Harnessing digital disruption
How to keep your balance on board the digital wave
- Many organisations understand the opportunities of digital yet find integrating process challenging
- 'Information communications telecommunications and media' are among the most disrupted sectors
- Corporate leaders must heed the opportunities rather than fear the change if they wish to prosper
By Steve Hallam.
When Deloitte released its report Digital Disruption, Short Fuse, Big Bang?, we did not anticipate the extent to which its analysis would reverberate globally.
In it, we warned that two thirds of the Australian economy, both public and private, would experience significant digital disruption within the next five years. The stark reality is that it has taken more like five months for 65% of the Australian economy – including Deloitte’s own professional services sector – to realise we are in the crosshairs of digital disruption.
Many organisations, large and small, both public and private, understand the opportunities of digital yet find the process of integrating platforms, people, and planning a constant challenge.
Short Fuse, Big Bang predictions
In the recently released report Harnessing the “Bang”, Stories from the Digital Frontline, Deloitte highlights “information communications telecommunications and media” as among the most disrupted sectors in the disruption map. In this sector, digital continues to pressure traditional print distribution, and business models are scrambling to respond.
Over the past 18 months international newspapers have sent their digital arms into Australia to further disrupt Fairfax and News Corp. Telstra has divested assets such as its print arm Sensis, and upped its investment to 98% in the video web streaming company Ooyala, in order to realign its portfolio to focus on a range of different digital investments aligned with its digital strategy.
The retail sector has accepted that, although perhaps only 3-5% of domestic sales are online, a significant slice of Australian consumers purchase internationally online and at least 80% of domestic apparel sales are influenced by online research.
In the face of this increased competition with international suppliers, Australia’s retail incumbents – the grand old department store dames of Australia’s fashion Myers and David Jones – have moved on from their proposed merger. The board of David Jones is now recommending shareholders vote in favour of a takeover offer by South African retailer Woolworths.
In professional services (predicted by Short Fuse, Big Bang report to suffer a 40% impact within two-and-a-half years) Deloitte was a first mover, absorbing Australia’s largest web developer Eclipse into its business in the early 2000s – now its fully-fledged digital business, Deloitte Digital.
New Zealand-based cloud accounting service provider Xero – has rocketed up the share trading indices.
Also in the sector, a newcomer – the New Zealand-based cloud accounting service provider Xero – has rocketed up the share trading indices. Although its US$2.5b market capitalisation was achieved by a company yet to make a profit, funds that track the Global Index now include Xero in their portfolios to benchmark performance.
Disruption can sneak up unexpectedly. In your industry, how will you know that disruption is coming before it’s too late? Will you know the global competitor that disrupts existing industry and country boundaries?
Realistically, digital creates more opportunities than dangers. The choices leaders make will be crucial as to whether their country takes a position of leadership at the forefront of this change.
Our future prosperity depends on visionary leadership that enables Australia and New Zealand’s entrepreneurial spirit, supports greater agility in decision making and invests in the talent required to support the digital economy.
Creating new business models
As a nation, we need to consider whether we are simply building better ways of delivering the same products and services, or creating truly new and different business models. Companies that miss this distinction are at risk of missing out or even becoming irrelevant in the digital economy.
Organisations that continue to make the most of their current business model, but also invest in new capabilities and future business models, will thrive as both the local and global economies become more digital.
Research shows that customers will reward those that invest in line with their needs.
Those that are not afraid to invest ahead of consensus may well be rewarded with surprise successes, while their more cautious peers may well be left behind as they struggle with a high, inflexible cost base that is no longer supported by a leaner, faster economy.
Research shows that customers will reward those that invest in line with their needs and expectations, and punish those that rest on past laurels.
Corporate leaders must heed the opportunities rather than fear the change if they wish to see a prosperous future.
Steve Hallam is a Partner at Deloitte Digital.
This article was first published in the Oct 2014 issue of Acuity magazine.
How business leaders should respond to harness this disruption
Invest in new capabilities not old business models
For most organisations, the majority of capital spending is funnelled into existing business models. Management is comfortable with the lower risk and more immediate payback of such investment. Increasingly, though, the shift from physical to digital assets, such as customer and operational data, means “lateral” capabilities become more important.
These tend to be industry agnostic and include:
real-time pricing and risk management
personalised offer creation
identifying customer needs proactively
multi-channel sales and service management
application program interface-based technology platforms
online community management
Treasure your customer
Customer relationships are the lifeblood of any organisation. But in the old economy where switching and search costs for customers are relatively high, this can be forgotten.
Incumbents are often tempted to improve profits the lazy way by adding extra fees and increasing prices without enhancing the value they add for their customers.
Become fast by becoming agile
The pace of the digital economy can be staggering. It took Facebook only nine months to reach one million users and the popular “Draw Something” app only nine days.
Unfortunately, traditional corporate processes and tools are not designed for frequent, rapid decision making. Most investment decision tools were designed in the industrial age.
As an example, Net Present Value and other risk-based return evaluation frameworks penalise innovation and longer-term investments but rarely consider the opportunity cost of not acting and leaving a new field to a competitor.
Annual planning processes focused primarily on performance over the financial year and against a predetermined budget provide little room to react to new insight and new competitors throughout the year.
Know your true competitor
All too often incumbents forget to look beyond their traditional boundaries and so stand to miss the most important competition of all, that of substitutes.
Many times substitutes are free or much lower cost to customers than traditional products, but they tend to be written off by incumbents as “unsustainable”.
In the networked digital economy, past competitors may also become future partners and/or customers, and current customers may become future competitors. As traditional value chains that were held together by physical limitations dissolve, new, network-based ecosystems form.
Remember that good people do good work
In the digital economy, talent is even more important than in traditional sectors. Many of the skill sets that are now critical for businesses did not exist a few years ago.
In addition, employees with experience in digital roles are both sought after and tempted by overseas technology hubs, making their retention important.