In the roughly 30 years since the first commercial internet browser was created, “being digital” has become the mantra for business survival. Digital efforts have been proliferating greatly as companies work to catch up with technological innovation—and COVID-19 massively accelerated the pace. Yet, despite having put so much energy and investment into digitizing, most companies have not gained a competitive edge. In fact, digitizing may have even made things worse as companies dedicated more and more of their cash, time and energy into simply playing catch-up with their rivals. Being digital—whether that’s having a sophisticated e-commerce engine or using a powerful customer relationship management (CRM) package—isn’t enough anymore. Instead, companies need to move beyond digital.
Top companies do this by starting with a big challenge and then building differentiation (digitally) in the capabilities they own. They get their differentiated capabilities right, and then the flow of digital-powered products, services, solutions, and experiences naturally follows. Think about Apple’s design capability, which has allowed it to disrupt every industry it has entered. Or consider Frito-Lay’s rapid flavor innovation, which lets it quickly produce new flavors when it senses demand—for instance, a mac and cheese flavor for Cheetos. Digital technology plays an important role in all these capabilities—but these capabilities involve much more than technology.
They require dynamic combinations of a knowledge base, processes, technologies, data, skills, culture, and organizational models that together allow companies to create value in ways that others cannot. Thus the Philips leadership was able to reimagine their place in the emerging world. Philips’s beyond digital mission guided the company through a series of major changes that revolutionized its portfolio, business model, and culture. These changes included an exit from businesses that had long been a part of the company’s identity—TV, audio, and video operations; the lighting division; and domestic appliances. Today, Philips’s focus as a health-technology player has resulted in remarkable gains in profitability and shareholder value, the stock price having risen 83% in the five years ending in 2021.
When a labor shortage loomed in Japan’s construction industry in 2013, Komatsu tried to address the problem by introducing ICT (information and communications technology) construction machinery that used GPS, digital Mapping, sensors, and internet-of-things connections to enhance efficiency. But leaders quickly saw that the new machines were not resulting in the expected increase in productivity. The reason? Bottlenecks in processes at the construction site. At one highway construction site, for example, Komatsu’s ICT machine could remove and dump 50% more dirt than a conventional machine, but construction companies were unable to schedule and account for the required number of dump trucks to remove the dirt from the site. Moreover, construction companies were unable to accurately forecast the volume of dirt they would be removing. So in 2015, Komatsu created a division to focus on broad solutions, drawing on specific capabilities from an array of other companies and providing a way to connect all the people and companies involved in the construction and production tasks digitally.
Beginning in 2017, Komatsu launched an open platform, Landlog, that both suppliers and construction companies could plug into to make sites smarter and safer. As a result, to cite just one example, drones can complete a survey of a typical construction site in four to six hours, down from two weeks, and Landlog can then integrate the data gathered by the drones to program automated bulldozers. Customers report being able to complete the construction job twice as quickly as they would using traditional approaches, saving money and reducing pressure on overstretched construction workers.
By the end of 2020, Komatsu had introduced its ecosystem-driven platform to more than 10,000 construction worksites in Japan, and it has now expanded the proposition to other countries, including the United States, the United Kingdom, Germany, France, and Denmark. This is the way, Komatsu embraced and created value via eco-systems.
In 2014, Adobe, the San Jose, Calif.–based software company, pivoted away from selling its widely used applications (such as Photoshop, Illustrator, and InDesign) as packaged products, mostly as CDs via third-party sellers, and began offering applications as cloud-based, software-as-a-service (SaaS) solutions via direct subscription. That change was just the start. Adobe reconfigured its operating model around the newly available data and consumer insights—and super-charged its business. Before the move, basically all Adobe knew was when a customer registered a product. Moving to the SaaS model gave the company the ability to see how customers were using its applications in real time. Adobe then reoriented much of its value-creation model—and organizational structure, as a logical next step—around customer insights. The company saw that some neglected apps were actually driving tremendous value for customers. Other insights led teams to divert resources, deliver new on-boarding experiences, and provide instant help. Adobe was able to detect that, say, a Photoshop customer was becoming frustrated while editing a photo and suggest a filter, another fix, or a tutorial. Adobe’s leaders credit most of the company’s revenue growth, from US$5.9 billion in 2016 to $12.9 billion in 2020, to its data-driven insights capability. And Adobe’s success in early 2019 led it to launch the Adobe Experience Platform, which allowed it to sell its insights system to other companies, opening a whole new revenue stream. Thus, the Adobe leadership made sure that the underlying data and technology needed to support the differentiating capabilities, including privileged-insights system could be used to grow beyond digital age.
Honeywell’s aerospace division initiated its vision of outcome-oriented teams back in the late 1990s, when leaders of Honeywell started to think about how advances in digitization, communications, and connectivity might create opportunities. Its aviation businesses made products such as engines, brakes, navigation gear, and avionics. They also provided services such as airplane maintenance and flight information software. It took a decade for the underlying technologies to catch up to Honeywell’s vision, but by 2010, Honeywell Aerospace was mapping out how products and services could be brought together as a “connected aircraft” business. The business would add significantly more customer value than the sum of its parts—by offering improved power and fuel usage, predictive maintenance, more precise flight planning, and real-time, crowdsourced weather information.
Honeywell realized that a major reorganization of its aviation products and services business would be needed to bring the right people, skills, and capabilities together. The company had long built planes in a methodical fashion, with functions that were segregated, but now had to build solutions that crossed boundaries between engines and avionics and electronics. A radical organizational change brought IT, data analytics, and engineering people from their home functions into one team and granted authority for extensive hiring of those with needed new skills. As the transformation got underway, new teams were tasked with rethinking how legacy offerings that had existed as stand-alone products could be reimagined to operate in a broader, networked environment.
Today, Honeywell Connected Aircraft is an $800 million business and is considered by many analysts to be the market leader in the connected aircraft space. The Honeywell Forge flight efficiency platform was adopted by 128 airlines and more than 10,000 aircraft globally in its first year on the market. Honeywell leadership created value by scaling up a few differentiating capabilities by adopting a new model towards a bolder value proposition.
When Eli Lilly ran into trouble in the late 2000s, as patent protection was about to expire on four drugs that accounted for 40% of the company’s revenue, then CEO John Lechleiter instituted massive changes in the top team. Up until 2009, the top team was known as the Policy Committee, and nine of the 13 members represented functions, while only three had operational responsibilities. The imbalance seemed to be both a symptom and a cause of strategic and operational shortcomings. Lechleiter set up a newly named Executive Committee and added the heads of the five business units to the team, while reducing the number of leaders with functional responsibilities to five. Overall, eight of the 13 members of the Executive Committee were new to that team, and two had been hired from the outside. The mix of backgrounds of the top team members also changed dramatically. By 2016, Lilly was firmly back on a path of profitable growth. Over the next five years, the stock price tripled. This clearly indicates the Eli Lilly’s attempt to invert the focus of the leadership team to revive the organization that has highlighted more holistic approach beyond digital domain only.