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  • Faculty & Research

    Knowledge creation on China, from proven China experts.

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  • Faculty & Research

    Knowledge creation on China, from proven China experts.

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Tuesday, July 2, 2019

Where Can Chinese Companies Go in the Next Five Years?

By Fang Er

As the digital wave is sweeping across the world, companies find themselves at a crossroads for transformation. As Jeff Bezos has noted, during the digital transformation, companies need to focus on what is not going to change. It is user-centricity that will stay constant.

User-centricity will stay constant in the next decade.

In order to be sustainable, companies must understand what is required in the market today is not a product-centered approach. In the digital age, companies are not an organization that sells products, but one that manages users. What lies at the core of digital transformation is to treat each user as an individual, and to mine and integrate all behavioral data.

To stick to a user-centric approach, companies need to take three steps.

❶ Step 1: data-based business management: Companies need to collect and integrate business data.

❷ Step 2: networked data: Only when the data across departments and business units are consolidated will they generate real value; companies need to build a data center to create data-enabled business departments.

❸ Step 3: an intelligent platform: The intelligent platform enables companies to tailor products and services to exactly what customers need at varying prices.

Companies will be undoubtedly a data-driven and user-centric organization in the next decade.

While user-centricity will stay unchanged, user demands have begun to change, mainly in two ways.

What should companies do in the next five years?

While focusing on what is not going to change in the next decade, companies need to figure out how to better seize opportunities brought by digital technology in the next five years. They should give consideration to two dimensions: strategy and organization.

On the Strategic Front: Product-as-a-Service and Product Customization

Chinese companies have only two options to move upmarket: product-as-a-service or product customization.

In 1990, only 9% of product sales in the US came from services. By 2009, this percentage had shot up to 52%. Over the past two or three decades, US companies have undergone a rapid service-oriented transformation, which their Chinese counterparts will also go through in the future. Product-as-a-service is conducive to companies in the long run, because service can bring a higher profit and stronger user loyalty, and can help companies better understand their products.

The transformation toward a product-as-a-service model goes through three stages. On the first stage, companies should focus on products, with services provided to boost sales. On the second stage, they should try to derive most of the profit from value-added services. On the third stage, they can launch a product-as-a-service model, in which products serve as the medium to provide services.

Companies should be determined and patient enough to go through this transformation. When profit decline is inevitable at the beginning, do not give up halfway, because in the long term, profit growth will definitely be higher than the level before the transformation.

Besides product-as-a-service, product customization driven by digital technology is the shape of the things to come. Considering the development of industries and enterprises and consumption upgrade, consumers will have a growing demand for personalized products. Therefore, companies are required to embrace mass customization, which will set a higher bar for them. One of the biggest challenges is to push down the costs of mass customization, which can be addressed by focusing on the demand side, operations, and supply chain.

Case: Disney’s Strategic Deployment

Disney Group is a role model of strategic deployment within the industry, with the following two priorities worth mentioning:

The first is to seek business opportunities from the user’s perspective;

It is well-known that Disney runs a wide range of businesses, including filmmaking, amusement parks, music, publications, and derivatives. Derivatives have become Disney’s biggest source of profits, followed by amusement parks. From a financial perspective, derivatives and amusement parks lie at the heart of Disney’s businesses. Users, however, view filmmaking as its core business. Companies will need to determine their core business, not from a financial perspective, but from the user’s point of view. This is why Steve Jobs’ biggest legacy is not Apple shares but Disney shares.

The second is to develop the core business in-house while seeking partnerships in non-core businesses. Disney never outsources its core business of filmmaking nor seeks cross-sector collaboration in this regard. As for other sectors, Disney has been cooperating with other companies and institutions. To build their own value network, Chinese companies should learn from Disney by keeping an iron grip on their core businesses, while strengthening cooperation in non-core businesses.

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