How to beat Uber and other insights from digital disruption

Businesses are externalising functions, finding ways to reduce risk while exposing themselves to innovation

I wrote in The Sunday Times on Aug 27 about digital disruption and how Singapore companies and regulators had to buck up.

One point I made: businesses have to overcome their natural competitive instinct honed by decades of competing for a small domestic market, and learn to collaborate with each other. The digital economy needs scale, and local businesses have to team up to fight back.

Several people engaged me on social media with interesting responses. I'd like to share some here.

Former banker Raymond Huang, a Singaporean, shared on Facebook that he had noticed the disturbing habit of not working together even 20 years ago.

"When a Singapore bank then could not do a syndicated deal, our banks would reject instead of sharing the deal. When my former Singapore bank hired a Hong Konger to head up the Beijing office, he would call all his Hong Konger friends to give the deals to them, even our office renovation!"

Another Facebook friend lamented: "We need to abandon our small island mentality and our uptightness. The digital economy has changed the Chinese into a people who think win-win at all times. I've enjoyed working with my Chinese colleagues tremendously, as we are always looking out for one another and helping one another to excel."

On LinkedIn, Dr Tommi Chen, an internet and telco consultant based in Malaysia, agreed with the need for collaboration and added: "Digital culture is all about cooperation, partnerships. Old culture is about internalisation (tasks mostly done in-house) while new culture adds a huge dose of externalisation (tasks carried out through partners, customers, would-be customers, public) to reduce costs but mostly to improve effectiveness."

I'm familiar with the idea of externalisation in psychology - that people tend to externalise and blame others for their own mistakes - but not in business.

So I started reading up about externalisation in business. And I hadn't realised it until this week, but my job as an Op-Ed editor has been rife with externalising, a business model very much in vogue with a digital economy.

Traditionally, businesses developed multiple functions in-house because the transaction costs of getting others to do it for you is too high. Companies then hired people full-time to produce widgets, with logistics, sales and marketing , human resources. If they had to keep finding people to do these jobs when the need arose, it would be too slow and too expensive.

The internet's amazing ability to match people to jobs, across geographical barriers, has substantively reduced that transaction cost.

Many companies have moved to externalise functions, even core ones. Externalising is a good way for businesses to cope with uncertainty.



 A GlaxoSmithKline logo is seen outside one of its buildings in west London, on Feb 6, 2008. FILE PHOTO: REUTERS

Global pharma company GSK has since 2008 externalised its research and development. Instead of spending huge sums to develop its own products and then betting big on the few promising ones, it works with labs and outside partners (for example, cancer centres for oncology drugs) who are specialists in their own areas. It then bets on many ventures including some with lower probability of success, but which would have a huge pay off if it succeeds.

This helps it to reduce risks, while broadening its exposure to innovative breakthroughs.

Externalising makes sense in a digital economy. Transaction costs are brought down. The digital economy is in flux, with multiple new developments in your own sector. It's more cost effective to work with others than to hire resources to do it all within your own organisation.

B2B AND NOW B2C EXTERNALISING

There are degrees of externalising.

The first might be to outsource a function, and pay for someone else to do the service. In my line of work, this would be the equivalent of a newspaper outsourcing its, say, printing and newspaper delivery service.

The second might be to externalise by using contracted services-as-needed. This would be the equivalent of engaging a freelance videographer, say, to produce a video of an important news event overseas. Or - in my case - paying a university professor who is an expert in healthcare a fee to write a commentary on our healthcare system.

Previous Op-Ed editors in The Straits Times had the luxury - or burden, depending on your point of view - of managing a team of half a dozen or more full-time writers employed by The Straits Times. The headcount costs must have been astronomical.

These days, I have one deputy (associate Opinion editor Lydia Lim) and zero staff writers.

Instead, we work with colleagues across The Straits Times newsroom to incubate commentary ideas to fruition.

We collaborate with many external partners too. Most of my time is spent working collaboratively with contributors from Singapore and around the world.

When the US presidential election trickled in last November and it was clear Mr Donald Trump was heading for a shock victory, I was on my email within minutes, reaching out to academics around the world who could make sense of this for our readers.

 

When the US navy ship USS John S. McCain collided with an oil tanker in the Malacca Straits, I contacted a US navy commander who wrote a useful piece on how the navy might deal with such incidents. I don't think anyone in my organisation could have offered that perspective.

There are many news developments each day. The range of expertise required to give an insightful perspective on each of them is so broad, no news organisation will be able to afford to have so many experts on their payroll. In any case, they would not remain experts in their field - say, augmented reality - for long if they remained full-time writers!

As technology and geopolitical changes advance at supersonic speeds, news organisations too have to adapt.

In the ST, one way we have done so is to tap on partnerships and collaborations to broaden and deepen our content. In addition to working with individual contributors, we are also part of the Asia News Network, a network of over 20 newspapers in the region that has content sharing agreements.

Every business organisation these days has to work collaboratively with partners.

The two types of externalising I mentioned earlier both have to do with B2B - business to business - externalising. Whether outsourcing to an external company, or engaging a freelancer for a specific service, it's essentially one business externalising its functions to another business.

The next wave of externalising is B2C - from business to consumer.

You see this happening already. DIY payment kiosks, self-ordering menus using iPads, creating chatbots to help customers trouble-shoot their own devices, are all examples of B2C costs externalising - when a business transfers its costs to consumers.

Consumers don't seem to mind too much. Witness the alacrity with which we took to online banking or iPad menu ordering.

Other examples of B2C externalising are citizen journalism, peer reviews on TripAdvisor, Airbnb, and any number of product comparison websites that cleverly make use of this useful B2C externalising tool.

To tap such crowdsourced content productively, you would first have to create a platform that makes it easy for people to upload their content, share it, and rate it.

NURTURE YOUR COMPETITORS

Large digital companies understand the need to externalise. The smart ones don't just outsource operations or work with partners. They work with competitors to turn them into collaborators. Some even nurture competitors.



Ms Jean Liu, President of Didi Chuxing, speaks during the Milken Institute Global Conference in Beverly Hills, California, the United States, on May 1, 2017. PHOTO: REUTERS

Chinese ride-sharing giant Didi Chuxing is headed by Ms Jean Liu, whose father is the founder of Lenovo. She studied in Beijing and Harvard, then spent 12 years at Goldman Sachs in Hong Kong before she was recruited to join Didi Dache. When she entered the market, Didi Dache was head-to-head with rival Kuaidi Dache. She managed to merge the two into one consolidated whole - just in time for when Uber entered the China market.

Competing with Uber was bruising, with both reportedly spending US $1 billion (S$1.4 billion) each to subsidise rides to gain market share. Uber finally bowed out of China. It sold its China operations in return for a 20 per cent stake in Didi. The deal was presented as a win-win option - essentially to save face for Uber.

Ms Liu also mentors competitors.

A report on the Quartz online news portal noted: "Liu's egalitarian approach isn't limited to Uber. She mentors, rather than tries to crush, her competitors. Take her approach towards Grab, a dominant force in ride-sharing in South-east Asia.

"Grab's founder Anthony Tan has praised the sense of camaraderie and advice he receives from Liu.

"'There's this sense of brotherhood, that we're in this battle together, let's show them the power of Asia. It's so inspirational,' he told a conference in Kuala Lumpur."

In this world of ongoing digital disruption, smart business leaders know they have to externalise, cooperate and collaborate.

Put aside the instinct to compete and kill your domestic competitor. Team up with him and get bigger together.

The alternative is to have a huge digital company enter your shores and gobble up your business.