Digital is fundamentally changing how companies do business. Enabled by data and technology, digital is a continuous form of disruption to business models, products, services and experiences. It has radically changed the way people consume content, communicate, and access products and services.
New outfits, exploiting digital tools are popping up overnight threatening to put decades-old veterans out of business even as existing ones work to gain the required agility to compete in today’s increasingly complex market landscape. What began as a trickle in a select group of industries is now mainstream with brick and mortar industries like automotive, airlines & real estate being right in the centre of this wave.
While the Sloan Management review estimates that 25% of the Fortune 500 have become bankrupt, been acquired or ceased to exist since 2000 due to digital disruption a report by Gartner estimates that 25% of all businesses will lose their competitive ranking by 2017.
Digital is now firmly on the board agenda.
The main opportunities around Digital are centred around three distinct areas : Better ecosystem connectivity, improved data based decision making, enabling new business or operating models.
Digital channels provide for better interactions with customers, suppliers, stakeholders. Tailoring messages for context, adding social connectivity & making the content universally available by mixing media makes for transparency and lower cost of operations.
Within the digital doman, social media has redefined the customer relationship dynamics. The goal is less about “selling” and more “engaging”. One of the exceptional displays of a business’ connect with their customers is reflected during times of distress- a leading flag carrier airline presented itself as a leader in social customer service field during a tragic volcano eruption. While passengers were stranded and flights were cancelled they turned to popular social networking sites for help. The airline was prepared for such a scenario and delivered with prompt replies to queries and assistance in arranging other means of travel. It was a perfect case of a catastrophe averted with social media and triggered a fundamental change in the way airlines handle customer service today.
Algorithms crunching information from disparate data sources provide better insights into different parts of the organisation : combining data for sensors tracking wear and tear on equipment for instance to inventory level data to sales data from a third system to make better decisions on when to schedule preventive maintenance.
A global cosmetics maker, for example, now operates more than 500 of its IT applications in a private cloud built and operated by its IT team. When a fire destroyed its data centre in Venezuela, they were able to move all their operations to the New Jersey centre within two hours- saving $70 million. Steps like these demonstrate the flexibility and reliability of cloud computing, preventing major mishaps and helping organizations mitigate risks.
Processes from product innovation to customer service can speed up using digital tools. Both can now be crowd sourced in part using social media tools leaving the enterprises to focus on the core and essential processes within.
In the last decade digital technology advances have changed photography dramatically, and a former heavyweight in the analog photography business has lost its competitive edge over newer tech-savvy companies. Besides not adapting to the digital cameras it helped create, it also did not evolve itself with the new ways in which consumers wanted to interact with their photos and the market forces surrounding them. The recent economic downturn was a factor in its demise, though other companies managed to deal it without going bankrupt. The truth is that by the time the company had both feet fully in the digital game, it had been outclassed by more nimble competitors with better products.
Several governments are following suit and improving public services and amenities. India launched the world’s largest biometric-identity program Adhaar where, around 370 million people have already been enrolled, and 600 million in all will be registered by the end of the first phase. India plans to use the system to make over $50 billion in cash transfers to poor citizens, saving $6 billion in fraudulent payments. The government of Bangladesh and China are also adopting digital initiatives to augment the level of health services in their countries. Bangladesh has implemented a mobile notification system in rural regions to informing nurses and mid-wives of birth alerts helping increase infant mortality rate. Compared to 90% unassisted births in the past, at present 89% births in these regions receive medical supervision.
There are six major decisions that the Board needs to take:
Digital Leader or Follower : Enterprises have to decide whether they will lead the digital space in their industry or be laggards based on their sector, markets they service and competitive pressures. For example an motor insurance provider has more to lose from digital competition than a mining giant.
Digital forays often times result in cannibalisation of market share from the original business but may also provide for an effective response to digital competition.
Many businesses elect diversify risk by entering into small digital initiatives across businesses and then manage them using a portfolio approach investing in the successful ones and choking off funding to the no so successful ones. Others bet the bank on one or two big areas of core business.
Co-operate or Compete: For most large businesses the threat from digital is all across its value chain. Banks may be competing with crowdfunding start-ups on the lending side, with digital payments compete in the payments space & with other smaller digitally oriented banks all at the same time. The board has to decide what the appropriate response to each kind of threat will be.
Business Portfolio assessment: As the digital world throws up new winners and losers the growth and profitability of some businesses needs to be re-assessed through a digital magnifying glass. Media companies have a print vs digital assets decision to make just like the retail chains have to assess investments in warehouses (to facilitate the back end supply chain for on-line sales) versus launching new stores.
Integrate or Diversify Digital Business : Digital businesses can be integrated in the existing brick and mortar boperations or can be hived out into a new entity in view of the cultural issues that may arise due to the combining of old and new economy talent under one roof.
Delegate or own Digital agenda : The digital agenda needs to be driven at an appropriate level keeping in mind the structure of the enterprise, the size of the transformation, the cultural milieu among other factors. Whether or not this is to be driven from the CEO’s office or driven through a chief digital officer or the CIO is central to some of these discussions.
A recent boardroom concern has been the lack of digital expertise- the need to have “digital director” on the board. In 2012 a leading global financial services firm and had no directors with risk expertise on the board’s risk committee- a deficiency that was corrected only after Bruno Eskil “the London Whale” caused USD 6 bn worth of trading losses through what was famously called a “risk 101 Mistake”. Will the Boards wait for a “digital 101 mistake” to happen to embrace digital?
Manoj Jha, Director, ITAS has also contributed to this article