Are you making the most of your company’s ‘software layer’?

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McKinsey Quarterly

Aaron Shapiro

As consumers increasingly interact digitally with companies, competitive advantage lies in understanding the range and complexity of those touch points.

The past 15 years have created a very different business environment, which has empowered consumers, commoditized many products and services, and dramatically compressed margins. Not surprisingly, these changes have forced businesses to operate differently. But exactly what kinds of companies have successfully transitioned to the digital age? How have they regained and retained competitive advantage at a time when location is no longer a barrier to transactions, brands alone aren’t a proxy for quality, and pricing is increasingly transparent?

Of course, the answers to these weighty questions vary by industry and company. But I want to advance an idea that can help just about all executives concentrate their thinking. Whether you know it or not, your company operates as two businesses: a core that sells products and services (as it always has) and what I call the software layer. This permeable layer comprises the technologies through which customers interact with your company, and vice versa.