Here’s a word of advice: head for the exit if you hear an executive utter the phrase “because that’s how we’ve always done it.”

 

The watchwords for any organization seeking to survive — let alone thrive — in the Digital Age have to be adapt, evolve, innovate, disrupt.

 

It’s not enough to direct innovative activity solely at competitors or markets; to stay relevant, companies must also have enough self-awareness and humility to know when to evolve and adapt internally.

 

One key to this is to be laser-focused on the customer rather than profit, because taking care of the former goes a long way to generating the latter.

 

It’s a philosophical and operational shift that Industria¬l Age companies find difficult, which is one reason why so many are prone to disruption. Executives who rose through the ranks after earning an MBA at one of the major business schools tend to be disciples of 20th-century thinking that emphasizes maximizing profit (to be split among shareholders and executives) by building competitive moats, creating barriers to entry and vigilantly protecting access to key information.

 

But in the Digital Age, where information is freely available and travels at near-instant velocity, such protectionist strategies can be vulnerabilities rather than assets. And as we enter the Age of Artificial Intelligence, where innovators can tap virtually limitless amounts of low-cost computing capacity to analyze their mountains of data, such old-school thinking and behaviors begin to look like existential threats.

 

In short, as data transparency increases and the ability to turn information into monetizable products and services grows exponentially, it becomes more challenging for companies to rely on moats and other defensive barriers to protect themselves from disruption.

 

Rather than hiding behind these shields, Information Age companies play offense, making it their mission to create so much value for everyone in their ecosystem that no one wants to switch supplier.

 

On its recent earnings call, Taiwan Semiconductor Manufacturing Corp. Chief Executive Officer C.C. Wei was asked why the company doesn’t exploit its technological supremacy and market-leading position in contract chip fabrication to aggressively raise prices.

 

Wei’s response was a textbook example of how a digital era company thinks and behaves. It also epitomizes what we as investors look for in non-zero-sum businesses — those that partner with all their stakeholders to create more value than they take.

 

“We work with our customers closely and we want to help them to be successful while we get a proper return,” Wei told participants on the call. “And looking ahead, we continue our practice, try our best to hear our customers, to grow, and we want to get the proper return.”

 

Wei’s comments also tip a hat to the importance of playing the long game. While thinking beyond five years can mean short-term sacrifices, significant, ongoing, long-term investments are essential to foster innovation and non-zero value creation.

 

But Digital Age companies don’t think exclusively about their customers.

 

Rather than trying to force concessions and ever-lower prices from suppliers, they prioritize being a good partner. By nurturing a mindset that focuses on executing brilliantly, they create so much long-term value for their customers, vendors, employees, investors and for the planet itself that it becomes harder for a competitor to come in and disrupt the game.

 

This doesn’t happen without high-quality management teams and decentralized decision-making structures. Creating psychologically safe cultures helps to empower employees to think long term and, critically, have the courage to try and fail without fear of retribution.

 

Thoughtful, intentional management can be the defining factor in a company’s success or failure. Inspirational leaders adapt and evolve their business models and back innovations that foster controlled, quality growth. Short-sighted executives can be rigid in their thinking and chase explosive growth that soon fizzles and dies. Just as truly great management teams don’t tend to waste their time on bad businesses, nor should investors.

 

But even the best-run companies aren’t immune to disruption. Some innovative newcomers will provide the same service or product for a lower price; others will offer higher-quality options. When you combine a very high-quality product or service with a low price, you reach the zenith of network effects and non-zero sumness. This is the type of disruption that Digital Age companies excel at — creating customer loyalty by providing the best quality for the lowest price.

 

So while structural barriers to entry and traditional competitive moats worked in a world where information was heavily policed and protected, these frictions disappear in the Digital Age, making such defensive practices an anachronism.

 

Innovators are the equity value creators of tomorrow — which, in this instance, probably means several decades — and investors need to focus on forward-thinking, adaptable, disruptive companies that understand this new operational paradigm.

 

Brad Slingerlend is co-founder and an investor at Denver-based NZS Capital, which manages more than $1 billion in assets and focuses on innovative companies that create more value for all their constituents – including investors, employees, vendors, the communities they operate in and the planet as a whole – than they take for themselves. NZS Capital has a strategic partnership with Jupiter Asset Management.

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