The Industrialist’s Dilemma

Technology used to allow companies to do what they do faster and cheaper. Today, technology is changing the very nature of what companies do. Some companies are well positioned to thrive in this new digital economy, and some companies, hampered by legacy systems and processes are not. When I heard Aaron Levie, CEO of cloud content collaboration platform Box, frame this challenge as “The Industrialist’s Dilemma,” I was interested to learn more.

What is “The Industrialist’s Dilemma”?

Companies that have been around for more than 20 years are very good at building out large scale infrastructure with technology systems and business processes that provide efficiency and scale. These companies have as many manufacturing plants or retail locations or bank branches as they can to support their business.

With the Internet in the 1990s, some industries, like media and retail, changed significantly, but because we did not yet have ubiquitous Internet or mobility, most industries did not. Now, the proliferation of digital technologies is creating a new dimension of competition for every business.

This new competition does not depend on scale or number of locations. This new competition is grounded in how good companies are at building networks and delivering a customer experience. The digital landscape is putting companies like Uber or Airbnb or 23andMe in significant positions of strength relative to traditional incumbents, who are still spending too many resources on capabilities that no longer differentiate them.

The big question facing CEOs, CIOs and chief digital officers of Fortune 500 companies is: how do we deliver value in this new era of digital experience? How do we leverage our strengths and not be disrupted by new technologies and services? How do we invest in the right people, systems, and experiences to be competitive?

How do CIOs lead their companies out of the industrialist’s dilemma?

Traditionally, as CIO, you could get by with a slightly broken back end system or a collaboration tool that was not perfectly seamless. You controlled IT and employees had to use your technology. But unlike employees, customers have a choice and will decide where to spend their money based on the customer experience.

Older companies have made such massive investments in legacy technologies that they cannot create compelling consumer facing digital experiences. And they are competing against new companies that are choosing the right architecture for the problem they are solving. New companies are able to say, “I’m going to build this on Amazon with these new APIs and we’re going to deliver this great digital experience.” They are not encumbered by legacy.

Take healthcare.gov. That project cost $900 million when it probably would have cost $20 million if it ran on new systems. Too often, you have legacy companies using legacy technology to solve new problems. That winds up being far more expensive and you end up not even solving the problem because the technologies prevent you from getting there.

The tendency is for the CIO to say, “What assets do I have and how do I repurpose them for this new era?” When really, you have to do away with your legacy environments and vendors if you’re going to be competitive in this new digital experience economy.

Which companies are surviving the dilemma?

GE is probably the largest organization that is moving from a “we sell jet engines and healthcare equipment” to “we deliver better healthcare outcomes and better fuel efficiency.” They have connected so many of their products to the Internet, and are generating big data that then allows them to optimize those products.

Clayton Christensen, who wrote The Innovator’s Dilemma, suggests you ask yourself what job your customer is hiring you to solve. Traditional companies have connected that job to the products they have created. Walmart can assume that their customers want a really big store that contains lots of products. But that’s not really what their customers want. That’s just how the solution manifested in the industrialist era. The real customer need is low prices and great products. They might want those products on-demand or to receive them as services, not as products. In the industrialist era, we delivered value to customers in one way. In this new digital world, we need to find new ways.

Some companies will solve the industrialist’s dilemma and some will not. What differentiates the companies that survive?

Companies must understand deeply why their customers care about them in the first place and then rethink their business model accordingly. Once they understand their value proposition, they need to get rid of their legacy and create a digital experience.

One approach is to partner. Instacart is a company that provides on-demand delivery for Whole Foods and other major retailers. They are allowing traditional retail businesses to go digital faster than could have on their own.

Or, you could acquire your way to a digital experience. Monsanto bought Climate Corporation which gives them access to weather and meteorological data. Nordstrom bought Trunk Club, a digital shopping service, to add new value to their portfolio.

Finally, you could build digital capabilities yourself, which is what GE and Ford have done. They are investing in the talent and culture to build digital experience labs and other innovation centers.

But what you cannot do is a muted version of any of these. Once you determine your path forward, you need to go big. If you wait to see how this digital marketplace plays out, you will be left behind. Airbnb is a new business that has grown to a point where it will not slow down. Traditional businesses have to figure out their digital direction and cannot be timid in their approach.

About Aaron Levie

Aaron Levie is Chief Executive Officer, Co-founder and Chairman at Box, which he launched in 2005 with CFO and co-founder, Dylan Smith. He is the visionary behind Box’s product and platform strategy, which focuses on incorporating the best of secure content collaboration with an intuitive user experience suited to the way people work today. Aaron leads the company in its mission to transform the way people and businesses work so they can achieve their greatest ambitions.

Aaron attended the University of Southern California from 2003 to 2005 before leaving to found Box.

About Box

Box is a secure content management and collaboration platform designed for digital-age processes and work styles. Since their founding in 2005, Box has helped teams and organizations across industries easily share, manage, and collaborate on their most important information from anywhere, on any device.

Today, over 37 million people and 47,000 organizations – including over 50% of the Fortune 500 – trust Box with their content. Box is headquartered in Los Altos, CA, with offices across the United States, Europe and Asia.