For companies, the ability to respond to change is of greater importance than the technology
Digitalization has changed the world in several ways, and the change is fueling itself at an accelerating pace. Internet and artificially assisted information management is connecting suppliers, customers and other stakeholders together as ecosystems, breaking the industrialization-driven separation in marketing and management logics. Digitalization is also feeding globalization and accelerating service-oriented business development in all advanced economies.
The digital revolution is often looked at exclusively from a technological perspective. This is no surprise; nowadays we see an endless stream of new technology entering the market, both in financial media and at corporate management events. Technology, however, is only a facilitator; true utilization of opportunities starts with change management and the organization’s ability to react to a changing market.
It’s now customers, rather than products, around which business operations revolve.
Still, the organization and operating models used by many companies date back to the golden age of industrialization. Back then, the primary objective was to mass-produce standardized products whilst keeping unit costs as low as possible, and market them to the widest possible audience. In the digital age, however, business logic has moved on, and it affects business in all levels. Services are not productized anymore, but products are embedded into services as delivery mechanisms. However, when a customer has a need, the service provider should be able to be present, relevant and prepared to co-create the solution to an opportunity, creating value together with a customer.
Much has been said in academic literature over the last hundred years about the transition to a service-centric society, and this transformation is now in full swing. The technologies of today and tomorrow are catalysts, forcing companies to take this transformation into account in their operations, management and culture.
It’s now customers, rather than products, around which business operations revolve. Customers’ role is shifting from passive sales targets to active participants. For this reason, companies can no longer rely on having a static competitive edge. The ability to continuously develop services, whilst experimenting with the market and reacting to change, is now key.
A company can only maintain its competitivity by engaging in continuous value creation.
Three key ways to create value
As the business environment is constantly changing, a company can only maintain its competitivity by engaging in continuous value creation. This works best when customers, partners and the company’s own personnel have been involved in the value creation processes.
In practice, such change requires investments in three approaches that strengthen value, and I will explore their significance in greater detail in my next blogs:
Co-creation requires the transformation of the dominant business logic from focusing on manufacturing, sales and maintenance to concentrating on listening, tailoring and designing, in collaboration with customers, partners and the company’s own staff. Hierarchies become more horizontal, levels of individual freedom and responsibility are increased and the value the customer gains is placed at the heart of all operations.
Design thinking boosts understanding of the customer experience and business objectives, using tools such as data. As market evolutions require constant testing, design thinking gathers together information about issues faced and ensures that the organization focuses its resources on the right development targets.
Lean management and service production are focused on producing value, eliminating waste, streamlining open communication and information flows, and creating space for both channel-independent integration and technology that stimulates agile operations.
As services and customers become ever more important, the work of the board must also become more agile and co-creative.
Owners and boards of directors must also be able to embrace change
So, what do these change processes have to do with owners and boards of directors? Plenty. Indeed, most companies have come to realize that the digital revolution is inevitable. Yet many of them have not even got out of the starting blocks when it comes to adapting their businesses. Applications have been developed, workshops held, hackathons organized, and all kinds of other ideas advertised as the next big thing in digitalization explored. But at the same time, the cultural, management-level and organizational changes required in the background are not implemented.
Management is incapable of making the reforms that would strengthen competitiveness unless the board of directors understands how to empower management to respond to change: how to become more agile, benefiting from a more horizontal organizational structure and a new kind of closeness to its customers, not to mention being more capable of making rapid decisions. As services and customers become ever more important, the work of the board must also become more agile and co-creative.
However, the board will be unable to encourage management to embrace change unless the company’s owners are also on board. It’s sometimes said that established, productive businesses cannot be saved. As long as the money keeps flowing in the right direction, many owners won’t give a second thought to the future of the business bringing in that money. Perhaps, however, they ought to.
Seppo Kuula is the CEO of Enfo. In his blog series for Boardman, he explores the practical side of some of the key themes and perspectives of his forthcoming doctoral thesis. The following articles will take a more in-depth look at the world of Lean and co-creation.