There is a lot of talk around the term “digital disruption” today.
The vast majority of it centers around the latest and greatest technology. And while smartphones, wearable technologies and connected appliances are changing the way we experience the world today, the foundational change in how organizations operate and engage customers may be the biggest disruption taking place of all.
Ray Wang, founder of Constellation Research and author of the best-selling book “Disrupting Digital Business“, shares his thoughts on why it’s important for companies born before the digital age to transform their culture and approach to prepare for the full effect of digital disruption. And why it’s important for even companies like Amazon.com to move faster to fully embrace what’s coming ahead.
* * * * *
Small Business Trends: What are some of the biggest misconceptions about digital disruption from a business perspective?
Ray Wang: When you’re talking about digital, it’s not just about the technologies. People like to think about mobile, social, cloud, analytics, big data and other things. It doesn’t matter. Those technologies are enablers. What we really are looking at is a business model shift. And when you have that business model shift, then we can figure out which technologies make all this great stuff happen. That’s number one.
The second thing is, this isn’t a book just for new companies or people starting fresh. This was designed for companies that weren’t born in the digital age, and it’s really important for companies to know that they too can make the shift before this digital disruption happens. And if you think about this, the average age of a Fortune 500 company and S&P 500 company was something like in the 60s when they first started. It’s down to 15. We project it’s going to be 12 by 2020. That’s a 5x compression rate, right? Digital Darwinism is unkind to those who wait. You’re not going to be around if you don’t take a look at this.
Small Business Trends: So we know, we hear all the stories of the high-flying companies — the Airbnbs, the Ubers — the companies that are new and disrupting. But from a mainstream business perspective, how quickly are they adapting some of these technologies to be able to change their business model or adapt it to what is more inherent about customer engagement today.
Ray Wang: The challenge is they’re not moving fast enough. Even Amazon’s not moving fast enough. Now you can see exactly what’s going on because they’re competing with global players like Alibaba, JD. All these people are working at that pace. And it’s because of that pace that’s happening, people are wondering hey can we compete? Can we compete fast enough?
So the short answer of it is that there’s a lot of work that’s going to be required, a lot of heavy lifting for folks to make those shifts. One way to do it is to create separate entities. More than just innovation labs, but create separate entities and bring them back in the fold. The other way is to really try to change the company fast enough across the board culturally. Both ways work, you really just have to think about where your leadership style is and what parts of the business are you willing to disrupt.
Small Business Trends: Google just announced Alphabet not that long ago. Is that an example?
Ray Wang: It’s a great example of portfolio. Core Google is doing really well. They need to keep going, right? But all the new stuff needs focus and attention. Anything that’s actually happening at Nest. Things that are happening at Google X. Stuff that’s actually in Google Capital when they actually look at new stuff and Google Ventures. All those areas actually have to come back and they need a level of focus. If they were all in one big part of the company, it’s very hard to get to that level of focus. And so it’s a great example of what you’re talking about.
Companies like Google don’t want to go the way of a Kodak. They don’t want to go the way Bell Labs and AT&T. I mean, these were great corporate giants and research behemoths that suddenly lost their way when they actually had to get to commercialization.
Small Business Trends: Everybody talks about disruption from a technology standpoint, but it’s really as you talked about a little earlier, it’s about the disruption in business models and being able to quickly adapt your business model to what customers are expecting today.
Ray Wang: That’s a great point. This is very customer centric. We don’t sell products or services anymore. We’re selling experiences and outcomes, which is basically the brand promise. The brand promise is core. It sounds fluffy, but it’s like hey. What’s your mission? What are you really about? If you can answer that, then all the other stuff will come into play.
The second thing is we’re trying to price at the lowest unit cost pricing model. That’s an important part of this shift because we’re going from selling you a case of Coke, to a two-liter, to a can. How much would you pay for a sip of Coke? That’s a crazy question, right? But here’s the thing. If you could do that – imagine if I gave you an unlimited use of any freestyle machine around the world for $50 for the week. If you can’t price to the smallest unit, how are you going do this? Imagine if you could buy analyst time or consultant by the minute, right? That’s crazy. But you have to get down to these unit cost pricing models to get there, which is an important piece.
I think the net of this is we are in a post-sale, on-demand, attention economy. Post-sale being everything after the sale is as and/or more important than the initial sale. The cross-sell, additional subscriptions, things that you take. It’s on demand because we’re not buying the whole thing. We want a slice in a point of time, a small piece of access just to taste. And if we want more, we’ll continue right?
And the last piece is attention economy. If you’re not winning and capturing my attention or saving me time, you’re not going to make it. And that’s what these digital business models are built on.
Small Business Trends: Where could people go to get the book?
Ray Wang: Anywhere. Barnes & Noble actually has the physical book. You can go to 800-CEO-READ, and you can find it on Amazon, BN.com — anywhere where books are typically sold.
This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it's an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.