Digital transformation touches the entire enterprise, with the customer as centre of gravity and with data and technology as hinge points. As a result, such a transformation requires both changes in culture and corporate attitudes.
Many companies have adopted a defensive stance based on protecting their market position. However, future success requires a paradigm shift, from a focus on protectionism and efficiency savings towards market capture and growth. Much ink has dried on why companies tend towards the former: we believe the root cause is insufficient speed of change in the business environment.
To accelerate digital transformation and benefit from the speed of execution it brings, we have identified six indispensable, yet achievable steps:
Existing enterprises are poorly adapted to digital competition for two reasons: denial of reality and excessive confidence. Organisations are sceptical about new business models that they believe diverge from their core operations. The c of the organisation in the value chain is also frequently overestimated, with only brief consideration of where future competition may appear.
A simple change is to reposition strategic research as a key business process. The organisation’s strategic direction should be based on a clear, well-analysed and articulated future view. This analysis should focus on realigning the business model to evolving market needs and growing technological capabilities. Examples: explore how to achieve growth in a disintermediating market; focus on direct husbandry of the client base to yield stronger customer insight.
In an evolving value chain with numerous new players arriving all the time, a partnering strategy that enables value sharing with start-ups offers a promising solution. In addition, agile development and the removal of boundaries between sectors, digital skills and needs all drive an ecosystem model.
Multiple partnership models exit, each requiring a level of investment based on the enterprise’s level of maturity in collaborative innovation.
The digital revolution encourages organisations to de-prioritise lower value activities and focus resources on transformation. Rather than keep a broad set of projects going, it might be better to acquire innovative projects that are still at an embryonic state. Walmart is a master of the art, for example, with its purchase of social retail analytics start-up, Kosmix.
In addition, the need for short-term profitability should be seen as counter to the goal of disrupting the business. A strength of digital enterprises is how they can invest heavily in projects without having to rely on their profitability - sometimes they’re very successful (for example, Amazon Marketplace) and sometimes less so (Google+). The objective is to focus on growth, not on chasing margin.
The economic models of the digital era are more disruptive than evolutionary, and are very different to those practiced by traditional enterprises. This implies that digital transformation is not the sum of a few client-oriented projects but something that touches every aspect of the business. It requires rethinking the activities of the business across three axes:
Digital-native organisations can change their modus operandi in flight, in order to improve performance and deliver better customer service. The challenge for traditional organisations is to deliver comparable flexibility.
Collation, analysis and monetisation of data should be at the heart of the digital transformation, removing silos of information and processes, improving product and service quality, and indeed, acting as a source of new revenues. With relatively modest investment, digital enables organisations to go further in how well they understand client needs and target their marketing and sales activities.
Monetisation of data starts when an organisation opens its core assets to third parties. Again, presenting this ‘raw’ data requires little investment. The organisation can offer analysis and modelling tools to stakeholders in the value chain, at which point the organisation can leave behind its traditional business model and focus on data-oriented offers and services.
The ultimate key to digital transformation is changing the spirit of the business so that everyone thinks ‘digital first’. This is only possible if the management impetus is strong: in years to come, digital should become a board-level topic reaching across the organisation. At its current maturity, however, recruitment of a Chief Digital Officer, reporting to the board, enables digital to encompass the organisation chart and drive transformation forward.
To accelerate this change and catalyse innovation, organisations increasingly depend on the purchase of start-ups so as to acquire new talents and skills. Beside dealing with competition or gaining innovative technology, the acquisition brings new blood into the business and with it an agile culture, potentially at a senior level.
For the first time in history, the youngest people in the organisation have more intimate knowledge and understanding of the revolution taking place than their seniors. This leads to a fundamental question that our largest organisations need to address: how to attract this new generation, for whom the drivers and ambitions have radically changed? And how to make them loyal and responsible enough to gain sufficient maturity and perspective?
Answering these questions goes to the heart of becoming the organisation of tomorrow, which can simultaneously take risks and experiment, while delivering the digital-first organisation of tomorrow.