify existing business and decision-making processes, you can create a strong platform for the next wave of game-changing innovation.