An organization is essentially the sum total of its physical, financial, human, intellectual, and relationship capital. Different industries and different business models have always maintained different percentages of these asset types. Manufacturers invest most of their capital into physical assets, while high-tech firms invest in R&D to create new intellectual capital. But all assets are not created equal, especially as the technological landscape changes.
In today’s market, tech platforms enable IP and relationships to scale rapidly, and at near-zero cost. This is the phenomenon that has led to exciting platform businesses like Facebook, LinkedIn, Match.com, Uber, and Airbnb. Even when these firms rely on physical assets, like cars for Uber, they own the technology, not the physical asset. Meanwhile, the laggards continue to spend their time and money on assets that do not scale so easily — physical goods (such as manufacturing plants or inventory) and human capital (such as highly trained employees that deliver services). Digital transformation requires that companies reallocate their asset portfolio to support new, digitally enabled business models.
There’s no question why legacy organizations are tackling digital transformation now. Digital native upstarts are gutting traditional industries one at a time, leveraging scalable technology and participative networks. But shifting a firm’s asset portfolio is a lengthy process and is fraught with uncertainty for leaders comfortable with older asset types.
Although the transformation will look a little different in every organization, we use a five-step process called PIVOT with our clients.
The first step is to pinpoint your starting place. That includes identifying your current mix of assets and the business model that your asset portfolio creates. For example, do you make and sell things, hire skilled employees and provide services, develop and new IP like software or pharmaceuticals, or build and manage digital networks, be they transactional, informational, or social? Taking a clear look at your starting point will enable you to understand your strengths and weakness, and identify the long-term habits that you will need to shift and eventually transform your business.
Second, make a complete inventory of all your organization’s assets. Begin with the easy things that you have always tracked — and physical assets such as plant, property, and equipment. From there, you will delve into the less-well-known intangible assets such as the talents and skills of your workforce, the IP that exists within your organization, and networks of people and organizations that exist outside the traditional boundaries of your firm. These assets are typically overlooked, undervalued, and under-managed. In particular, look at your networks with care to determine their size and affinity. Partnering with a valued and interested network is the best way to dive in.
Third, visualize a new future as a digital network where your firm partners and co-creates with one of your external networks.