How digital transformation is critical to maintaining a strong competitive advantage
Strategy means competing differently, and according to M. Porter, “strategy is about making choices and trade-offs”, it’s the quest for competitive advantage by the way of choosing to be deliberately different. However, even great strategies fail at a certain time. It’s one of the most important business challenges when successful companies face big changes in their environments while they’re unable to defend their position against competitors equipped with new products and technologies. Their sales would be dropped and profits would gradually wear away, lowering its stock valuations and risking the whole business. That was the case of several giant companies.
A great example is Nokia when dominated the mobile and smartphone markets in 2007 until Apple and Google became major rivals penetrating the market with revolutionized customer expectations, and causing Nokia’s operating system to become outdated. Gradually, Nokia’s stock sank in 2012 to its lowest price in 15 years. That technological change pushed Nokia to make a radical strategic renewal in 2013 by announcing a new strategy that focuses on its core mobile telecommunications infrastructure business after losing its market share in the mobile business.
In the same way, Microsoft wanted to claw its way back into the mobile market and to compete with Google and Apple, so it made a strategic decision to acquire Nokia in September 2013. However, the deal was considered as a major strategic mistake, costed Microsoft of at least US $8 billion on its failed Nokia experiment, including “the costs of restructuring and severance payments for thousands of employees”.
Nokia has failed to maintain its competitive advantage strategy, while Microsoft had made a failure in its competitive strategy to enter the mobile market through Nokia. Porter argues that competitive strategy concerns, what businesses the corporation should be in, and how the corporate office should manage the array of business units. He adds, “in orders for companies to survive, they must understand what good corporate strategy is”.
Digital transformation is shaping all businesses
Moreover, digital transformation is invading all businesses and industries with no exception. Companies’ sales and strategies must think digital and should strategically adapt their strategies to become digital because the digital transformation is no longer an optional path rather than a necessity and companies will have no alternative way.
While speed is the essence, international companies’ sales and strategies must be “rethought” to cope and adapt in order to tap the potential of digital transformation. New players are being born digital (i.e. e-commerce businesses), where their sales are being digitized at its core which is a critical element to the success of any business, therefore, the new players are adding additional pressure to traditional companies and threatening their existence.
Sources:
Andersson, Per, Staffan Movin, Magnus Mähring, Robin Teigland, and Karl Wennberg. Managing Digital Transformation, 2018. https://www.hhs.se.
Bughin, Jacques, Eric Hazan, Eric Labaye, James Manyika, Peter Dahlstrom, Sree Ramaswamy, and Caroline Cohcin de Billy. “Digital Europe: Pushing the Frontier, Capturing the Benefits.” McKinsey Global Institute, no. June (2016): 64. http://www.mckinsey.com
Bughin, Jacques, and Nicolas Van Zeebroeck. “The Best Response to Digital Disruption The Best Response to Digital Disruption.” MIT Sloan Management Review 58, no. 4 (2017): 80–86.
Cedefop. Insights into Skill Shortages and Skill Mismatch: Learning from Cedefop’s European Skills and Jobs Survey, 2018. https://doi.org/10.2801/645011.
Chesbrough, H., and Richard S. Rosenbloom. “The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation’s Technology Spin-off Companies.” Industrial and Corporate Change 11, no. 3 (June 1, 2002): 529–55. https://doi.org/10.1093/icc/11.3.529.
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