Tell a CEO about all the exciting trends and possibilities we are experiencing as part of the digital transformation and they are going to ask “What’s the bottom line?” We can’t give $$ based answers to that question outside of a specific proposition, but we can focus on results and ramifications.
David Hodgson, February 24, 2016
Often commentators like myself will focus on the causes and drivers of change, and this can be useful. But this blog entry will focus on what I see as the three main overarching results of the ongoing digital transformation.
This analysis may make specific ramifications clearer to a CEO and help them see how to adapt a strategy to both survive and maybe gain a competitive edge. It is a generalized overview. As a CEO you must answer your own specific questions to see and create the results that will allow you to successfully compete.
#1 The digitization of all we use and touch
A convergence of technical breakthroughs and economic forces is now setting a course for the digitization of everything. This includes the mundane, like images, texts and music, to the incredible, like genomes, body parts and our very thoughts.
Digital forms are always more flexible, lower cost and ultimately more valuable than their physical equivalents, because of the ways they can be re-used in the digital world.
Any business that thinks it won’t be impacted is likely to be the next to go bankrupt. No industry or job will remain the same and many will cease to exist.
What digital assets do you have, or should you acquire to compete in this new age? Can you be the leader in transforming your area by transforming something important to a new digital form that could amplify its value? Could you leverage a new source of data, or an API from one of the new digital players?
#2 the democratization of playing fields
In his book “The World is Flat”, Thomas Friedman explains something he labels as “Globalization 3.0” which has had the effect of leveling the global playing field in terms of commerce. Underlying what he describes, are the same forces behind what we now call the digital transformation.
But commerce is just one playing field that is being leveled. We can now all have access to knowledge, tools and perhaps most importantly, communities, that enable us to be artists, scientists, musicians, developers or inventers. Whatever we want to do. Few domains of activity remain exclusive to an elite in the same way as they used to be.
This does not mean that there aren’t economic and power elites. In fact within many communities (like the USA) the last decade has seen an economic polarization and a concentration of money and power. However, globally we see a flattening and ultimately I think that the forces of the digital transformation will make massive polarization impossible within any community. But then I have always been a technological optimist.
CEOs must realize that the forces of digital transformation have empowered consumers and small business more than large companies. In many cases power is being fragmented and distributed and this has largely been through the app and the smartphone as tools of digital conveyance. For example, banks have to compete harder to retain fickle customers who can now switch easily. Teenagers don’t have to buy an album to hear the one song they like. Alternate offerings are easily compared and there is always a new competitor.
What do your customers really want? What is changing about how they want to consume or use what you have to sell? It is imperative that your strategy focuses on gaining a competitive edge via the experience and value you deliver to the “users” of your digital assets.
#3 the disruption of incumbents
Facets of the first two results I have described above, combine to create this third result. Generally speaking, because of the digitization of everything and the leveling of playing fields, the cost to entry in any business area is greatly reduced.
It costs so little to set up what would have been considered a sophisticated business just a few years ago that it becomes effective for small startups to offer products and services for “free”. Incumbents used to near monopolies, or established customer bases, might have been charging premium prices for what can now be offered massively cheaper.
The software industry is being turned upside down by open source software. Amazon offers cheap IT infrastructure. The hotel industry is being threatened by Airbnb turning a community of individuals into an unstoppable competitor. We know what happened to Blockbuster.
Sometimes, as with Uber, the incumbent is threatened mainly by what the user perceives as a more attractive experience. For Uber this would be easier access, better quality and a reasonable price as compared to taxi’s and regular car service.
Death or Glory
The CEO of an established firm must realize that it is death or glory for incumbents. Who are your new “Digital Transformation” competitors? If they aren’t here yet how could they appear? – what is it about your current business model that could be a weakness in this new world.
In summary my advice is that it is transform or be transformed and you must embrace all Clayton Christensen’s thinking on the “Innovators Dilemma” to engage the issues.
Image credit: McKinsey