Business Strategy Is Being Transformed for the Digital Revolution

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Business Strategy Is Being Transformed for the Digital Revolution

As the Digital Revolution sweeps through the business landscape, it is disrupting companies that were built to thrive in the Mass Production era. The examples are both plentiful and painfully familiar:

  • Kodak continued to focus on its film business even as the digital camera tsunami was washing away its profits. The company missed the fact that users were printing fewer photos and instead sharing them online.1
  • Blockbuster stubbornly refused to shift its business model away from DVDs rented in physical stores located on expensive real estate, ignoring the trend toward users streaming movies in their homes and on their mobile devices.
  • Travel agencies were unable to survive as online services like Expedia, Price Line and CheapoAir transformed the economics of planning and booking travel.
  • Limo and taxicab services struggle to stop the erosion of their government-backed oligopolies by smartphone-based networks like Uber and Lyft.

What all of these companies, and countless others, have missed is that digitization isn't just another incremental change that can be adapted to fit an existing business model. Instead, it represents a radically new paradigm that demands an entire reexamination of the ways in which businesses compete for customers.

This new reality is illuminated in a new article by Michael E. Porter and James E. Heppelmann in the Harvard Business Review called "How Smart, Connected Products Are Transforming Competition."2 Porter, of course, is the world's most respected business strategist. Heppelmann is the president and CEO of PTC, a software firm that helps manufacturers create, operate, and service products.

In his new work, Porter examines the impact of the newest digital applications on business strategy. Specifically, smart, connected products are forcing decision makers to confront a new set of strategic choices about everything from how to create value to how to structure relationships with business partners.

Smart, connected products are those in which the computing power is embedded in the products themselves. As Porter and Heppelmann explain, they consist of three parts:

  1. Physical components
  2. Smart components
  3. Connectivity components

Physical components are the mechanical and electrical parts of the product, such as the engine block, tires, and battery of an automobile...

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