Leadership

Going Digital to the Core

Some business leaders fear their company is so far behind it may never be able to catch-up and should not try. Instead they wonder if they could skip a digital development level and leapfrog both traditional and born-digital competitors. As an abstract strategy idea, it is hopeful and attractive – but how would it work in practice and what might it look like?

First, let’s look at the digital laggard problem that some CEOs are facing. At the start of this century everyone was talking about e-business: taking the company online to sell, to market and perhaps to disintermediate. But once the dot.com crash came, the fear-based energy that had propelled rather premature and uncomfortable corporate change, dissipated. E-business initiatives were sometimes shutdown; more often placed on a go-slow. Starved of funds and talent, obstructed by the politics of internal change resistance and a lack of real drive from the top, progress was at best – pedestrian.

By the mid 2000s CEOs and boards had switched focus to other ‘easier’ ways of finding business growth. For example they milked advanced economy consumer markets that were awash with credit. They took their companies to the BRICS countries where double digit economic growth rates helped all corporate boats to rise together.

Even when social media and smartphones arrived to great fanfare circa 2007, CEOs mostly ignored the growing digital trend in favour of more immediate and obvious, growth producing business strategies. Then inevitably the growth tear ended – with the financial crisis and the great recession. So for a decade, between around 2003 and 2013, many business leaders did relatively little to invest and build up a strategic internet enabled business model shifts and internal capabilities.

Now, in 2016, surrounded by a wall of market noise about digital business, concerns about disruption and pressure for action from the board of directors, the CEO faces a dilemma. He, she, or more likely his or her predecessors simply didn’t do enough to bring the company up to bench strength in the first waves of internet enabled change. At the time it seemed wise to hold back and wait for consumers and more laggardly B2B customers to mature and really demand digital interactions, services and experiences in volume.

The trouble is, now that demand has arrived, it often comes with exponential growth both in volumes and in expectations. Companies that under-invested for so long, find it hard to catch up. It is not just the technology investment – but the key talent recruitment, organisation designs, culture changes, market relationships and all the other things that have to be done.

Even acquiring an existing online business might not fill the strategy gap fast enough. The CEO can see that a catch-up transformation, no matter how well executed, might take three or more years. But the idea target operating model will have moved on by then – which creates the risk that the digital business horizon will outpace the rate of company transformation. So what is to be done?

Unlearn

A leapfrog strategy maneuver is a possibility. Perhaps the business should skip the old e-business ideas altogether and move directly to the next stage of evolution. Of course there will still be a huge amount of change work to do, but in some areas there may be less to ‘unlearn’. Here are some example ideas.

  • A retail bank that has only a basic, stale PC web presence and no transactional mobile app could move directly to a ‘reinvented banking’ model – exploiting ideas such as p2p lending, AI robo-advice for savings and investments and social media data insights for small business advice.
  • A wholesaler or CPG distribution intermediary, seeing that producers could use e-commerce to sell directly – could switch itself into an Uber-style sharing economy platform to help customers access fragmented ‘wasted’ stock – for example the many small amounts of paint in consumer sheds and garages, or the stationary supplies in office cabinets everywhere.
  • A fast-fashion clothing retailer might skip ecommerce and move directly to a clothes-as-a-service model. Some fashionable young people often only wear items once because they are so scrutinized by shared images posted on social media. So, what if they subscribed to a fashion supply model that was the modern equivalent of suit hire? They could regularly borrow and return clothes that were better made and reused a few times. This would replace today’s reality of of badly made clothes that go almost straight to landfill. The whole model would be mobile app based of course.
  • A fast moving consumer goods maker might create an IoT enabled version of their product with cloud based data enabled value adding services. Examples like Babolat’s “play” connected tennis racquet or Nestle’s “BabyNes” baby formula system come to mind.
  • A contract manufacturer might move directly to a 3D print service where short runs of specialised and uniquely tailored parts are made dynamically in response to online orders – perhaps in reaction to demand that has become very volatile and needs to be ‘re-onshored’.

By Mark Raskino, Gartner VP and Fellow. This article is republished courtesy of Gartner.