Turning Digital Disruption Into a Building Block for Change

Turning Digital Disruption Into a Building Block for Change

LEGO is one company that has used digital technologies to rebuild its business model.

Digital disruption can represent a major threat to a company – or a golden opportunity to rebuild the enterprise.

At MIT CTL’s Crossroads 2017 conference on April 4, 2017, Dr. Jeanne Ross, Director and Principal Research Scientist at the MIT Sloan School’s Center for Information and Systems Research, described how some companies are taking the rebuild route.

Five technologies are reshaping the commercial landscape – social media, mobile, analytics, cloud computing and the Internet of Things – she explained. And companies need to create a digital services platform to harness the opportunities that these disruptive technologies are bringing.

Such a platform operates alongside the traditional IT operational backbone, and is constantly evolving and growing. Ross likened it to an organically growing coral reef. While IT platforms tend to focus on efficiency, scale, security and reliability, its digital partner is concerned primarily with agility and innovation. The digital services platform is fed by various sources of data including sensors and social media channels, and innovates through experimentation based on a “test, learn, enhance-or-discard” approach to new offerings.

An example of a company that has used a digital services platform to reinvent itself is LEGO, said Ross.

In 2004, the company’s bloated supply chain almost forced it into bankruptcy. At the time, LEGO has some 11,000 suppliers – twice the number that supported aircraft manufacturer Boeing.

The turnaround came when LEGO discarded the view that its core business was manufacturing kits of plastic bricks that snap together. This traditional product was still important, but the constructs made from the bricks could also be incorporated into virtual computer games. It partnered with Disney to create Star Wars figures, and introduced digitized products that featured characters from other movies. LEGO’s internal product development platform was extended to customers, to allow individuals to suggest new products and be rewarded for successful ideas. In addition to reinforcing the link with its customer base, the new platform accelerated new product development.

In effect, the company that built a corporate empire on the sale of small, plastic bricks, rebuilt itself by creating a digital platform for new, innovative uses of its iconic product.

Another company that has turned digital’s competitive threat into opportunity is elevator manufacturer Schindler.

Margins are razor-thin in the elevator business owing to intense competition from local operators that undercut manufacturers on service and support contracts. Schindler reassessed its model and came up with an innovative idea: support the horizontal as well as vertical movement of people.

The manufacturer’s elevators move about one billion people a day up and down buildings; this technology can be extended to urban mobility solutions. For example, when people visit a building they often stop at the security desk, which creates bottlenecks. Schindler could help to overcome this problem with an automatic registration process that includes a facility for swiping a code that activates an elevator pre-programmed to take visitors to relevant floors.

A digital services platform is geared to creating and rapidly testing such innovative ideas, but where do operations people fit into the picture?

Ross believes that at present, the operations mindset is not a good fit for highly fluid digital services platforms, but over time the two functions will move closer together and ultimately merge.

Meanwhile, companies need to embrace organizational change to develop digital capabilities and transition to new business models. Enterprises such as LEGO are using cross-functional teams to help them do this. And it’s important to keep in mind that the supply chain discipline remains a key enabler of new products – including those that have been hatched on digital services platforms.

For more information on Crossroads 2017 proceedings, and on MIT CTL’s research on product innovation, contact the article author Ken Cottrill.

 

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