The digital battlefield: Goliath strikes back

My previous article - Digital Makes the David versus Goliath Story a Reality - discussed the disruption caused in various industries from new digital-enabled competitors.

Now, established industry leaders are responding to these disruptive threats by developing effective counter-strategies to level the playing field. They are also exploiting their existing assets to augment the value proposition for their customers and stay ahead in the game.

Not Everyone Needs to be an Innovator
In 1962, Everett Rogers proposed an S-Curve adoption for technology innovation in his "Diffusion of Innovations" theory. According to Rogers, every innovation evolves through four stages - emerging, growth, mature and eventual decline.

While every technology change throws up a new set of hot "innovator companies," market leaders who become early adopters are often able to protect or even increase their share in the market.

Strengths of Market Leaders            
Market leaders have three assets that can help them stave off the threat of disruption:

- Brand: Industry leaders are powerful brands in their chosen markets with deep marketing budgets to maintain their brand position.

- Cash Reserves: Successful and well-run companies have cash reserves which can be used to support offensive and defensive strategies.

- Customer Information: Access to customer information and insight is the most precious commodity in the digital era. WhatsApp's $19 billion valuation by Facebook was driven by its 500 million users - rather than its $20 million revenue. This is perhaps the most powerful, yet least understood asset for established companies.

Strategic Options

Industry leaders can adopt a combination of strategies to counter the threat from digital enabled innovators.

- Buy
Industry leaders are using their financial strength to buy their way into the digital market. Allstate, the largest publicly held personal lines insurer in the U.S., bought Esurance, a pioneer in online auto insurance in 2011, to establish a presence in the fast growing online market.

- Collaborate
The digital era is all about ecosystems rather than individual corporations. Companies partner with customers, vendors and with competitors to succeed in the digital marketplace.

Several banks, including Bank of America, Chase, Citi and Capital One and credit card companies such as AMEX, Visa and Mastercard have partnered with Apple for ApplePay, even though it is a competitor to their own digital payment initiatives.

- Capitalize on Your Brand to Expand the Market
Digital channels reduce the cost of servicing customers and allow companies to launch new products for market segments which may have been too expensive to service earlier.
American Express developed Bluebird, a prepaid card-based digital alternative to checking accounts in collaboration with Walmart. The target market for Bluebird is very different from the typical affluent AMEX consumer. But the joint trust associated with the AMEX and Walmart brands makes it a credible proposition in the marketplace.

- Customer Data is the New Oil!
The ability to analyze huge volumes of data to derive actionable insights is driving the success of digital era companies. Industry leaders are sitting on an immense store of information about their customers, their likes, dislikes and behavior. Applying Big Data analytics and advanced predictive modelling techniques can yield tremendous gains. Targeted cross selling campaigns for financial services, predictive intelligence for insurance policy churn and social sentiment analysis for new product launches are great examples of using customer insight to drive growth.  

- Become a David to Succeed - Learn from Innovators and Leverage Your Assets
The fastest growing top five online retailer in 2013 was Walmart, which grew its online business to $10 billion. While this may seem relatively small compared to market leader Amazon at $68 billion, what is noteworthy is that the online business represents only 2% of Walmart's $476 billion revenue base.

Walmart created a start-up environment for their digital business by establishing @walmartlabs as a separate division in Silicon Valley. Its employees are organized into mini startups, with teams of 6-8 people working on projects to transform the digital and in-store shopping experience.

The focus on in-store experience allows Walmart to leverage its vast store network to create a differentiated multi-channel value proposition - something that pure online retailers cannot match.

Is There a Quick Fix Solution?
Digital transformation is an ongoing journey that will fundamentally change the operating ethos of businesses. Cultural transformation is just as important as the required changes to business process and technology systems.

Business need to rethink their business model and identify the new capabilities required to succeed in the digital era. Stay tuned to learn how businesses can enhance their customer engagement through customer insight while building a robust and scalable digital backbone.

Sameer Arora is the vice president and head - Digital One, Syntel, Inc.