By Greg Fincke, Managing Director, Equiteq
I recently listened to Sunil Gupta’s HBR IdeaCast on digital strategy – a topic relevant to many, if not all, of our clients. After providing examples of failed approaches to digital strategy he rightfully points out that in order to be successful, strategies need to incorporate four components:
- Business strategy
- Operations and value chain
- Customer engagement
- Organizational structure
I think this is an incredibly helpful and balanced perspective. When advising companies in the knowledge economy and looking at the M&A focus of the large players, we see far too much focus on a single component, specifically customer engagement. There are perhaps a number of reasons for this, for example you can see immediate success, outcomes are more tangible, etc.
However, where we see organizations making significant strides is when they take a far more comprehensive approach to their digital strategy and look beyond the digital experience of the customer as their sole focus.
Gupta goes on to discuss how companies that embrace this holistic approach to digital strategy can exploit complements. He uses the analogy of the razor and the blade, where the razor is a means to make money on the core offering – the blade. The examples provided are the Kindle (razor) to sell eBooks (blade) and US Foods offering business management services to restaurants (razor) to sell food (blade).
In both examples the razors are heavily discounted or free. The risk is while net profits may increase from selling more “blades” the profit margin will undoubtedly decrease because of the razor’s cost.
Another obvious risk that jumps out to me is if someone sees your blade as their razor. This is exactly what has happened in industries that have been disrupted.
I don’t see an enduring competitive advantage created by the razor-blade approach. I’m certainly not predicting the downfall of Amazon, but you don’t want to be a company holding a bunch of razors and no blades. What happens if Microsoft sees Azure/cloud as their razor to their Office 365 blade or Walmart sees online retail as their razor to brick and mortar sales blade?