Born digital companies implicitly understand the power of digital networks. They are fundamentally different in their operating models to traditional firms and their capacity to rapidly scale and disrupt whole industries, often by employing only minimal capital, is now clearly established.
Where that does leave established players, the 98 per cent of the market? According to the authors of this timely book, traditional firms can thrive in this new marketplace, but only if they rapidly change first their mindsets and then their operating models.
The key difference in approach they say lies in the thinking of the leadership team.
Traditional leaders ask what value their firms can provide, whereas network leaders ask what value their customers and other networks have to offer. Traditional leaders also think that the goal is to sell more products to customers, while network leaders see value in customer co-creation, advocacy and sharing.
Finally, traditional leaders mistakenly think that they are operating at full capacity, but network leaders see the world differently and see much greater potential.
Excess assets
This different thinking helps digital leaders see and invest in a world full of abundance, with excess assets everywhere. Whether these assets are houses, cars, images, knowledge, skills or networks of people, there are many who are willing to share these resources to earn money, garner recognition for their expertise or connect their experiences and stories to the world around them. Think Airbnb and Uber, for example.
In contrast, most business leaders believe their job is managing finite physical resources and that the only way to grow is to make more of what they have and market it. This is a growth-limiting mindset, however. An obsession with physical assets prevails amongst larger companies in particular. These are assets that depreciate, become obsolete, can be destroyed by floods and fire and often cannot be moved.
In the first section of the book the authors share research on different business models that shows how investing money in network business models has a dramatic effect on economic value creation. They define different types of business models: asset builders, service providers, technology creators and what they call “network orchestrators”. Research shows that the growth, profit and scaling advantages of a network orchestrator result in unprecedented market valuations compared to the other categories of business model.
The authors then examine in detail how network organisations differ from traditional organisations, with 10 principles outlined, and how traditional organisations can use this knowledge as a launch pad for digital transformation.
Five specific actions are identified in a process called Pivot. The acronym stands for pinpoint, inventory, visualise, operate and track, and describes a process whereby you identify your current business model, take stock of all your assets, create a new network business model, enact that model and then measure what matters.
Ongoing adaption
Reflecting on your current business and mental models, with the aim of changing them, is a difficult task, the authors accept, but ongoing success requires ongoing adaption. Taking stock of assets involves looking at physical capital, human capital, intellectual capital and network capital and seeing where your strengths and weaknesses lie.
Visualising your organisation as a digital network involves not just a leap of faith, but is a process that should be shared with a core group of leaders. It should be an iterative process, with a team creating a draft, showing it to experts for feedback and then revisiting it and revising a draft.
Enacting the resulting plan involves addressing the funding, talent and technology needs of your network business and creating strategies for successfully managing the business within your broader business, as well as managing the external network.
The book addresses the likely problems that are encountered at this stage. These include internal politics, lack of focus, undifferentiated performance targets, lack of patience and misaligned reporting structures.
It suggests that within these risks, it is important to think critically about how to create a structure to manage, support and measure the network business model appropriately and with reasonable expectations.
