Even before the COVID-19 pandemic, the gap in terms of profit and market capitalization was widening between those firms that had mastered the dynamics of the digital economy and those that were still being managed in an industrial-era manner.
Yet the major financial gains in the digital economy usually flow from generating innovations that entail new business models and create entirely new markets by turning non-customers into customers.
Firms not only have to improve the existing business: they need to develop the capability of generating market-creating innovations.
Sometimes, the new products meet a need that people didn’t realize they had and create a “must-have” dynamic for customers.
Sometimes, the innovation involves creating new ways of organizing, such as platforms and ecosystems.
The responsibility for innovation in such firms is usually assigned to business units, which typically generate incremental innovations.
Market-creating innovations can lead to self-cannibalization of the firm’s existing products and so generate a reluctance to interfere with a current revenue stream.
As a 2018 Harvard Business School study discovered, CEOs of traditionally managed firms have practically no time to think about the future. Unlike any other executive, the CEO has to engage with them all.”
In effect, it is only by the firm operating as a network of self-organizing entities that a CEO will have the time to undertake a digital transformation.
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