Drill, Baby, Drill

190521 May Cover

Data is not the new oil. But digitalization may be.

Two weeks ago, I met with four leading global chief supply chain officers and one Fortune 50 chief operating officer, each of whom placed “digital” on their short list of investment priorities. Consistently, the driver was margin — the ability to drive efficiencies via next-generation process automation.

Nothing wrong with that. The preferential ability to free up cash is what has historically made supply chain among the most valued partners in the C-suite. The concern I have is if we limit our gaze to cost of goods sold, selling, general and administrative expenses (SG&A), and inventory, we may be putting growth and our own futures at risk.

We’ve talked about digital’s revolutionary revenue upside, illustrated by:

  • Unilever’s acquisition of digital native Dollar Shave Club and its low-cost supplier ecosystem
  • Cisco’s reinvention of its commercial model, from one-off sales to online subscription
  • Nike’s explosion of new app-based member services and leverage of e-commerce ecosystems (e.g., Tmall) to enter otherwise-closed markets like China
  • HP’s printer ink auto-replenishment business, fueled by smart personalization and intelligent local sensing of ink consumption
  • Monsanto’s pivot from seed seller to a purveyor of information on farmer crop yield

My sense, however, is that these leaders are still in the minority.

Are these breakthroughs exceptional? Are others thinking about transformation in its fullest sense? Are we looking at how digital technology and associated new ecosystems could unlock fundamentally new sources of revenue?

One way to reflect on that answer is via a simple opportunity checklist quietly produced by Gartner’s digital research team back in 2017. The framework still applies.

 

190521 May Graphic 1 Web

The question is simple enough: What is our digital ambition? Behind that question, of course, is a clear-eyed definition of customer value — now and in the future.

The difference, and the reason it’s so important to pause and reflect, is that digitalization unlocks an unprecedented array of new options to innovate and serve. Beyond business process automation and optimization, the connectivity and modularity of the latest wave of digital technologies opens up a fresh untapped reserve of new collaboration, co-invention and commercial opportunities. As a result, new business models are cropping up at a furious pace, as are new digitally-native competitors with ample access to capital.

Incumbency still offers enormous advantages. Though Tesla got the jump-start on selling and marketing electric vehicles, Ford is anticipating the move to battery-powered autonomous driving and capitalizing on Tesla’s now year-long production woes. Ford is making a $11.1 billion digitally-led leapfrog bet — namely that the core value proposition of the auto industry will itself transform — from provision of utilitarian transport to the delivery of workspaces and entertainment centers that move.

190521 May Graphic 2 Email

Yet no one can sit idle. Just two weeks ago, America’s Securities and Exchange Commission approved the formation of a San Francisco-based Long Term Stock Exchange, backed by Silicon Valley luminaries including Marc Andreessen, Reid Hoffman and Peter Thiel. The founders’ express purpose is to bypass the short-term profit pressures of conventional exchanges and enable longer time horizons for so-called “unicorns” that offer greater than 10x returns, but may take seven to 10 years to deliver large-scale industry transformation. In other words, startups just got more room to learn and scale, and entrenched leaders just got exponentially more vulnerable.

This is not to say that the pressure to improve margins will abate. Ford CEO Jim Hackett himself announced a commitment to double operating profit in 2019 versus prior year, from $7 billion to $14 billion. Yet the turmoil and opportunity presented by digitalization calls for vision like never before.

Drill deep. Keep dreaming.

Author Steve Hochman

More posts by Steve Hochman