By Zach Church, MIT Sloan
Leading digital companies are taking 70 percent of market share and 77 percent of profits in their industries, R “Ray” Wang, (pictured, at left) told students Dec. 1 at MIT Sloan. Meanwhile, more than half of Fortune 500 companies lost money last year while more than half of the companies on the list since 2000 are gone—merged, acquired, bankrupt, or off the list, Wang said.
In this winner-take-all economy, what makes a winner? Wang has been studying and working with large, global companies and executives for his entire career. As the principal analyst, founder, and chairman of Constellation Research, he’s watched the digital disruption of the last decade and helped major companies navigate digital transformation.
Wang spoke with students as part of MIT Sloan’s Innovative Leadership Series. Here’s some of his advice for leaders looking to take on—and take over—an industry.
Invert your priorities. Focus on differentiation and brand. Too many companies are focusing too much on regulatory compliance and operational efficiency, keeping the motor running and pursuing incremental growth, Wang said.
Strategic differentiation and brand strategy are not getting the attention they deserve, he argued.
“This is the fastest way to fail. This is why every Fortune 500 [company] has lost in the marketplace,” Wang said. “Because they optimized to this. It should be the other way around. ‘Why do you exist? What is your mission? What is the business model you want to build?’ Then figure out the products, the services, the insights, the experiences, and outcomes you want to support in that business model.”
Compliance and efficiency should be automated and outsourced, he said. “If you do that, you actually have a start at jump-starting growth.”
Data is the foundation of digital business. “You can’t do digital without data,” Wang said. “We’re going from gut-driven decisions, which you should still have, to data-driven decisions, which tell you if you’re right or wrong.”
Data leads to information that can be shared with customers for a fee, in an effort to provide a better service. Will consumers pay delivery companies for the ability to track a delivery driver on a Waze-like traffic app, in turn allowing them to optimize their own time while waiting for a package? Wang thinks they will.
“It’s data-driven and we’re going to see more and more services like this,” he said. “And it doesn’t cost a lot of money to implement that.”
Goodbye middleman. Hello direct connection. That car dealer you’re certain ripped you off. You don’t have to deal with him anymore. The car company Tesla won’t haggle even if you want to—CEO Elon Musk has decreed no discounts to anyone, anywhere—but it will deliver your new car to your door. Digital disruption allows more and more large companies to sell directly to consumers, a model Dell pioneered in the 1980s.
“Nobody wants a middleman, unless that middleman is adding value,” Wang said. The same market for direct service is seen in commerce platforms like Etsy and service platforms like TaskRabbit, Wang said. In both cases, digital platforms function as what MIT Sloan professor emeritus Richard Schmalensee calls “matchmakers,” reducing friction and distance between customers and service providers.
Integrate. Partner strategically and carefully. In the growth and reach of Amazon, Wang sees a case study for winner-take-all success. The company was once only a bookseller, but it used early partnerships to gather competitor data, Wang said. As a cloud computing provider with Amazon Web Services, it has insight into the Internet traffic of competitors, he said.
“They learned from their competitor’s data how to do the job better,” Wang said.
Through a new partnership with the U.S. Postal Service, the company now delivers on Sundays, giving it an edge over FedEx and UPS. The recent purchase of the Washington Post by Amazon CEO Jeff Bezos gives Bezos an opportunity to distribute news through the e-reader Kindle, an Amazon product, Wang said.
“This is a content, network, and technology platform all in one,” he said. “This is why nobody can beat them.”
“You’re going to see one of these emerge [in every industry],” he said. “And the question is ‘How do you build a partnership around content, network, and technology platforms?’ Because you’re not going to have all those pieces. So you’ve got to figure out which partners to assemble to go drive this, in terms of building the next set of vertically-integrated monopolies.”
This article first appeared on MIT Sloan’s site here on Dec. 2, 2016