Does Digital Disruption Require a Rethink of the 4Ps?
Now before we get going here, I need to confess that I have led product management and product marketing organizations. And I love creating compelling products that responded to customer needs. But at the same time, I have personally seen how a startup can dismantle a larger established product company’s product business.
Jeanne Ross says that in today’s era, incumbent enterprises are like peaches to startups. The startups say I will just take a bite. Eventually, however, all that is left is the core and you know what the core of the peach consists of…cyanide. The problem is that “there is no competitive advantage in a single capability or product”. This is why Jeanne believes Uber has so much competition. So if advantage cannot be acquired by a single product or capability then how do established product companies respond?
Do they have a prayer? The answer is yes. For incumbent enterprises, competitive advantage comes, according to Jeanne, “from taking capabilities that others may or may not have and integrating them in ways that make something extraordinarily powerful”. In Jeanne’s mind, this is how established companies can beat startups because “as we know, startups can only do one thing well. Integrating business capabilities provides a whole value proposition that is hard for others to copy.”
And amazingly those that apply technology have the same problem as the vendors that service them. Last weekend David Chou, CIO at Children’s Mercy Hospital, tweeted that “IT has to start focusing on providing solutions versus managing technology. Technology is a commodity and that is a hard concept for most”. It is an astonishing thing when even the buyers of products prefer integrated solutions to pieces of technology, or single products. But just think about how a consumer company like Apple competes.
Are there successful examples of how to respond?
Let’s start with the lodging business. AirBnB is able today to create inventory overnight. And discounters are able to turn hotel rooms into commodities. The physical product—a room—is a now a commodity. So how can an existing businesses play to win?
At Hyatt Hotels, they have responded by changing their focus. They believe that customers today buy experiences not rooms—i.e. they buy solutions. So they are using data to change the experience. In Hyatt’s case, they are integrating customer data across multiple systems to discover patterns that will enable their hotels to truly excel at customer service. For example, they are using the data they retrieve on flight connections as well as data they have on buying patterns of their customers to deliver new levels of customer service. With this, if a top customer has missed flight connections or been significantly bumped during their travel day, Hyatt can use the customer’s purchase history to notice they have bought Apple Martinis the last three times that they were at Hyatt properties. Armed with this knowledge they can automate the delivery of the drink just as the customer gets to their room regardless of the hour.
Just like Hyatt, Bill Ruh is transforming the 124 year old company that is GE. And more importantly he is moving GE from an industrial product company to a digital industrial solutions company. Bill asserts that, with analytics and data, the value from their offerings is being transferred from the things they build to the services that surround them. For this reason, he claims that the center point for all of their businesses is becoming their digital services. Today, “the game is about creating the most efficiency around an asset–a machine, a factory, etc.” Bill says to continue to have value and not be eclipsed by a disruptor, GE has needed to own the software that surrounds its products. Software has become how value is derived for an asset. Clearly, this is a huge business model change.
So what have Hyatt and GE discovered that other enterprises need to learn? They have discovered that single products and services do not provide the business advantage needed to compete in the digital economy. The right to win– to quote Paul Leinwand–comes from a coherent set of business capabilities and a portfolio of products and services that are congruent with these capabilities. And in the age of disruption, it comes from being able to put together integrated offerings that build upon them. And this requires one thing, great data.