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Business Model Change in the Digital Era

FRONTIER INSIGHTS

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Overview
In response to digital disruption, strategy leaders expect their companies’ business models to change
substantially. However, they struggle to know which changes to make, and this uncertainty slows
digital business transformation.
Progressive companies get further in their transformation because they have a secret weapon: a
radically different approach to learning. Most companies use a step-wise learning approach, moving
gradually from the current business model to a new one. But today, companies must take a
discontinuous learning approach. Discontinuous learners focus on identifying future differentiators,
exploring a wide variety of options simultaneously and involving people broadly in learning efforts.
Discontinuous learning helps companies know which changes to make and how they will compete in
the future. This enables a successful digital business transformation.
Key Findings

Strategists’ digital ambitions focus on digital business transformation, with 79% looking for major
changes to at least three elements of the business model.
Our research found two approaches to learning about business model change: step-wise learning
(78% of companies) and discontinuous learning (20% of companies).
Discontinuous learning leads to twice the progress toward digital business transformation; it also
yields a better understanding of market shifts and how business model changes affect each part of
the organization.
To succeed at discontinuous learning without endangering the current business, strategists must:
Focus initiatives on exploring future differentiators to test the most critical elements of future
models first.
Deconstruct business model tests to explore a variety of options simultaneously, without
incurring undue risks.
Coordinate learning efforts across the business to increase return from learning-focused
initiatives.

The Path to Business Model Change

In today’s disruptive environment, companies face big decisions about how to leverage new digital
technologies and adapt to the resulting market shifts. They must strike the right balance between
exploiting the current business model and exploring new sources of growth. But how can strategists
know if their companies are taking the right approach to achieve long-term success?
Insight may come from a surprising place. Ant colonies must also strategize to navigate uncertainty.
These tiny organizations have evolved to change their food-seeking strategies when the environment
changes.[1] Competition or a change in their habitat might signal a threat to resources. While some
organisms would respond to this threat by gathering as much food as quickly as possible, ants take a
different approach. They shift additional resources to the search for new food sources, rather than
collecting from known sources. Uncertainty leads the colony to explore more, not less. Workers
venture out in all directions — many of which are dead ends or don’t yield food — with the goal of
finding new resources to sustain the colony in the future. This approach seems promising overall, but it
requires the colony to risk a lot with no promise of success. Many organisms wouldn’t take the risk;
instead, they would focus on gathering known resources, meeting the group’s immediate needs before
thinking of the long term. But for ants, broad exploration is the only way to protect the future of the
colony. This strategy enables it to thrive in a rapidly changing environment.
Just as ant colonies sense change and adapt, many companies are considering how they should adapt
to anticipated changes on the horizon. Emerging digital trends are rapidly reshaping how companies
create value and how they compete. And while most companies are experiencing strong growth now,
that growth will slow down in the near future [2]. This gives companies a limited window to figure out
how they should adapt. To thrive in this uncertain and changing market, 66% of CEOs expect their
business models will change, and they increasingly strive to be pioneers in their industry [3].
Like CEOs, strategists expect change to all parts of the business model (see Figure 1). They want to
capture new money through new customers and value propositions, and they want to capture it in new
ways through new capabilities and profit models. In fact, 79% of strategists want substantial digital
business transformation. Companies must explore a more fundamental change to the business to ensure
survival, just as ants do.

Figure 1: Aspe cts of Major B usine ss Mode l Change

Strategy leaders expect substantial change to all aspects of the business model.
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But progress against transformation objectives has been slow and disappointing. Nearly 73% of
strategists say their company is less than halfway through digitally transforming their business. On
average, companies have spent more than two years exploring business model changes just to make
the halfway point. This slow progress carries a high cost. Most strategists report their company’s digital
efforts are missing expectations for revenue (72% missed) and profit (67% missed). This is unsurprising,
given that only 26% of executives say their organization’s transformation has been successful [4].
Digital business transformation is complicated. It requires untangling a complex web of changes across
the business. Companies must reconsider long-held assumptions about what customers need and how
to deliver their value propositions. With the risk of disruption looming, strategists must chart the right
path for change.

Cle are r Path, Easie r Journe y

Companies get stuck on their digital transformation journey because they don’t have clarity about the
right path for business model change. The path is clouded by competing technologies, blurring industry
boundaries and changing customer needs. On top of that, each decision has consequences that cascade
through the business. A shift to digital products and services requires changes to the product
development life cycle, which changes resource allocation in finance and how salespeople sell the
product.
Unlike ant colonies that change strategy using simple decision rules, companies require a plan for
change. To untangle these changes and make a plan, companies need path clarity. Path clarity requires:

Knowing which investments and initiatives are needed for business model change.
Knowing how business model changes will enable the company to win in the future.
 Shared understanding among senior leaders about the business model changes required.

Companies often have many potential paths for business model change. But how do they know which
one can create the most future value? With so many unknowns, strategists need a clear understanding
of how to transform the company and why. Further, senior leaders must share strategists’
understanding about the right path for the organization. Digital business transformation requires
coordinated change across all parts of the business. Without a shared understanding of the changes
needed, transformation plans may be derailed.
GE Digital shows what can happen when companies lack clarity about the path to business model
change. GE invested billions in its digital unit, with the goal of becoming a top 10 software company by
2020 [5]. However, the unit failed, taking much of GE’s digital transformation down with it.
This failure stemmed from a lack of path clarity. First, GE Digital had internal commitments to provide
digital solutions for GE’s other business units [6]. This short-term, internal focus limited GE Digital’s
understanding of long-term business model change.
Second, its new business models were not sufficiently differentiated in the market. GE Digital invested
significant resources in designing its own operating system from scratch and building a cloud
infrastructure. Much of this work created suboptimal solutions compared to offerings from Amazon and
Microsoft. GE Digital focused in the wrong areas because it lacked clarity about how it could win.
Without a clear and shared understanding of the right path, GE struggled to get its new digital business
off the ground.
Path clarity is critical to a successful business transformation. Companies with greater path clarity
report more than twice as much progress toward digital business transformation as companies with
less path clarity (48% complete, compared with 22% complete). Strategists often talk about the
importance of CEO support, digital talent or baseline digital readiness as drivers of progress.
But our research found that companies can achieve path clarity without having these drivers in place.
Further, path clarity predicts progress more than the other three combined.
Yet most companies haven’t achieved path clarity (see Figure 2). They don’t understand which
initiatives are needed or how they will create competitive advantage; even when they do, this
understanding is not shared by senior leaders.

Figure 2: Companie s’ Clarity R e garding The ir Path to B usine ss Mode l Change

What to do, how to win and a shared understanding of change are missing for many companies.
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Learning is the Key to Progress

So what is holding companies back from achieving path clarity? Path clarity requires organizations to
absorb a lot of new information, understand its relevance to the company and use it to make changes.
At its core, path clarity is the result of how organizations learn — what they learn and how they share it
throughout the organization. Uncertainty in the environment makes learning more critical now, just as
it does with ants. Companies need to absorb knowledge that’s far outside their current capabilities.
What’s more, that knowledge is constantly evolving.
We looked at how companies try to learn when they are exploring new business models. The most
powerful learning comes through direct experience, such as running initiatives to test new products,
processes and technologies. Depending on how these initiatives are scoped and structured, companies
may learn different things. In our research on digital business model change, we found five levers that
affect how companies learn about their digital path:

Initiative emphasis — the degree to which initiatives focus on enhancing the current business
model or on finding areas of differentiation necessary for future business models.
Portfolio scope — the number and diversity of initiatives undertaken to explore or enact change
across the business.
Initiative cadence — the sequencing of initiatives aimed at changing the business model.
 Organizational involvement — the breadth of business leaders and staff involved in business
model change initiatives, including project pivot decisions.
Primary success measures — the primary objectives of business change initiatives.

These five levers make up two approaches to learning about business model change: step-wise learning
and discontinuous learning (see Figure 3). These learning approaches are steeped in nearly three
decades of academic research on how organizations learn through exploitation of current knowledge
and exploration of new knowledge [7].

Figure 3: Le ve rs Use d to Le arn About the B e st Path to B usine ss Mode l Change

Five levers make up the difference between two learning approaches: step-wise learning and discontinuous learning.
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The step-wise learning approach involves learning about the digital path through a few targeted
initiatives that build incrementally toward the future business model. Seventy-eight percent of
strategists say their companies primarily do step-wise learning.
The discontinuous learning approach , adopted by 20% of companies, involves learning about the
digital path through a wide variety of far-flung and future-focused initiatives.
To illustrate the difference, let’s say a company has four options for a digital service business model,
each with a different value proposition and customer focus and each requiring different digital
capabilities. Using the two learning approaches, companies might respond like this:

Step-wise learners start by identifying future capabilities that also enhance the current business,
using these as stepping stones to the future. They target a select few initiatives, testing one option at
a time and measuring their success by financial metrics. They also limit employee involvement to
keep from disrupting current operations.
Discontinuous learners develop initiatives to explore critical aspects of all four options. They test
these options simultaneously, taking in a wide variety of information from the company and the
 market. They involve people broadly across the business and measure success by whether initiatives
meet key learning goals.

Step-wise and discontinuous learners have fundamentally different ways of discovering, interpreting
and sharing knowledge. The step-wise approach makes sense in a relatively stable environment.
Companies have a solid understanding of the market and which option might be best. Knowledge from
the current model will generally translate to the future, so it’s a waste of resources to test many
options or involve people broadly.
But in today’s rapidly changing, uncertain environment, the discontinuous approach is the only way to
win. Discontinuous learners achieve more than twice the progress of the average firm (see Figure 4).
This is because discontinuous learning has a 62% stronger impact on path clarity than step-wise
learning. Discontinuous learners also learn more during the time they spend exploring new digital
business models. They build on what they’ve learned so their time exploring leads to greater path
clarity. Step-wise learners don’t see the same benefit.

Figure 4: Progre ss of B usine ss Mode l Change via D iscontinuous Le arning

Companies that primarily use discontinuous learning make more than twice the progress of the average firm.
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D iminishing R e turns of Ste p-Wise Le arning

There’s a reason many companies find the step-wise learning approach so alluring. Companies have a
lot to gain from refining their current business models, in terms of efficiency and effectiveness. This
leads most incumbent companies to follow the step-wise approach. Companies identify a few initiatives
with high ROI, try the most promising ones first and judge their value on business outcomes. Structures
and processes create inertia that pulls the organization toward step-wise learning.
Knowing what parts of a business model should be changed is difficult, particularly in a disruptive
environment. Under these conditions, step-wise learning feels measured and smart. Step-wise learners
explore the future by first understanding the value of digital for their current business. They also
restrict investment in digital initiatives until they can prove success. Then by limiting involvement (and
thus exposure to failure), they gain buy-in for digital efforts. Step-wise learners believe path clarity
comes one step at a time.

“We are committed and nothing is off the table, but we’re trying not to boil the
ocean; we do have to take it one step at a time.”
SVP Strategic Planning
Financial Services
Step-wise learning may have worked well in relatively stable times, but it doesn’t work now. Disruption
challenges assumptions that once were truths. Emerging technologies change our understanding of
what customers want and what they will pay for it. In this environment, the current business no longer
provides a useful lens for viewing the future. Companies that use step-wise learning risk missing critical
learnings that could change the course of their own digital business transformation. Despite the allure
of step-wise learning, it can’t provide as clear a path as discontinuous learning.

Step-Wise Learning at Garmin

In 2007, Garmin was on top of the GPS market, so dominant
that the brand was nearly synonymous with the product itself.
Garmin made $2.5 billion (three-fourths of its total revenue)
that year on GPS devices for cars. Then the iPhone launched,
and Google Maps came with it as a free navigation app,
rendering standalone GPS devices unnecessary. Within three
years, Garmin lost 90% of its market value [8].
In response to this threat, Garmin initially focused on evolving its current business. In 2008,
Garmin tried to retake the market with a phone that incorporated its GPS platform. The phone
flopped, as did a $50 mobile app released for iPhone. But with these targeted efforts done one
at a time, the company learned slowly and ineffectively about changing customer needs. The
step-wise learning approach could not adequately teach Garmin about transforming its core
business.
Garmin eventually moved into high-end specialty wearables around 2013 — specialty fitness
trackers for athletes and wearable GPS devices. But a discontinuous approach could have led
Garmin to consider wildly different alternatives for its consumer business much sooner.

Strate gists Must Shift to D iscontinuous Le arning

Companies need to shift their balance from exploiting the current business model to exploring new
business models. But this requires taking in different types of information in very different ways. While
step-wise learning is good for improving a current business model, it is not the best approach for
business model change.
Discontinuous learning, on the other hand, is designed to explore all directions so companies can find
the most promising path for business model exploration. It uses the entire organization as an engine for
discovery. Just as ant colonies shift workers to the search for far-flung food sources, strategists must
shift the organization to exploration through discontinuous learning. Underlying market dynamics are
changing, as are assumptions about value creation and competition. Companies must use
discontinuous learning to understand these changes and how they can best adapt. All five learning
levers play a critical role in the success of discontinuous learning (see Table 1). Without all five of
these, companies cannot learn as effectively about the changes they need to make.

Table 1: How Le arning Le ve rs Impact Transformation Progre ss

Le a rning Le ve r: Initiative emphasis: Future-focused

Im p o rta nce to C la rifying the

Reduces anchoring on the current business.
Dig ita l P a th:
Identifies new starting points that are more critical to success of the
future business model.

Le a rning Le ve r: Portfolio scope: Wide variety

 Im p o rta nce to C la rifying the
Increases the odds of detecting assumptions about the market that no
Dig ita l P a th:
longer hold true.
Locates better options by exploring previously uncharted territories.

Le a rning Le ve r: Initiative cadence: Simultaneous

Im p o rta nce to C la rifying the

Shifts the frame of reference from comparing each future option
Dig ita l P a th:
against the current business to comparing future options against one
another.
Enables comparison along multiple dimensions to understand the
downstream consequences of each.

Reduces change fatigue that may happen with iterative option testing.

Le a rning Le ve r: Organizational involvement: Broad engagement

Im p o rta nce to C la rifying the

Ensures that change is scalable across the business by discovering
Dig ita l P a th:
implementation barriers.

Builds understanding and buy-in for change upfront (The whole

organization must move, so the whole organization must know how to
move.).

Le a rning Le ve r: Primary success measures: Learning outcomes

Im p o rta nce to C la rifying the

Refocuses initiative selection and evaluation on metrics that enable
Dig ita l P a th:
success of the future business model.

Ensures learning isn’t cut short because an initiative fails to meet

financial targets.

Source: Gartner (August 2018)

Discontinuous learning beats step-wise learning for two key reasons. First, discontinuous learning has
the potential to identify better solutions for future business models. Discontinuous learning makes
fewer assumptions and instead focuses on seeking knowledge about vastly different options. While
step-wise learners move from the current state gradually and explore only the most promising options,
discontinuous learners test many options simultaneously. This wide, far-flung exploration helps
discontinuous learners understand how the market has shifted. And unlike step-wise learners, they
don’t get stuck on a suboptimal path due to sunk costs or organizational change fatigue. They can
move further from their current model and discover new options that step-wise learners might never
uncover, let alone consider.
Second, discontinuous learning allows companies to be pioneers in their market. Rather than waiting
for the market to clarify, discontinuous learners can drive market clarity. Step-wise learners assume
that the market will clarify over time. In the meantime, they try to move partway down the path,
investing in digital initiatives with proven value. In fact, 52% of step-wise learners say they primarily
invest in digital initiatives that have been successful for other companies, compared to 9% of
discontinuous learners. But these “me too” initiatives do not build sustainable competitive advantage.
By the time companies invest in them, they are already behind the market.
In contrast, discontinuous learning enables companies to explore a variety of options and act on them
more quickly. It builds a deeper understanding of how technologies interact with changing customer
demands. Using this insight, discontinuous learners can pursue business model change with more
confidence. They can show the market what a best-possible solution looks like.
However, the shift to discontinuous learning may be difficult for some companies. Strategists might be
tempted to shift the company’s approach in some areas and not others. But the five learning levers
work best when they build on one another. Without a wide variety of simultaneous initiatives,
companies can’t get the broad engagement that creates momentum. Without broad engagement,
business units might reject investments in the future that don’t have near-term return. Without all five
levers, companies may settle on a suboptimal path or fail to make progress along a chosen path. The
best results come from companies that commit to all five levers for discontinuous learning.
Still, discontinuous learning is a big change for many organizations. Companies may object to this
approach due to misconceptions about what it requires. First, senior leaders may believe it requires
them to neglect the current business in favor of shiny new business models. But it simply means that
companies must treat the current and future businesses as separate processes. Second, leaders may
see discontinuous learning as an unfocused, “try everything” approach. In reality, companies must still
be purposeful and disciplined in how they select and evaluate initiatives. But the criteria must shift,
focusing on the most critical aspects of future business models. Third, leaders may see this approach as
steering the entire organization toward a “test and learn” approach. This can seem costly and wasteful.
But the key to discontinuous learning is to ensure that learning happens when and where it is needed to
bring clarity to digital business transformation.

Discontinuous Learning at Airbus

In 2015, Airbus saw that emerging technologies unlocked
significant opportunities to enhance current operations as well
as explore new business models. Rather than continue its focus
on developing aircraft hardware, the company decided to
expand its view of value creation. This included new digital
business models, such as data-driven services to capitalize on
aircraft data.
To make progress in its transformation, senior leaders at Airbus started with a focus on the
future of customer needs [9]. This led them to broaden their scope to include developing
software platforms — not just hardware — during their business model exploration. As part of
this exploration, Airbus invested in a variety of initiatives to understand how technologies
would create future value. It also explored different options simultaneously, running 450
initiatives in 2016 alone [10]. These initiatives engaged employees throughout the company in
learning efforts. Airbus worked to break down functional silos and organize around products to
improve knowledge sharing.
Using a discontinuous learning approach, Airbus has launched digital services across its sectors
that are worth €9 to10 billion [11]. In 2017, it launched the Skywise data platform to integrate
data from aircraft sensors, airlines and other industry players to improve outcomes across the
aviation ecosystem. These service- and platform-based models are critical to future success at
Airbus.

Moving the Firm Toward a Discontinuous Approach

For strategists, digital business transformation requires a more comprehensive approach than
identifying adjacencies or pursuing other growth opportunities. Strategists must structure digital
initiatives to help the organization learn in a fundamentally different way. With the whole organization
functioning as an engine for discovery, companies learn more about the changes they need and move
faster down their digital path.
This approach may feel overwhelming. It means breaking down silos and engaging people who may not
believe in the need for change. It means tackling the hardest parts of change first, because those are
the most critical to understand. This isn’t easy. To be successful, strategists must navigate challenges
on two fronts: shifting to discontinuous learning and managing the needs of the current business.
To thread the needle between these challenges, strategists must make three major changes to how
their organization approaches business model exploration:

1. Focus initiatives on future differentiators — Isolate initiatives that identify and test potential
future differentiators, and protect space for these investments.
2. Deconstruct business model tests to spread risk — Break down tests of business model
options into smaller, discrete experiments and test them in different markets. This approach helps
reduce perceptions of risk among internal and external stakeholders.
3. Learn at scale to speed digital clarity — Absorb the high volume of new insights effectively by
coordinating learning efforts across initiatives.

Focus Inve stme nts on Future D iffe re ntiators

Business model change can require transformation of nearly every part of the organization, from
technological capabilities and product life cycles to finance processes and training programs. Change
touches everything. It takes a lot of money, hard work and goodwill to make a change like this happen.
Strategists have to be sure they’ve chosen the right path. With so many options, they need to
determine what is most important to explore. At the same time, they can’t neglect the current business.
Companies have limited resources for future exploration, so they have to use them wisely.
To understand what will define future success, strategists need to isolate which future initiatives are
most important to understand. Typically, companies estimate the value of future initiatives by focusing
on their ROI. But when it comes to emerging digital technologies, that doesn’t always work.
Technologies have uncertain values and uncertain costs. Further, ROI calculations are most credible
when they relate to the current business. As a result, companies prioritize investments that show strong
value for the current business and are needed for the future. But this double-duty approach falls short
in helping companies understand which path they should take for the future. It focuses investments on
“table stakes” digital capabilities, rather than resolving critical questions about what customers need
and how the company can win.
Instead of looking for solid returns on specific initiatives, progressive companies calculate ROI based
on the potential return of each growth opportunity. Within high-potential opportunities, they isolate
initiatives that determine success in the future model. These initiatives focus on building future
differentiators that can sustain competitive advantage.
By investing in future differentiators, companies learn three key lessons. First, they quickly discover
whether future business models are viable. If differentiated capabilities don’t work as expected or don’t
create sufficient value, the company can reevaluate its options and pivot to something new. Second,
companies can isolate which technologies work best. Rather than investing in popular technologies,
companies only invest in what helps them build differentiation. Third, companies learn which
organizational changes are critical to success of the new model. When companies start with double-
duty initiatives, they may get locked into a suboptimal path. By starting with what defines future
success, companies can find the right path before they make major changes internally.

Case in Point: Digital Wedge Points (Wedge Co.*)

Strategy leaders often struggle to prioritize digital initiatives, given the wide variety of
technologies available to support necessary business model changes. It can be hard to know
which initiatives are most critical to creating future value. At Wedge Co., a large industrial
 manufacturing company, strategy leaders identify digital wedge points to focus digital
initiatives on capabilities and technologies that are most critical to creating future competitive
advantage (see Figure 5).
Wedge Co. starts by engaging the business in isolating future capabilities that are most critical
to value creation in the future business model. Through differentiated capability workshops,
strategists build consensus around investment priorities. Then Wedge Co. leaders decide how to
build these capabilities by using technology to leverage unique firm assets. This enables Wedge
Co. to create differentiated and hard-to-replicate capabilities for the most critical elements of
future success.
To learn more, view our full case study, “Digital Wedge Points.”

*Pseudonym

Figure 5: D igital We dge Point Mode l

Build future differentiators by linking critical future capabilities and technologies to unique firm assets.
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D e construct B usine ss Mode l Te sts to Spre ad R isk

While companies make more progress when they do widely varied, simultaneous tests of change
options, this approach can be risky. Early market tests help companies learn faster, but they can also
prematurely tip off competitors and ecosystem partners about the company’s future plans. They can
also disrupt the current business by overwhelming employees or creating unnecessary anxiety about
major changes to how the company operates. Companies need to minimize the risk of business model
exploration, internally and externally.
Companies typically minimize these risks by delaying market testing. They focus instead on gaining
secondhand knowledge of potential changes by gathering data, talking with experts and seeing what
has worked elsewhere. Once they feel confident about what they should do, they pilot a fully formed
set of business model changes.
However, this approach has limited value. First, secondhand knowledge may come from industries or
applications of technology that don’t translate well to the company’s industry, customer set or value
proposition. Second, full business model pilots may be based on assumptions about the market that are
no longer valid. By delaying market tests, companies risk creating fatally flawed business models.
Learning happens too late, after expensive pilots fail or competitors have already moved.
Rather than delaying market tests to minimize risk, progressive companies deconstruct business model
tests and disperse them in different markets. Companies should first pilot pieces of the business model
with small, precise tests of multiple options. Companies can also test these options simultaneously to
compare them more effectively. To outsiders, these deconstructed tests look like small initiatives to
evolve the company’s current operations, keeping them under the radar.
This approach does not provide perfect information, since it doesn’t test all components of the business
model simultaneously. But it does provide valuable knowledge that can make a full pilot more
successful. By testing more options, companies can gain a deeper understanding of market dynamics
and customer needs that have changed. They can also locate better path options and understand the
downstream consequences of each. By deconstructing the business model into discrete tests,
companies can learn from the market earlier. This market feedback results in a full business model with
a greater chance of success.

Case in Point: Disaggregated Business Model Tests (Disag Inc.*)

Testing new business models in the market creates greater learning but also comes with greater
risk. Companies may not want to tip off ecosystem partners or disrupt the current business with
large-scale pilots. Recognizing this tension, Disag Inc., a consumer packaged-goods company,
decided to run disaggregated business model tests. Disaggregated tests explore a variety of
future options simultaneously in different markets (see Figure 6). They test one component of
the business model at a time. Outsiders see a number of small, isolated initiatives, rather than
the potential new business model.
First, strategists locate test markets that match the target market’s key characteristics and they
ensure those markets have the capabilities needed to test the initiative. Second, they sequence
tests based their impact on other parts of the model, identifying what must be learned first so
they can understand the full model later. Third, they reconstruct the business model to develop
a single pilot based on the best results across disaggregated tests. Using this process, Disag Inc.
learns earlier from the market without increasing perceptions of risk.

*Pseudonym

Figure 6 : D isaggre gate d B usine ss Mode l Te sts Compare d to the Typical

Approach
Reduce the risk of early in-market tests by testing small pieces of a new model in different markets.
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Le arn at Scale to Spe e d D igital Clarity

Discontinuous learning requires companies to move far outside their current competencies and
integrate new knowledge in a short time. To manage this process effectively, companies must capture,
absorb and share these learnings throughout the organization. Similarly, it’s useless for ants to explore
far and wide if they can’t share what they’ve learned with the colony. Workers share knowledge, using
pheromones to communicate about new food sources or dangerous areas to avoid. If you’ve ever left
food out at a picnic, you know how quickly ant knowledge spreads.
For discontinuous learning to work, companies must also integrate and spread learning effectively. If
companies cannot use learning to build momentum, progress will be slow. This raises the risk that
companies will be disrupted or will lose the opportunity to capture growth through business model
innovation. To win, companies must manage and create value from the high volume of new insights
they generate.
At the same time, the current business exerts pressure to make sure initiatives have a measurable
return. For this reason, companies typically learn in small pockets of the organization. These innovation
hubs are often exempt from the short-term financial goals that restrict exploration in the rest of the
company. Isolation also helps them pivot quickly to solve problems and identify transformative options
for business change. Once these groups have identified promising changes, business leaders try to scale
what they’ve learned across the business. They get senior leaders on board with the proposed changes,
then work to build an understanding of why and how to implement change throughout the business.
This approach has several drawbacks. First, when it comes to business model change, this “scale
learning” approach may lead the business to plan changes that ultimately fail. Because each change
cascades through the organization to require several more changes, isolated exploration may miss
important pieces of the puzzle. Second, business units may not absorb lessons that come from
somewhere else and might not see how lessons apply to them. As a result, these lessons will fade,
requiring the company to relearn the knowledge that has been lost. Third, when bringing these changes
back into the business, they will be tested by a narrow focus on short-term business outcomes, which
undermine a company’s long-term learning efforts. Put simply, this approach does not get the most out
of learning efforts, putting the transformation at risk.
Instead of trying to scale learning, progressive companies build processes and programs to coordinate
learning at scale. That is, they shift the mindset throughout the company to focus on the value of
learning. Companies must coordinate learning efforts by engaging people broadly in learning initiatives
and organizing knowledge gains to accelerate understanding.
While learning at scale requires more upfront investment, it builds momentum for change. Engagement
by all parts of the business allows a company to bring the entire organization along during the change
process, rather than catching it up. The company also gets more value from learning initiatives by
capturing insights effectively and building on them. This enables a deeper understanding of how the
organization should change and why it will help it win. Learning at scale moves the whole organization
toward a unified vision of the future, even as it tests multiple options for achieving that vision.

Case in Point: Digital Transformation Insight Assessment (Pearson)

When strategists try to engage the business more broadly in
change efforts, it can be hard to know whether the right people
are involved in learning about the right objectives. Without a
critical mass of learning throughout the organization,
transformation efforts fizzle out or hit roadblocks. Strategy
leaders at Pearson developed the digital transformation insight
assessment to determine whether the company is learning enough about potential business
model changes. This enables the team to better coordinate learning efforts and sustain the
momentum needed to understand business model change.
First, Pearson evaluates how well current initiatives cover business transformation goals. Are
the initiatives sufficient to achieve the goal if they are successful? Second, it ensures sufficient
cross-enterprise engagement and alignment (see Figure 7). Third, strategy hosts meetings to
identify any critical issues that are stalling progress toward business transformation. These
meetings also provide a forum for capturing and spreading initiative-level learning. This process
aligns the organization around learning outcomes and engages the entire organization to reach
them.
To learn more, view our full case study, “Digital Transformation Insight Assessment.”

Figure 7: Organizational Involve me nt Le arning Map

Pearson’s organizational and alignment learning map provides clarity on cross-organizational involvement.
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Conclusion
Companies need to explore potential new business models if they are to survive digital disruption. But
business model exploration requires companies to understand and embrace change that touches every
part of their business. The DNA of the company has to change. To enable that change, companies need
to take a radically different approach to learning. In a time of uncertainty and rapid change, the step-
wise learning approach of the past no longer works. Today companies must learn which assumptions no
longer hold and venture out to discover previously unknown paths. They must explore a broad range of
options far outside their current business to find the best path to future success.
To do this, they must take a discontinuous learning approach. Discontinuous learning focuses on what
is most critical to learn, then structures initiatives to spread learning value across the organization. By
taking this approach, companies can identify the transformation path with the most potential to create
value and move the organization quickly to seize competitive advantage.

Recommendations
To learn about the changes needed for digital business transformation, strategy leaders should:

Structure digital initiatives using a discontinuous learning approach to identify the best options for
new business models.
Isolate initiatives with potential to differentiate future business models.
Deconstruct business model tests to learn from the market earlier and reduce perceptions of risk
by internal and external stakeholders
Involve employees throughout the organization in learning initiatives to develop a deeper
understanding of how business model change will affect each part of the organization.

Recommended by the Authors

Emerging Trends Database

Stay ahead of trends being tracked by your peers to identify potential new business models.
 Digital Disruption Map
Focus conversations with senior leaders around disruption risk to identify critical areas for
exploration.
2018 Presents a Rare Growth Opportunity: Will You Seize It?
A confluence of events has opened a narrow window for making bold changes and investments to
position your company for a sustained growth run. Yet taking advantage of this fortuitous alignment
requires leaders to move quickly.

About This Research

This research draws from qualitative interviews with 73 strategy department leaders at companies
across eight industries. We also surveyed 58 strategy department leaders about their digital initiatives
and business model change. Further, this research incorporates findings from our 2018 CEO Survey of
460 CEOs and senior business executives.

Presentation Deck
Download the presentation slides for this material.

Endnotes
[1] “Survival Under Stress,” MIT Sloan Management Review.
[2] W. Soong. “Expected Revenue Growth for Industries in S&P 500.” Bloomberg News. 29 March 2018.
[3] Gartner 2018 CEO and Senior Business Executive Survey
[4] “How to Beat the Transformation Odds,” McKinsey & Company
[5] “GE Puts Digital Assets on the Block,” Wall Street Journal.
[6] “Why GE Digital Failed.” Inc.
[7] D. Lavie, U. Stettner and M. Tushman. “Exploration and Exploitation Within and Across
Organizations.” Academy of Management Annals. 2010.
[8] “How Garmin Mapped Out a New Direction with Fitness Wearables,” Forbes.
[9] “How Airbus is Navigating a Digital Transformation,” McKinsey & Company.
[10] “The World is Changing and Airbus is Embracing Its Digital Transformation,” Airbus.
[11] “Exclusive: Airbus Sets Services Goal, Targets Productivity Gains,” Reuters.

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