Book Review: Subramaniam, M., (2022), The Future of Competitive Strategy: Unleashing the Power of Data and Digital Ecosystems, MIT Press

This book discusses the fundamental shift that is taking place within the strategy field, now that the power of data is clear to all. The strength of software is apparent. The new focus is on ecosystems, rather than industries. In the past, we were told how to compete in ways that best marshalled industry forces to one’s advantage - elegant conceptual frameworks and strong empirical confirmations. Then businesses started to see the world around them as ecosystems rather than industries.

Such ecosystems are built on the foundation of APIs (Application Program Interfaces) building on sensors and IoTs (Internet of Things). The power of data has become obvious. There was a growing need to shift towards a digital mindset. These issues are what this book is all about.

The author writes in a clear, succinct way. Still, the book is perhaps a little too complex, at least to this reviewer. However, the widespread use of practical examples was very helpful, however. Through such examples we can see that new realities are specific and not a matter of magic!

A first premise might be to recognize the new potential of data, implying a shift of strategic emphasis from episodic to interactive. A second might be to comprehend different emerging digital ecosystems – production ecosystems or consumption ecosystems. A third might be to develop new mindsets for such digital strategies. A particularly critical aspect of this is to appreciate so-called tethered digital platforms, where firms can extend their current products into platforms. The past meets the future!

Harvard’s Ted Leavitt talked about marketing myopia in 1960, to never forget what business one was in. Today we may instead talk about digital myopia - are we cognizant that the various digital dimensions we are drawing on continue to be the most relevant ones?

How can we build new strong strategies, building on sensors (to get data), IoT and AI? The new way forward often seems to have two interrelated phases: First, to use the internet to develop digital platforms, for then to make use of these platforms to connect and facilitate exchanges among multiple users.

The attributes of interactive data, involving large volumes, can reflect nuanced and intricate facets of individual user personas. Sensors and IoT can provide such interactive data, but it needs to be broadly shared. The means for this must be clarified. The use of such interactive data then leads to the creation of digital platforms that, in essence, are new, profitable business models. The author provides a good example of this (p. 45) where software providers (in this case, Google Maps and Yelp), with the use of APIs — develop customer software to be able to rate dental offices regarding their quality, compare prices of beauty salons, identify the best law offices within their specialized spheres, or come up with coffee shops with the most advantageous benefits/prices.

Thus today, it is a matter of how to discover APIs that allow weaving together with other APIs to create new functions for customers. There could be a so-called internal focus, drawing largely on firms’ internal data archives. Or, it could be an external focus, drawing on other firm’s resources.

There might often be a concern for the protection of a person’s privacy here. While businesses typically will try to come up with new cutting-edge applications, they must not go so far that personal protection might be compromised, often a delicate balance.

Let us examine further the structure of these new digital ecosystems. At the center of this, one would typically find a firm’s data. How can one’s data be harnessed, and more data acquired for competitive advantage? How can the value of a firm’s data be amplified? A key starting point when grappling with this question might be to remind oneself that digital ecosystems are networks compiled of data originators and data recipients. These digital ecosystems are combinations of production and consumption ecosystems. Firms can choose different options to engage with their production and consumption ecosystems to unlock more value than their data. This leads to a questioning of what new data-driven services should be offered, and through which of the two ecosystem archetypes?

Let us first discuss production ecosystems. There seem to be four types of digital transformation here: First, benefit from operational efficiency. Second, delineate those areas where one’s products might have the potential to access interactive data from users, such as Caterpillar’s installation of sensors on many of its earth-moving machines. Thus, generating data-driven services from one’s products should be pursued.

This might shift focus to the third ecosystem archetype, namely the consumption ecosystem. The fourth (and final) step when it comes to such new value creation represents substantial changes from traditional business models. What does one’s consumption ecosystem look like? What are the key digital complements when it comes to our data? How might we make use of APIs to leverage these data sets for new customer experiences?

The fourth step is typically only reached when developing so-called tethered digital platforms. Sensor-equipped products are key. There should be a clear product user interaction, based on the data of sensors. Also, there should be users that make use of the “new” platform directly (e.g. as individuals, using Oral-B electric toothbrushes) as well as complementary sets of users (dentists!). Finally, novel platform services should be generated (e.g. dentalcare products).

Good questions to raise might have to do with how to come up with a good approach for applying one’s sensor? How might one attract platform users, based on data from the sensors? And perhaps to refine this even further, what might be one’s optimal tethered platform strategy?

As often in business, we do go back to the center— the consumer. Perhaps the most fundamental question might therefore be: Who are our digital customers? We might say that this customer group seems to be ready to provide interactive product-user data, thereby allowing companies to be able to offer unique digital experiences. Thus, the product offering is no longer standard, but now, digitally driven— digital customers are therefore critical.

There is also the issue of better understanding one’s digital competitors. The author, being an expert on these types of firms in China (Amazon, Tencent, ICBC, ABC and BOC), discusses how the former two seem to have gained ground on the three traditional banks. There are three major patterns of competition among digital competitors:

-       Focus on ecosystem parity, as in the case of Pepsi and Coke. Both are big, more or less equal in strength. There might not be all that much to do when such ecosystems exist.

-       Ecosystem barriers. The example with Caterpillar and Hexagon, a small software provider supplying data regarding optimal removal of earth masses and grading, is illustrative. Although Hexagon lacks a range of physical products that characterize Caterpillar, it competes for a business with data that Caterpillar also has access to. But there are so-called systematic barriers, stemming from the difficulties a firm tends to face when moving from production to economic ecosystems or vice versa.

-       Digital disruption through asymmetric ecosystem barriers. Two giants (Xerox and Cannon) in the paper copying industry may serve to explain this. Xerox, focusing on large, expensive machines, requiring a lot of service, may be controlled by Cannon, with its much smaller, simpler machines. A critical difference seems to lie in the process required to produce and sell copiers: The value chains of the two firms were fundamentally different. So, each firm pursued matters in their own ways!

There will be new competitive dynamics that traditional firms shall have to understand. While their old strengths are typically still relevant, these firms still need to comprehend the new digital systems-based competition.

Let’s go back to how traditional firms may be able to build such new digital capabilities. Combinations of corporate resources and corporate processes are key. Digital capabilities are usually somewhat different than the traditional capabilities in firms. Data is central here, i.e., also the capability to collect such data sensors, proliferation of IoT-based assets, smartphone apps, use of 5G ultra clear networks, etc. Such digital capabilities can be quite dynamic, with API networks typically injecting a lot of flexibility, greater fluidity.

Building such digital capabilities may not only require a need for new workforce skills (digital literacy), but also workforce buy-in. Organizations cannot afford paralysis when building new digital capabilities! It seems important to recognize that traditional customers often become digital customers. The two types of customers co-exist.

Perhaps in the culmination of the strategic shift from an industrial focus to a systems focus, the question of how to acquire and keep solid data looms! There is clearly a growing social apprehension about the rising power of data. This might be a particularly sensitive issue given that data can be used far more expansively now than was possible before.

Rather than becoming paralyzed by issues such as these, firms may often do good by developing their own action plans: First, map one’s digital ecosystem, taking stock of one’s digital foundation. This can lead to a clearer vision of what might be seen as a firm’s digital ecosystem frontie, which can consequently help management decide where to compete in this digital ecosystem, building the necessary digital capabilities in the desired competitive digital strategy. So, for firms to be able to continue to compete seems to be largely a matter of willingness!

We are literally seeing a revolution, most of the most valuable firms in the world are now digital strategy titans. For firms in general, and perhaps most of all traditional firms, there is no time to waste— embrace this new way of competing! This present book offers an excellent guideline – from industry to processes!