In the second part of this article on "Digital Transformation - Disrupt or Be Disrupted", I will share on new digital economy business models that have disrupted and transform various industries and what companies in Singapore can learn from those who have managed to do well and successfully hyper-grow their businesses in this new digital economy. I will also share on some digital transformation approaches and methodologies that companies can adopt to build a learning organization with innovative culture of continuous experimentation, open collaboration and adaptability that can operate successfully in today’s volatile, uncertain, complex and ambiguous (VUCA) business environment.
New Digital Business Models
Companies, regardless of sizes, need to transform themselves to compete effectively in this new digital economy. Companies that are able to harness the power of new technologies effectively will be able to create new business models that can disrupt industry incumbents.
Facebook, the world’s most popular media company creates no content. Facebook has disrupted the businesses of many traditional media companies which saw their advertising revenues nose-dived. Instead of relying on an army of journalists to produce contents, Facebook created a platform for individual users and organisations to share contents. Facebook powerful data analytics engine is able to collect and analyse the interests of its users, enabling its marketing platform to provide targeted marketing for advertisers. Facebook was founded in 2004 and today has market value of >$553 Billion (NASDAQ, 13th December 2019).
Grab, headquartered in Singapore, is Southeast Asia’s largest provider of passenger transportation, but it owns no vehicle. Grab was only founded less than 8 years ago in June 2012, and today it is operating in 500 cities and towns across 8 countries (Singapore, Cambodia, Indonesia, Malaysia, Myanmar, Thailand, Vietnam and the Philippines). Many passengers in these cities, who had in the past suffered horrible experience of riding taxis including the taxis that took longer routes than necessary and charging unfair fares, switched to using Grab. In December 2018, Grab announced that its ride service has covered >9.8 billion kilometers.
Grab is able to harness new mass market consumer technologies, like the smartphone and mobile GPS navigation to build a platform that provides commuters on-demand booking for private car, motorbike, taxi, and carpooling services. The Grab app has been downloaded onto over 90 million mobile devices, giving passengers access to the region’s largest land transportation fleet comprising over 1.1 million drivers. Grab takes a commission from the rides’ fare.
The incumbent taxi operators in these cities have seen their business disrupted significantly within just a short few years as commuters switched to using the new ride-hailing apps. Taxis operators are forced to cut rentals and introducing new fare options. But still the taxi operators struggle against the 3 dominant technology-driven companies Grab, Uber, and Go-Jek. In the case of Grab, it has teams of data scientists and engineers that build data analytics and machine learning softwares to analyse huge amount of data, including optimal driving routes, drivers’ preferences and motivation, booking peak/off-peak hours, passengers’ trip/driver rating etc. It allows them to predict optimal fares and drivers’ incentives, given certain booking traffic, that can maximise successful matching of drivers to passengers. It enables them to write algorithms that manage price dynamically, automate quick matching of bookings, identify errant drivers, and optimise decisions on which passengers to pair up for their carpooling service — all these leading to a customer experience that traditional taxi operators could not match up with.
With its large and growing user base, Grab has since expanded its services to transform the way people "move, interact, eat, and live". Grab now operates food and parcel delivery service (GrabFood and GrabExpress) and has expanded into providing mobile payment (GrabPay) and business loan service for small-businesses (GrabFinance).
Airbnb, the world’s largest provider of travel accommodation owns no real estate. Airbnb, founded in 2008, has today 4 millions accommodation listings across 191 countries, more than the top 5 major hotel brands combined. Airbnb charges the hosts/property owners a commission, and the guests/travellers a fee. In 2017, Airbnb brings in $93 million in profit on $2.6 billion in revenue.
Full Truck Alliance, a relatively unknown startup to the Western media, raised $1.2 billion in funding earlier this year at a valuation of $6.5 billion. Full Truck Alliance, formed from the merger of 2 startups Huochebang and Yunmanman in November 2017, is China’s “Uber for Trucks”. The company provides a truck-freight platform that provides delivery jobs matching and integrated services to truckers and shippers in China. In China, most of the trucks are individuals or family-owned, a highly fragmented sector. In the past, truck drivers have to drive to huge carparks where agents hold up handwritten boards indicating available delivery jobs and the truckers bid for the delivery jobs. The truck driver then has to drive to the factory to pick up the goods and deliver to the designated destination in another city. Often, the truck make the return journey without carrying any goods. Full Truck Alliance improved the efficiency of the sector by matching shippers with available truckers via their smartphone app. Big data played a critical part in Full Truck Alliance’s success, as the system enables drivers to easily find items in need of transport. Matching are done much faster and efficiently. The occurrence of empty truck return journey have also been significantly reduced. The company has more than 5 million registered vehicles on its platform and close to 1 million shipper customers. The basic matching service is offered free, which helped drive fast adoption by the truckers. The company makes its revenue from auxiliary services such as sales of toll cards, top-ups, commission from insurance on cargo, loans for new trucks, auction of used trucks, and vehicle maintenance services.
These companies are able to hyper-grow their businesses with new digital business models made possible by digital technologies.
Digital Transformation Goes Beyond Technology
To stay competitive in today’s digital economy, companies must embrace digital transformation. The transformation is not simply adopting the latest CRM, HRM, ERP etc softwares, using automation hardware or switching to use digital marketing alone, but it will need to include a much deeper change in the company leaders’ mindset and company culture.
“In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it. Because nothing else is sustainable, everything else you create, somebody else will replicate.” said Jeff Bezos of Amazon.
Digital Transformation is the transformation of a company’s competencies, priorities, processes, products, services and business models to fully leverage the opportunities brought about by digital technologies and the fast growing digital economy.
A piece-meal approach in digital transformation would not deliver the desired transformational results. When all levels of a company’s leaders and employees recognise the urgent need to transform in order to survive, only then will it takes proactive steps to implement digital transformation throughout the company.
Companies will need to:
- be able leverage new digital technologies such as data analytics, big data, artificial intelligence (AI), Internet-of-things (IOT), and robotics to keep operations lean and efficient, and to enable data-driven business decision-making;
- build a learning organisation that’s constantly upgrading knowledge and skills so that it can stays current with market demands, harness power of new technologies and methodologies, attract talents and become industry leaders;
- build a culture of innovation, listening closely to and empathise with customers’ needs, constantly experimenting and driving new innovations in business models, products and services; and
- adopt a lean, entrepreneurial management approach that is nimble and able to seize emerging opportunities with fast decision-making.
Disrupt or be disrupted. Companies who successfully execute digital transformation will not only be able to keep their customers and fend off competition, they will also be able to ride on new market opportunities in the digital economy to grow their businesses.
Khengwah Koh is the Founder and Principal Consultant of Askvisor, a boutique management consulting firm that supports clients in digital transformation, design thinking, innovation, digital branding and marketing.