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We human beings are very adaptable and resilient especially when it comes to the use of technology. Think back to the introduction of new technologies such as telephony or the personal computer. To add to the picture, technology adoption rates are also getting faster. A recent Flurry Report suggests that adoption rates for smartphones are 10x the adoption rates for PCs in the 1980s, and 3x faster than the recent adoption of social media. Flexibility, ease of use and perceived real benefits are major drivers in this explosion of speed for technology adoption.
Enterprises have also taken to the technology revolution, and we see this in day-to-day activity. Our lives have changed dramatically with features like internet and mobile banking, online shopping and so on. Many enterprises have embraced the technology revolution in so many ways, and provided consumers with much greater utility and convenience.
The report card for enterprises
Yet on closer examination, the report card for enterprises in both government and private sector is not as rosy as it may seem, with digital transformation still needing a long way to go. Many enterprises are still organized in vertical towers that don’t easily communicate yet alone collaborate with each other. Their technology platforms are geared to support this orientation and are inflexible to change and response to the market. Many cultures are still built around traditional organization structures and environment, and capabilities are still shaped by this thinking. These are not just impediments to doing things better and smarter, but are also compromising value that can be added to customers, citizens, employees and shareholders.
Consider the struggle that some retailers have in re-aligning their strategies to be focused around omni-channel than simply multi-channel. Financial services enterprises are still challenged to fully gear themselves both organisationally and culturally to the concept of the customer segment of one. Many service organisations still have a so-called “online” division that is separate from the rest of the enterprise. In many instances, we have a long way to go to embrace the mantra that digital business is the business.
The gap between industry leaders and laggards in digital transformation will grow rapidly over the next decade with major implications for shareholder value. This is a key finding from the recent compelling report from IBM entitled “Reinventing Australian enterprises for the digital economy”.
So what can enterprises do? There are three things that enterprises need to consider differently.
1. Treat digital as the business not just a part of the business
Digital transformation is about the entire enterprise embracing all elements of the value chain – customers, employees, suppliers and stakeholders. It is not about an online division that might be considered a somewhat quaint part of the enterprise. Digital needs to underpin all aspects of the enterprise, and there should be a mindset that embeds this thinking in everything the enterprise does.
2. Frame a different starting point
Typically, there is a natural inclination for enterprises to start with what they have today and apply a “projection” mentality. This is understandable given the information that they have available. But if organisations started with a point in the future (say ten years out) and work backwards, they will see their challenges and opportunities in digital transformation in a totally different frame.
3. Embolden the narrative
In one of my recent blogs, I spoke of the need to create a digital transformation narrative. This is not a plan, but rather a view of what digital transformation would look like for an enterprise in 10-15 years time. This needs to challenge the thinking of the enterprise to make a real difference in this space, and drive a clear departure from incremental thinking.
When the motorcar was new, people watched with amazement initially and many could only yearn to own one. But after several decades, the car became the norm and most people could either own a car or have access to one. Likewise, when the mobile phone first appeared in the late 1980s, people looked on with amazement, but within a 20-year period, the mobile phone became an essential accessory for a big percentage of the world’s population.
Next wave of change
We are now at the cusp of a similar quantum change, namely the digital transformation of enterprises in both private sector and government. Some of this has been emerging over the past several years, but recent developments have now placed this opportunity front and centre for enterprises. These include the explosive growth of mobile devices, the rise of big data and the rapidly emerging focus of analytics for radically improved decision making. Many enterprises are still looking on with interest, but to stay competitive or to create a sustainable model, enterprises need to act now and elevate digital transformation to a new level of urgency.
Technology itself has made extraordinary strides in the past five years and technology change over the next 10-15 years will have a profound impact for enterprises at many levels. A McKinsey report earlier this year called “Disruptive technologies: Advances that will transform life, business, and the global economy” highlights some of the developments we can expect. By 2025, the report anticipates that some 2-3 billion more people will have access to the internet, and the automation of knowledge work will drive additional economic value of over $5 trillion. These stunning macro trends will continue to shape and re-shape the global economy
But how will this impact various industries and enterprises across the economy at a more local level? In Australia, a report has just been released by IBM / NIEIR titled “Reinventing Australian Enterprises for the Digital Economy”. Through economic modeling to 2025, this excellent piece of analysis highlights the impact of digital transformation across the Australian economy, and across seven industry segments in particular.
It shows quite dramatically the difference between enterprises that invest and drive a strong digital transformation agenda versus those in the same industry who stand back from such investment, and take a more measured approach over the next 12 years or so. It highlights that in four industries alone the total market capitalisation gap between these “leaders” and “laggards” is some $270 billion to 2025.
The analysis of “leaders” and “laggards” in this report provides two underlying messages that are critical to enterprises going forward. One is that if enterprises don’t invest in digital transformation now, they will significantly fall behind competitors in the next 12-year period to 2025. But more importantly is the message that if enterprises don’t invest now, it may be difficult if not impossible to catch-up with industry leaders in this space even if they were determined to do so. In other words, the compounding lag with industry leaders may cause long-term damage or possible demise of the lagging enterprise.
CEOs have thought about the digital economy in some form, and they will rightly ask questions of their C-suite executives around the plan to address the digital economy, the timescale required and the best investment profile going forward.
But are these the right questions? Are these sufficient to shape different behaviours around digital transformation, and to inject greater urgency and focus into the debate and subsequent actions for the enterprise? CEOs will need to engage actively in the digital transformation dialogue in their enterprise, and drive three questions in particular:
1. What is the digital transformation narrative for the enterprise?
The narrative is not a plan, but rather an expression of the look and shape of the enterprise in say 2025 underpinned by digital transformation. It would typically be no more than say two pages embracing language and sentiment such as “imagine our enterprise if we reduced our customer churn by 50%” or “…imagine our enterprise if we moved from 5th position in market share to 1st position”. This is about stretching the thinking and taking the conversation to a totally new level, and challenging the existing organisation capabilities. It is envisioning how digital transformation can take the enterprise to a new level of value to customers, employees and stakeholders.
2. What is the cost of not doing digital transformation?
This is at the heart of the competitive landscape. Opportunities lost can be not only costly in a direct sense, but also create a challenge in terms of catching up with competition. How are competitors setup to undertake digital transformation that can change the way the industry competes? It only needs one competitor to change the way business is done, such as Amazon setting up and operating a model that ultimately created terminal problems for groups like Borders.
3. What should the enterprise stop doing?
Enterprises find plenty of initiatives and projects to undertake. Even in difficult economic times, there is usually a long list of initiatives on the table competing for funds, resources and management attention. But how do they line-up against the digital transformation narrative? How do they add real value for customers, employees and stakeholders in the future? If the answer is they don’t add value or it is marginal, they should be stopped. Deciding what not to do is an important management capability so the focus can be on the items that will drive value in line with the digital transformation narrative.
The value around digital transformation needs to be clearly articulated. Enterprises will need to invest, but it is worth heeding a comment from Warren Buffett, namely “Price is what you pay – but value is what you get.”