Being future-ready is a source of competitive advantage in turbulent times. Professors Howard Yu and Mark Greeven explain how Xiaomi and others not only survive, but thrive through uncertainty. ...
A flurry of upbeat data has boosted hopes that a global recession can be narrowly avoided – but organizations still face an uncertain future, with risks to financial stability being one acute concern. So, what can organizations do to become “future-ready” in what are still fairly turbulent times?
They need to constantly reimagine their core business while concurrently building new revenue streams for the future. Those organizations that balance these two priorities have a competitive edge over their rivals. Being future-ready means winning more in good times and losing less in bad times.
And in a recent webinar, IMD Professors Howard Yu and Mark Greeven spelled out the four key steps organizations should take to become future-ready using real-world examples.
Stressing the importance of taking these steps, Yu explained how, during the pandemic, there was a divergence in the fortunes of leading fashion companies. For example, during 2020-22, Lululemon and Nike performed more strongly on the stock market compared with rivals Zara and H&M.
One reason for Nike’s outperformance was a focus on data analytics, which enabled the company to predict what was trending and eliminate unwanted inventory with targeted write-downs. Moreover, Nike lets customers personalize products.
Being digital-ready is not just about the front-end, it’s about the back-end plumbing.- Howard H. Yu
“Doing that required the whole idea of a global digital supply chain,” Yu said. Unlike most multinationals, he explained, Nike contracts its manufacturing of footwear and apparel out to a network of suppliers. This gives Nike agility and reduces operational complexity across the value chain. “Being digital-ready is not just about the front-end, it’s about the back-end plumbing,” he stressed.
Greeven underlined how organizations can further reduce coordination complexity and cost with “modular thinking”, which means structuring themselves into self-contained, interchangeable parts. This concept is not new, but it has been accelerated by “microservices”. He explained these are small, independent services that communicate over APIs (application programming interfaces, which enable organizations to extract and share data).
“Nike and other organizations are very good at building digital platforms enabled by APIs that enable them to become more modular,” Greeven added. He noted that Netflix often breaks down its software programs into smaller components, each controlling a different function, whether it be the menu list or the recommendation feature. This reduces complexity and lowers the cost of coordination.
“The devil is in the detail,” said Greeven, adding that only specific business processes benefit from being broken up into microservices. Yu agreed, adding: “You do not need to boil the ocean. You do not need a multibillion-dollar budget. You can start with the low-hanging fruit to develop that momentum towards simplification.”
Yu pointed to Visa and Mastercard – two payment companies that have consistently topped his Future Readiness Indicator, which measures their readiness for deep, long-term, secular trends. One reason is their use of “open” APIs which are publicly available to developers.
The devil is in the detail- Mark J. Greeven
“For the longest time, we have thought the credit card would disappear. But Visa and Mastercard have embraced the idea of frenemies,” Yu said. This means they enable other financial institutions such as Goldman Sachs to access their payments network, using secure APIs. They have even partnered with crypto exchanges.
“What this illustrates is that for big companies it would forever be too slow and too hard to chase after the next wave of disruption. Visa and Mastercard have realized if we cannot beat them, we let them join us,” Yu added.
So, the open APIs enabled the two payment providers to pick up a “long tail” of new customers who were previously seen as rivals. However, Yu underlined the importance of security and trust when using open APIs. He noted that Meta’s cryptocurrency project Diem failed for this reason, following scandals over content moderation and privacy at Facebook. “Reputation is a license to operate,” he said.
Of course, opening up your organization can mean enabling competitors to thrive, but it should grow the overall pie, the two professors stressed. “Organizations need to reinvent themselves, but they need to think about how to repackage their domain knowledge to partner with others,” Yu said.
Another example comes from China. Xiaomi, the electronics giant, which has built a digital ecosystem with hundreds of companies partnering with them to create products that are consistent with its image and standards. “It has become so easy for other companies to work with them, so there’s almost no need for them to build anything themselves. They are the glue in this system,” Greeven said.
So, whether it’s by creating a digital network, leveraging open APIs, embracing microservices, or building a digital supply chain, there are steps organizations can take to prepare for the uncertain future.
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