The new logic of value creation in uncertain environments
In which context does digital co-creation take place? This was the key question that Rita McGrath, Professor of Strategy and Innovation, Columbia Business School, focused on.
In the past, companies tried to create source of long-term advantage. With the shift in business models, you cannot hope to create a long-term competitive advantage. Competitive advantage now lasts for a far shorter space of time.
The new mindset is about competing in ecosystems. It’s a transient world, not a static one. There is often a shift from standalone device, e.g. using a digital camera to take pictures, to using a networked device such as a smartphone. Nowadays, people are competing in arenas where a competitor may not be from your industry at all, but any other company using their technology. Video content that in the past was produced by television companies; these are now competing against technology companies such as Amazon.
What are customers really buying?
Satisfactory customer experiences are key. People are looking to consume experiences, not things.
If companies create unsatisfactory experiences, they will fail.
In Mountain View, California, a pizza company has robots producing pizzas. Pizzas are cooked while on the delivery truck, and customers get a freshly cooked, warm pizza.
We’re moving from an economy where we own assets to one where we use assets. Nowadays, you can rent clothes rather than owning them. Owning assets created barriers to entry for other competitors, but from a user point of view, only the owner of an asset experiences the benefits of the product. With network effects, you have an exponential increase in value as more people use a network, your network. Providing networked value is a real game-changer.
How do you leverage network effects to your advantage? You want to be the place where those networks come together. A smartphone in itself is not so valuable until you start to link it to other networks, such as, say, music providers where other users will meet.
When you evaluate business opportunities within an ecosystem, two key questions are:
- Is the long-term goal competitive or complementary?
- Is the business opportunity large or small?
Whatever conclusion you may reach today, things may change tomorrow and this needs to be factored in, today.