Empire Strikes Back!

On November 12, 2019, over 10 million families signed up for Disney’s new digital streaming service on the first day of service. Given that 60 million families in the US (165 million worldwide) subscribed to Netflix after 12 years of operation, this was a remarkable accomplishment by a legacy company. Smelling blood, investors on Wall Street dumped almost $8 billion worth of Netflix’s stock on the day of Disney’s announcement. Today, Disney has over 73 million paying customers for its streaming service. Though still reeling from operational losses from its theme parks due to pandemic, Disney is poised to create new kinds of entertainment experiences by combining its digital streaming service and traditional physical theme park business-something its digital disruptors, like Netflix, cannot easily imitate. Watch out, Silicon Valley disruptors. The empire is striking back!

It is not just Disney who are flexing their digital muscle. At this year’s CES, one of the main stories was how legacy companies like Walmart, Best Buy, and GM came out swinging their digital strategies.

As the economy recovers from the pandemic, 2021 will likely be marked as the year legacy companies got serious about their digital strategy and moved beyond small-scale pilot projects. As most legacy firms were forced to accelerate the digitalization of their operations during the pandemic, they will come out with better digital muscle memory. Once the economy is fully open, legacy firms will be able to make deliberate decisions on how they choose to mix physical and digital modes of operations, giving them a new layer of options that they did not have before.

Over the last several years, I have been studying digital innovations and disruptions by so-called “digital-native companies.” These digital-native companies are focusing on how they would create and capture values using digital assets entirely in the online space. Companies like Google, Facebook, and Tik Tok do not have to enter into the physical world.

So what does this mean for legacy firms?

  1. What is your digital value loop? Digital innovations by legacy firms like Disney, Walmart, GM, and Best Buy are likely focusing on creating and capturing the value between digital and physical worlds. And creating value in this liminal space creates a whole different set of challenges and demands an entirely different set of capabilities. In Digital First, I suggested that legacy firms must design a digital value loop as the basis of their value creation and capture.
  2. Focus on your strength. In the early days of digital transformation, most legacy firms that spoke focused on what they did not have. The starting point of any strategy is finding a way to amplify its strength, not the deficiencies. Goodyear Tire’s AndGo builds on one of its core physical assets, over 1,100 physical service centers, using its AI and analytics engine. When Disney promoted Bob Chapek, who used to run their theme parks, it is also sending a signal that Disney’s digital strategy will come on the back of its physical theme park business, not at its expense. Expect to see a lot of hybrid user experiences building on cross-channel data sharing for individual users and households. I would not be surprised if Disney would try to take over legacy movie theater businesses like AMC to expand such a digital-first strategy. For the same token, it would make a lot of sense, digital natives like Netflix, Amazon, and Apple who have digital streaming services to take over AMC, particularly given where its stock price is at the moment. If you have AMC stocks, you may want to hold on to them. Well, that’s just my opinion.
  3. Scale. Scale. Scale. Most legacy firms have their own digital pilots. They have hired outside digital consulting firms to create their own “disruptive innovations.” They all got excited when they saw their first customer personas, journey maps, service blueprints, and wireframes of their apps. They think that they are now cool when they have MVPs. Alas! For many, that’s all they got. I call it a pilot syndrome. The project is often carried out by a separate digital team, under separate leadership, using different tools and processes. They are lean and agile. They are design thinkers. But that is all they got. They cannot scale into a real business. The next frontier of digital innovations for legacy firms will be all about how to scale.
  4. The changing locus of digital initiatives. As the digital strategies at legacy firms mature, we also will see the locus of digital activities begin to change. More firms are moving the digital responsibility into business units, indicating that “the digital” is no longer an option but an essential way of doing business. CIOs who were shunned away from digital innovations are now increasingly taking important roles in designing and implementing enterprise-wide digital strategies. As these firms seek scale and reliability, their CIOs must step up and deliver. The leadership of digital innovations will move from an innovation team or a separate digital team to individual business units. The challenge is no longer to prove that we can do digital and be cool. The challenge is actually making money from doing digital and being cool.
Digital Value Loop

The next few years will be just as exciting and disruptive as the last ten years. Digital will be likely to remain as the core strategic issues. But the way digital will play out in firms, particularly legacy ones, will be vastly different than before. The next phase of digital competitions will be won by not by those who know how to use digital at the expense of physical, but by those who know how to amplify the value of physical assets using digital resources.

Originally published at https://youngjinyoo.com on February 23, 2021.




reflection on technology, design, and innovation in everyday experiences

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Youngjin Yoo

Youngjin Yoo

Professor @CaseWeatherhead @cwru Visiting Professor @LSE and @WBS #digital #innovation #organizationalgenetics #design

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