Brought to you byLONGITUDES
The experiences of successful digital businesses such as Airbnb, WeChat, Uber and Spotify have implications for both consumer markets and the digital transformation of businesses across a wide spectrum of industries.
These platform-based business models have four characteristics in common: they are open, scalable, connected and intelligent. Their success is largely due to their focus on a two-sided platform and the creation of a holistic business that skews a siloed approach.
Traditional businesses — because of the legacy they have in terms of business models and technologies — have struggled with their digital transformation when compared with born-digital companies. Is it possible to learn from platform-based companies?
Spanish firm Inditex, for example, opened its first Zara store in 1975. In the following four decades, this vertically integrated apparel manufacturer and marketer expanded throughout the world into more than 120 countries with 10,000 physical stores.
Any company undergoing such dramatic brick-and-mortar expansion might be at risk of failing to adapt quickly enough to the digital revolution. In the apparel and footwear retail sector, about 9 percent of the dollar value of sales take place online, with this growing at 24 percent a year; traditional channels are growing at less than 4 percent.
Inditex decided a decade ago to transform its entire value chain, not just the retail end of it. It invested heavily in an integrated platform covering relationships with suppliers, factory management, distribution logistics and sales.
The benefits have been diverse: more efficient inventory management and logistics, faster customer feedback and overall optimization of assets. As an integrated platform, Inditex capitalizes on omnichannel sales, including physical stores, department store corners, catalogue sales, telephone sales, online stores, mobile apps and a social media presence. By 2019 about 14 percent of all sales were digital in the markets in which it had already rolled out this strategy.
“Focus on newer sources of value creation and meaningful customer and system engagement to create innovative service propositions.”
The lessons from Inditex and other companies indicate a logical sequence of steps when it comes to best practices in digital transformation:
“To build a truly digital enterprise, you need a holistic change management philosophy across talent, processes, systems and the encompassing environment.”
We will now examine the hypothesis that a platform-based digital transformation strategy is, in general, more successful than adopting a more siloed approach to digital transformation.
A successful example is an established retailer in the cosmetics retailing space, whose business was affected by pure-play online retailers and retailers with more aggressive online strategies and a mixed product and service offering.
The retailer had many legacy retailing systems for different functions resulting in no real-time, single view of clients, product information or inventory, which led to not being able to run online and physical operations effectively.
To deal with the different business challenges, it planned to adopt individual technologies for its marketing, commerce, supply chain and so on. It then followed a platform-based strategy, looking at the business holistically, to help the company understand different stakeholders and how to engage with them more effectively — while not losing sight of the legacy data of clients.
The company designed this platform approach using the legacy data first to create a data infrastructure and then the operating platforms connected to the data platforms. While the implementation took five years, significant benefits are already materializing thanks to better client engagement.
“Platforms will continue to play a key role in the digital transformation of traditional businesses for a long time to come.”
Another fashion retailer with legacy infrastructure who wanted to digitally transform itself to get better client engagement and more efficient supply chains also implemented best-of-breed independent digital technologies and solutions to address data, customer engagement, inventory planning and digital commerce strategy.
While this solved individual business process challenges in the short term, it created a business model and infrastructure that were not in sync. This led to a situation in which the company was unable to respond to market demands quickly enough — it lacked a connected, intelligent and scalable platform-based strategy. The business has now embarked on adopting such a platform.
These cases show that organizations can successfully pursue platform strategies aligned with legacy systems. Platforms will continue to play a key role in the digital transformation of traditional businesses for a long time to come.
Republished with permission, this article first appeared on World Economic Forum.
Longitudes explores and navigates the trends reshaping the global economy and the way we’ll live in the world of tomorrow: logistics, technology, e-commerce, trade and sustainability. Which path will you take?