Chasing Digital

A Playbook for the New Economy

Anthony Stevens, Louis Strauss, Anthony Stevens

• Publisher: Wiley
• Year: 2018
• Print ISBN:
  9780730358633
• Edition: 1
• eBook ISBN:
  9780730358640
• Topic: Business
• Subtopic: Management
• Index: Business

Learn how to succeed in the digital economy

The paradigms of big business have changed. Business models that were once lucrative now seem to barely move the needle. Incumbents of the old guard find themselves superseded by new, digitally-charged, data-fuelled organisations that leverage platform-based business models. How can pre-digital businesses survive? They're loaded with resources, brand power and deeply embedded networks, they just need a new playbook. Chasing Digital is that playbook.

Outlining a clear and detailed framework, this book is designed to help leaders re-design their organisation from the bottom up by leveraging their strengths to create a new competitive advantage in the digital economy. From laying the foundations of transformation: developing a considered strategy, growing a conducive culture and building a receptive organisational design; to building core digital capabilities: taking advantage of data, harnessing artificial intelligence and embracing appropriate platforms; to adapting the accelerators of change: navigating board expectations, mitigating potential roadblocks and making the right investments, this playbook will give you the tools and mindsets needed to not only survive but to thrive and leave a legacy for future leaders.

• Integrate technology into your business strategy and culture
• Prioritise and manage your company's digital transition
• Create opportunities for fast and intentional digital growth
• Learn how to minimise friction with stakeholders

Cut through the jargon and hype, and focus on what is critical to undertaking a truly successful, company-wide, digital transformation. In a world where digital is changing everything, Chasing Digital will help your organisation to transition beyond old business models to adopt the new digital paradigm and a new era of business. Embrace the chase.

Part I
The big decisions

At this point there are two important questions you need to ask yourself: what business are you in, and how do you make money?

As a leader of a pre-digital incumbent, you need to start by assessing the mechanical heart of your business — its driving economic engine — and what strategies will most effectively power it forward in today’s new economy. In the past, you initiated your economic engine by identifying a niche, understanding specific regulations, accessing resources or taking advantage of a growth opportunity. When cultivating growth in your business, you assumed that these conditions didn’t fundamentally change. Or if they did, it was a slow change, and your opportunity (and challenge) came from optimising your position in the resultant markets.

In recent years, new business models have been created that leverage the power of the internet — think Google, Facebook, Netflix and Amazon. This has led to a significant change in the economic engines and strategies that now power the world’s most successful companies. Long-held assumptions about the fundamental drivers of high growth have changed. In summary, the internet has done two things pretty much in parallel: it has destabilised the basis on which an enterprise can succeed, and it has opened up entirely new ways of doing business.

The good news is that it is possible to move your business from one model to another. We recommend creating a new economic engine and running it alongside the old. This is by no means a small task, but with the right leadership, vision and personnel it can be done. That said, typically we see businesses trying to embrace digital, and implementing a new strategy, without changing two fundamental areas: organisational design and culture. Organisational design refers to the structure of your organisation and its position in the market. Culture is harder to define, but it is essentially the beliefs and habits shared by the employees of your company. Strategy, organisational design and culture are the critical components of the new economic engine you need to jump­start a successful digital transformation.

CHAPTER 1
Strategies for success

All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.

Sun Tzu

How much of your current strategy will help you compete in the digital economy? And what have you done to adapt your strategy over the past few years? Perhaps you have acquired companies, expanded your services or products, or optimised your supply chain. You may have changed your organisation’s structure a few times and appointed new leaders with fresh ideas. Perhaps you have met changing customer expectations by updating your website or refreshing your brand in some way. You also may have tried to increase margins by cutting operational expense lines.

Investment in technology and the appointment of new roles gives boards, shareholders and executives a sense that ‘we are doing something’. But what most leaders have failed to do is align their newly implemented technology with their underlying business strategy and external market trends. Many leaders talk about the need to promote a culture of innovation, make investments in start-ups, or invest in technology skills and experience at board and executive level. These individual moves are all worthwhile, but the critical thing is to link them together as a cohesive set of transformation initiatives. To do this you must think first about your business model, and what your customers want now and in the future, and align these fundamentals with the interests of shareholders. Internally, a new kind of strategy will require you to manage the process of change. Meanwhile, the competitive landscape, consumer preferences and technology are changing so quickly — and with such disruptive force — that putting in place a business strategy designed for our digital world is now a matter of survival.

Our solution is to go back to basics, revisit your economic engine and develop a new, digitally integrated strategy. That’s the focus of this chapter. We will also show you how to implement that strategy, building on your current business and competitive advantage.

The old model

By now you are likely aware of the insufficient link between your strategy and technology. You see the symptoms everywhere. You make massive investments in IT, but these fail to make a significant impact on the bottom line. New competitors are taking market share.

Before we look at the solution, let’s look at the problems in detail.

In 1980, Michael Porter published Competitive Strategy, which transformed the theory, practice and teaching of business strategy throughout the world. Porter’s Five Forces framework (see figure 1.1), a model for analysing an industry to determine ideal corporate strategy, has been instrumental in defining the way leaders of pre-digital incumbents identify profitability and attractiveness. The model identified five features that play a part in shaping every market. At the centre is industry rivalry, which is enhanced by the bargaining power of suppliers, the threat of substitutes, the bargaining power of buyers and the threat of new entrants.

Figure 1.1: Porter’s Five Forces

But the internet has changed everything, and the application of Porter’s forces needs a refresh. In other words, a new approach to strategy and competitive advantage is needed.

The internet, social media, near-zero distribution and customer engagement costs, the explosion of data and platform-based business models, and the rise of artificial intelligence have forced speed and innovation to the top of the priorities stack for many boards and executives. These same factors have enabled unprecedented speed of transaction, globally scaled supply and distribution, faster time to market for new businesses, and heightened consumer awareness of what they are purchasing and the myriad alternatives. With a nod to Porter, figure 1.2 suggests what our new model of competitive forces in the digital world looks like.

Figure 1.2: the competitive forces in our new economy

At its heart, our new economy is a customer’s world, one in which buyers enjoy remarkable leverage, choice and influence. These forces can work against you. As a pre-digital incumbent, perhaps in the short term you will avoid the brunt of their impact while savvy new entrants capitalise on these forces to build market share in your category. Alternatively, you can learn to harness the momentum of digital, and use it to fuel your business growth.

One giant juggling act

Your company requires a dramatic change in strategy to respond to new market-shaping forces. You need to pivot your business model while at the same time making the most of your well-known brand and client relationships.

Unfortunately, you’re up against some very well-funded start-ups. According to Crunchbase, as of the third quarter of 2017, both deal and dollar volume are at record highs since the dot-com bubble. With the number of venture funding rounds projected at 6146, and US$60.17 billion invested in that quarter, year-on-year this represented an increase of roughly 50 per cent. With this explosion in capital financing of start-ups, a compounding set of issues arise for larger businesses. The amount of money generally spent by a pre-digital incumbent to transform its business model into a digital business model reliant on data, software and platforms is a fraction of what start-ups invest in technology. Top talent is attracted by the wealth-creation opportunities and innovation culture of the start-up. Glassdoor.com, where employees can review and rate employers, has found for 2018 that all of the top-ranked small- to mid-sized companies in the United States and Europe were founded since 2002. Google held the number-one spot on Forbes magazine’s Best Companies to Work For list in eight of the eleven years to 2017, due in part to the exuberance of its employees. (Says one: ‘I love working for the greatest company in the history of the world! This place has been amazing and keeps getting better. There is nothing we can’t accomplish and everyone walking the halls feels they can change the world.’)

The bankrolled new models and cultural allure of start-ups are just the beginning of the many challenges you have to contend with. As we’ve seen with big tech, companies that invest in data, platforms and systems of intelligence will become more dominant. It follows, then, that those companies that own these capabilities are likely to be more successful. But what about those that don’t? Will they survive?

Over the past decade, platforms of all shapes and sizes have started to change the nature of many industries. Whether you are in retail, manufacturing, business services, health or resources, you will have noticed that platforms play an increasing role in customers’ buying habits and expectations. For example, for accountants there was traditionally a separation between the tool (the accounting system), its configuration, and the professional advice or accounting work itself. Over the past 10 years, however, accounting systems have moved online, making them easier and cheaper for customers to use, as well as giving the software provider access to a vast amount of customer data.

The forces of digital disruption are impacting the professional service industries along with most other industries. So what can you do about it? In order to move forward, there are two key concepts you need to understand. In his 1996 letter to shareholders of Berkshire Hathaway, professional investor and multi-billionaire Warren Buffett said: ‘In business, I look for economic castles protected by unbreachable moats.’ This quote highlights two ideas that are as pertinent to your new strategy in the digital age as they were when Berkshire Hathaway’s stock was riding the mid-1990s economic boom:

1. Your castle. Your castle denotes the drivers of growth in your business — in short, how you make money. A little later we will show you how to apply demand- and supply-side economies of scale to digital platforms to retool the economic engine of your business.
2. Your moat. Your moat represents what is unique about your business and how this helps you take a sustaining and dominating — or, dare we say, monopolistic — position in the market. Your moat is essentially your competitive advantage. Soon we will show you how to re-examine this in the context of our new digital economy.

Along with a focus on your castle and moat, a successful strategy can be mapped into horizons of growth — each running in parallel and focused on a different term of the investment. For example, Mehrdad Baghai and Steve Coley’s book The Alchemy of Growth provides a tool with three contemporaneous phases allowing companies to manage for futur...

Table of contents

• Cover
• Title page
• Copyright
• Preface
• Acknowledgements
• Introduction: The Fourth Revolution
• Part I: The big decisions
• Part II; Digital enablers for transformation
• Part III: Accelerating change
• Conclusion: A cornucopia of opportunity
• Sources
• Index
• EULA