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BLOGDigital Transformation: Toolmaker Strategy

by Randall CraigFiled in: Make It Happen Tipsheet, Blog, Digital Strategy

What do flour, train engines, and payment gateways have in common? (And no, the answer isn’t that you can use your credit card to pay for a sandwich in the galley on a train trip.)

Digital Transformation: Toolmaker Strategy

Here are three clues:

  1. As bread becomes more popular, more flour gets used.
  2. As more people travel by train, more train engines are required.
  3. As more transactions happen online, credit card payment gateways process even higher transaction volumes.

Similarly, one transformation pathway is to become a tool provider for other businesses downstream from yours. A great example is Stripe, which provides simple tools for developers to embed credit card processing into their applications. And yes, there are many other tech “tools” that allow developers to be more efficient — both open source and commercial.

When considering whether the toolmaker approach is a potentially relevant strategy, some homework is necessary — specifically, a review of who uses your product or service, and how.

Many organizations have developed a holistic approach to their products: rather than just a “product”, they seek to differentiate (and drive value) by wrapping the product with process, service, and support. A toolmaker strategy requires you to disaggregate your product, and ask whether any specific component of it has value downstream. Even if downstream might mean supplying a competitor. Or if it requires a change in how your organization defines itself.

An interesting example can be found in the fast-food delivery space: Is UberEats or DoorDash a fast-food delivery company, or a logistics company specializing in one-hour deliveries… of anything? A toolmaker strategy would be to allow others (supermarkets, industrial parts wholesalers, medical testing labs, etc) to plug in the delivery “tool”, rather than build their own.

Another example can be found in the business directory market. At one time, these directories were sold to sales organizations to help in their prospecting. But a toolmaker strategy might suggest other angles: Could the directory plug-in “tool” be hooked directly into a CRM system? Or, could the verified names/addresses be hooked into procure-to-pay systems to ensure accurate purchase orders and payments?

This week’s action plan:

What part of your product, service, or process might be “toolified”? This week, consider what can make the list, along with whether there is a market for it or not.

Tool user insight: The flip side of a toolmaker strategy is one of dependency. Review all of the “tools” that your organization uses and pays for. While the decision to use a tool always makes sense when first justified, as business needs change, so too does the need for certain tools. And as a result, many organizations continue to pay for tools, even when there is diminishing (or zero) value in them.

Related posts: Value Chain: Upstream-Downstream Analysis, Digital Transformation Strategy: Debundling

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