Continuing with this closer look at transformation, part three focuses on differentiation; the fourth forcing function. Differentiation is a process that showcases the differences between products and services. It looks to make an offering more attractive by contrasting its unique qualities with other competing offerings. Successful differentiation should create competitive advantage, as customers view these offerings as unique or superior. In his piece on The Future of Enterprise IT, Geoffrey Moore, famous author of “Crossing the Chasm” describes the global business dynamics (Slide 10) that places differentiation at the center of a virtuous (perhaps vicious) cycle. His key message is that globalization and rapid commoditization are placing greater emphasis on differentiation, especially in developed economies.
As a reminder, forcing functions are those things that force the enterprise to invest in a future state. The changing ways companies must differentiate in the future is driving a compelling need for investment. In the case of differentiation, the key drivers behind this forcing function are:
- Rapid commoditization
- A growing number of product and service alternatives
- Eroding barriers to entry
- Ten times the number of innovators at one tenth the cost
- Start-ups and Internet Companies entering non-traditional businesses
- New non-traditional market entrants
- Higher customer expectations
These drivers will influence differentiation strategies in the years ahead, and several additional factors will drive differentiation programs. First, in this era of engagement where power increasingly shifts to the individual, personalization becomes critical: the often talked about segment of one will attract much enterprise attention over the next decade. In addition, as the number of connected devices increases, old sources of competitive advantage will shift to new ones.
Second, given the rapid shifts in business and market conditions, flexibility in operating and business models is emerging as a key differentiator. Business agility continues to lead the list of those characteristics that enable success, and companies that effectively deliver business model innovation increase their chances of creating competitive advantage. Third, a new battleground for differentiation is stakeholder experience, and this requires companies to deliver consumer-like experiences across the ecosystem (customers, employees, partners, other stakeholders). Understanding that an ecosystem delivers the intended experience is significant to the transformation program, and the stakeholders within that ecosystem must participate.
Fourth, differentiation increasingly requires shedding non-core functions and specializing, making outsourcing a key piece of future road maps – back to the virtuous cycle described by Mr. Moore. Although the outsourcing term can evoke a negative response these days, this is simply a function of focus. A relentless focus on what we do best (specializing) is a key to future differentiation strategies. Fifth, differentiation will require the alignment and seamless execution of the value ecosystem. As described earlier in this series, value creation (and therefore differentiation) increasingly involves the contributions of an ecosystem.
Lastly, companies will increasingly look to integrate information into products and services as a key area of differentiation. With these factors as a backdrop, here are some of the initiatives and tactics that belong in differentiation programs:
- Enable differentiation through co-created next generation experiences – we’ve all been spoiled by the consumerization phenomena and now our interaction expectations are very high. Future experiences must be consumer-like and all stakeholders should be part of the process of envisioning and delivering that experience
- Enable differentiation through innovation – innovation increasingly leverages the idea production of the entire ecosystem. This transformative period ahead places idea production at the center of the business universe, and with it comes the need for a well thought out approach to innovation as a culture and process. Business model innovation will increasingly be a part of future differentiation strategies
- Specialize and focus on creating value through core strengths and outsource the rest – as described by Geoffrey Moore, specialization is perhaps the biggest enabler of differentiation. Specializing drives a focus on our core – or those things that we do better than anyone else. Everything else becomes context, and therefore a candidate to outsource. This differentiation tactic is one of the key drivers of value ecosystem growth in the next decade
- Move from transactions to interactions and enable engagement excellence – the era of engagement drives a fundamental shift in thinking from today’s transaction paradigm to one focused on interactions. As experience becomes a bigger portion of differentiation strategies, and multiple relationships are leveraged to create value, Interaction or engagement effectiveness becomes critical
- Leverage insight to personalize experience at the individual level – to deliver experience-based differentiation, next generation experiences must be built on a segment-of-one foundation. The level of personalization required for differentiation will demand much more from enterprise information management than is currently delivered
- Enable every edge interaction with context – as more companies move towards edge-based organizations, employees are empowered to differentiate their companies at every interaction. But to do this requires context, and delivering that context at the right time is challenging. Sense and respond systems will emerge within enterprise architectures to enable edge interaction
- Develop and hire design thinkers and collaborative managers – edge-based organizations move away from command and control models to drive decisions and actions at the point of interaction. In addition, these organizations look to effectively coordinate the tasks of multiple stakeholders within a value ecosystem in order to create value. Design thinking and collaboration are two critical traits required within the ecosystem for this organization model to flourish
- Orchestrate the value ecosystem – as differentiation is delivered by an ecosystem that comes together to create value, the tasks associated with value creation must be orchestrated. Companies must tackle a new level of business process orchestration complexity, and a middle management tier that is likely to struggle in an environment where they cannot control every task
- Look for ways to integrate information into products and services – information will increasingly be a part of the products and services that we deliver. Look for ways to differentiate through the use of information, and address the information excellence required to support this product and service strategy
- Enable digital enterprise characteristics – flexibility in business and operating models is critical to future differentiation. The Enterprise of 2020 must infuse itself with Digital DNA if it is to differentiate, let alone survive
That’s a look at the differentiation forcing function. The critical need to differentiate and the ineffectiveness of traditional methods of differentiation are drivers of enterprise investment in a future state. The next post will focus on the societal change forcing function.
To summarize to date, here is a link to each of the previous posts on forcing functions:
Part 1: Growth
Part 2: Effectiveness and Efficiency