How To Lead In The Age Of Digital Disruption

Transcription

1 How To Lead In The Age Of Digital Disruption Part 1: Why start on a digital change journey? Written by Malcolm Alder How to lead in the age of digital disruption 1

2 Digital disruption is economy-wide, albeit at different speeds How to lead in the age of digital disruption 1

3 There s growing evidence of corporate outperformance by digital leaders How to lead in the age of digital disruption 2

4 Customers now hold the power and they won t let go How to lead in the age of digital disruption 3

5 The single most frequent failure in the history of forecasting has been grossly under-estimating the impact of technologies. Peter Schwartz, The Art of the Long View, 1991 Peter Schwartz is a futurist who was a pioneer of scenario planning at Royal Dutch Shell in the 1980s. If his observation was true 24 years ago, it is even more so today. Think back on your own life just 10 years ago. It was well after the Sydney Olympics and 9/11 but before smartphones, ipads, pervasive online shopping, GPS in cars, Fitbits, drones and Netflix. Google, Facebook, ebay and Amazon were early growth stocks and Twitter, Instagram, Snapchat et al were not yet conceived. Against that backdrop and in the light of Schwartz s observation, now try to project forward another 10 years. The mind boggles. The developments listed above are deliberately consumer-centric. Consumer technology and adaptation to it, in the great majority of cases, now moves far more quickly than do companies or the public sector. It certainly moves faster than legislation and regulatory protection. How to lead in the age of digital disruption 4

6 Economic power has shifted in to the hands of the people and it s not moving back. Today s consumers expect to be able to interact anytime, anywhere through any device not just with their favourite entertainment and consumer brands but also with Government, utility providers, public transport etc. Nor is this confined just to individual. Small traders expect real-time digital access to their suppliers. Large companies expect to place standard orders through efficient, reliable e-commerce platforms. Staff expect to share knowledge and interact with their colleagues regardless of location and with no time delay. When these sorts of expectations are made reality, organisations become genuinely customer-centric, more efficient and have highly engaged employees. It s a compelling mandate for change. Of course, there are plenty of negative reasons to change. Oft-quoted examples such as Kodak, Nokia, Blockbuster Video and Borders Books, are all cases where company leadership failed to transition their business model sufficiently quickly in the face of impending changes in the competitive environment caused by digital technology. Today, many industry sectors can be seen morphing in front of us eg. taxis, newspapers, retail and increasingly, elements of financial services. Indeed, there is no part of the economy that is immune to change driven by ever greater and more effective use of technology. However, if you re not fully convinced that your industry sector is subject to the same trends and drivers of change as the demonstrably disrupted parts of the economy, consider the diagram on the next page. How to lead in the age of digital disruption 5

7 1 THREAT OF NEW ENTRANTS Figure 1. Porter s 5 Forces of Competition overlaid with Digital Technology impacts * Economies of scale * Product differentiation * Capital requirements * Switching costs * Access to distribution channels IP or other specific advantages Governent policy/regulation 5 RIVALRY AMONG EXISTING COMPETITORS THREAT OF NEW ENTRANTS Undifferentiated products * Low switching costs * Threat of backward integration * Buyer has full information 2 3 BARGAINING POWER OF SUPPLIERS * Relative importance of input Few in number No substitutes High switching costs * Threat of forward integration Government policy / regulation THREAT OF SUBSTITUTE PRODUCTS AND SERVICES * Relative price-performance * Profound product reconfiguration eg. Labour to technology 4 * Forces most impacted by digital technology Source: Michael E. Porter, 1979, modified by M.Alder Professor Michael Porter s famous analytical model has stood the test of time with strategists for more than 35 years. The minor variant shown above does no more than give a personal view of the extent to which digital technology now potentially changes the historic drivers of competitive equilibrium in markets. For example, considering the upper left quadrant alone in relation to new entrants, all five of the highlighted bullets shown have changed to such an extent that they have enabled Uber and AirBnB to disrupt taxis and accommodation respectively (there, I ve mentioned them!). How to lead in the age of digital disruption 6

8 Arguably, the force that has changed the most over the last two decades taken across all industries, is the extent to which Buyer has full information (shown at the top right of Figure 1) has been totally changed by digital technology. If you re not already on a digital change journey, take some time out to study your industry and then secondly, your business relative to your competitors. If you re not already on a digital change journey, take some time out to study your industry and then secondly, your business relative to your competitors, using Porter s framework. You need to be harshly critical. If you re not good at challenging the status quo, bring in someone totally independent with no vested interest in any outcome to skim a few pebbles across your organisation s pond of historic assumptions. From a positive perspective, there s an increasing body of research to show that those organisations across all sectors that have embraced a digital journey, are showing demonstrably improved performance relative to their peers. How to lead in the age of digital disruption 7

9 Profitability Figure 2. Profitability relative to peers by digital maturity of companies Fashionistas Masters Digital Capability -11% +26% -24% +9% Beginners Conservatives Basket of Indicators: EBIT margin Net profit margin Leadership Capability Source: Leading Digital, Capgemini Consulting The graph above shows extensive global research across multiple industries sectors published by Capgemini Consulting. It shows that those companies identified as digital masters demonstrate significant profitability outperformance. Perhaps even more interestingly, those businesses defined as conservatives also clearly outperform fashionistas. The former, whilst relatively immature digitally, take a holistic approach with good governance practice and clear strategic oversight, whereas the latter may be very strong on micro activity eg. social media and digital marketing, but it is typically unstructured, sporadic and operates solely within business silos. How to lead in the age of digital disruption 8

10 As a very recent example of strong profit performance built on digital investment, Air New Zealand provides a powerful reference case. Reporting a record annual result for 2015 chief executive Christopher Luxon said the airline had spent 18 months focusing on digital transformation. As a result, operating revenue increased by 5.9%, net profit before tax was up 32% and the full year ordinary dividend up 60%. Looking ahead, the airline said, it had set itself the objective to unleash digital transformation for customers, sales channels and operations. As part of this direction, the CIO has been replaced by a Chief Digital Officer. Competitors and many large organisations in other industries will no doubt track Air New Zealand s progress with great interest. We certainly will. If you are yet to start your digital journey and know it s a path you need to go down but are struggling with how to start, the next in this series on digital leadership will provide some practical advice to help you get moving. About the Author: Malcolm Alder View profile on Expert360 Malcolm is a Partner in Orchestrate, a strategy consulting business with a primary focus on helping organisations set and navigate their course through the rapidly maturing digital economy. He was formerly Partner for Digital Economy at KPMG for many years. Past clients include; Telstra, Macquarie, Woolworths, Optus, Crown, Federal Government, NBN, Australia Post, Alcatel-Lucent, State Governments of NSW, Victoria, South Australia, Tasmania. Malcolm has more than 30 years experience and has been a strategy consultant since the early 1990s. He is a qualified Chartered Accountant. How to lead in the age of digital disruption 9

11 Expert360 is an online platform that connects businesses with a global network of top independent consultants for project based work. Access over 4,500 independent consultants and from top consulting and financial firms available to work onsite or remotely. expert360.com Level 1, Bridge Street Sydney, NSW 2000, Australia info@expert360.com (AUS) (USA) How to lead in the age of digital disruption 10