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How to lead in tHe age of digital disruption | 1EXPERT360.COM

How To Lead In The Age Of Digital Disruptionpart 1: why start on a digital change journey?written by Malcolm alder

How to lead in tHe age of digital disruption | 1

Digital disruption is economy-wide, albeit at different speeds



There’s growing evidence of corporate outperformance by digital leaders



Customers now hold the power and they won’t let go



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.

“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


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.


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!).

* Forces most impacted by digital technologySource: Michael E. Porter, 1979, modified by M.Alder

Figure 1. Porter’s 5 Forces

of Competition overlaid

with Digital Technology

impacts

RIVALRY AMONG EXISTING

COMPETITORS

* Economies of scale

* Product differentiation

* Capital requirements

* Switching costs

* Access to distribution channels

IP or other specific advantages

Governent policy/regulation

Undifferentiated products

* Low switching costs

* Threat of backward integration

* Buyer has full information

* Relative importance of input

Few in number

No substitutes

High switching costs

* Threat of forward integration

Government policy / regulation

* Relative price-performance

* Profound product reconfiguration

eg. Labour to technology

1

2

THREAT OF NEW ENTRANTS

THREAT OF NEW ENTRANTS

3

5

4

BARGAINING POWEROF SUPPLIERS

THREAT OF SUBSTITUTE PRODUCTS AND SERVICES


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,

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.

“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.”


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.

Figure 2. Profitability

relative to peers by digital

maturity of companies

Basket of Indicators:• EBIT margin• Net profit margin

Fashionistas Masters

Beginners Conservatives

Profitability

Dig

ital

Cap

abili

ty

Leadership Capability

-11% +26%

-24% +9%

Source: Leading Digital, Capgemini Consulting


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 AlderView 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.


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