You hear it called the digital revolution – the transformation of how we work and live, which is one of the great megatrends we believe will shape the world in the 21st century. Indeed, in our recent Annual CEO Survey, 81% of those questioned identified technological advance as the single most important challenge for businesses to address, greater even than demographic or climate change, or the shift in the balance of global economic power.
Most of these business leaders are overwhelmingly positive about the way digital allows them to create value, reaching more customers, more quickly, and more directly. They all see the potential to use technology to propel their business forward, but the question is: in which direction, and when?
There are now so many opportunities – each with its own costs and complications - that it can be difficult to cut through the noise and find the best way forward. Leading-edge can so easily become bleeding-edge that the risk of making the wrong decision is huge, but the risk of not acting at all may be even worse.
So what’s the answer? The new business landscape is one in which competitive advantage is transient, and companies must reinvent themselves, their strategies, and the value they offer– experimenting and learning, identifying new opportunities, exploiting them fast, and moving on. This requires nimbler business models, a relentless focus on innovation, and the ability to get the best out of both your people and your technology. That’s why we now talk about the world being ‘in beta’.
You don’t need a digital strategy to succeed in this world, you need a business strategy for the digital age.
By the end of 2013, those who have grown up with digital started to outnumber those who’ve had to adapt to it. They’re running their lives on smart devices, on the move, and connecting in real time, and they expect the organisations they work for, buy from, and interact with to be able do the same. The complex algorithms and ultra-high broadband speeds that make this possible are putting an unprecedented amount of technology in the hands of the customer, and with that technology comes a new power, and the ability and willingness to use it – posting on review sites, and exploiting the visibility of social media to demand better service (and getting it) is really only the beginning.
On the flip side, the same new technology is also enabling companies, governments and other organisations to process and exploit extraordinary amounts of data almost instantaneously. Add to that the sheer capacity of cloud computing, and the opportunities for profitable growth and game-changing innovations are almost limitless. Who knows, digital may even help us solve some of the planet’s most intractable challenges.
Until now, the approach many businesses have taken to digital has been largely short-term and tactical - the development of new e-commerce sites being the most obvious example. And yes, running an efficient e-commerce operation is important, but it’s only the first in what we believe will be three distinct waves of digital transformation.
In the second wave, digital will no longer be just another channel for the existing ‘economy of products and services’. We’ll see the wholesale digitisation of some markets – as is already happening in books and music – and the development of completely new offerings driven by the enormous potential for personalisation which ‘big data’ provides. Companies will be able to tailor what they offer to match what their customers want to achieve – whether an experience, a goal, or a personal change.
We call this the ‘economy of outcomes’. One of the key things to remember about an economy organised this way is that any particular ‘outcome’ might span a number of different suppliers, or even entirely different sectors. So those businesses that have the imagination, the reach, and the network to do this for their customers will gain enormous advantage. As the economists would say, it’s not just the supply side that’s being revolutionised by digital; demand is re-booting too.
This is what we’ll see in the third wave, as customers start to manage and exploit their own digital identities, and not just individuals, but businesses and organisations as well. This will drive enormous change across all sectors such as:banking, entertainment, hospitality and retail. In other words, it will fundamentally challenge the business model of almost every organisation.
In its simplest form, a business model is about three things:
The first wave of the digital revolution didn’t change this for most businesses; it simply allowed them to become more efficient, and exploit new channels to market. Looking forward, this will not be enough: the business models most companies are working with now will have to be amplified, or modified, and in some cases reinvented altogether.
In the second and third waves of the digital revolution, new players will come to the market using digital to develop new ideas and new offerings for customers, and deliver them through a whole new business model. They will be flexible, and they will be fast, and they’ll become the leaders of tomorrow.
There will be companies who have either the courage or the culture to make significant change to their existing products, markets, or ways of working. In some cases, this will mean setting up completely new businesses, and allowing old and outdated versions to die.
There will also be companies who adapt more slowly and wait until there are proven concepts in the market. This is likely to be the largest group, and it will include many of the leaders of today, especially those in stable sectors with relatively conservative and risk-averse cultures.
In the future you won’t so much have a workforce and a supply chain as a strategic network of employees, suppliers, partners, and stakeholders. In fact, we’re only just beginning to understand the power of digital networks: they’re organic and self-organising, and they’re always ‘on’. They can launch new ideas, and destroy reputations; they can bring down governments and change policy, and for businesses, they can open up extraordinary new opportunities. But you can only seize those opportunities if your business is ‘on’ just as these networks are. What does being ‘on’ mean? It means taking part –joining in conversations and engaging with the right circles, and it means doing that in an active, positive spirit, not just as a silent observer; it means being connected in real-time and 24/7, and using the insights you gain to shape your decision-making; and it means ensuring that everything you do- online and off – is absolutely relevant to your brand, whether Nestlé, Shell or Chanel.
We sum up what businesses need to do to achieve this with the phrase ‘Reach on’. It’s our shorthand for what you need to change inside your organisation, and how you need to behave differently outside it.
The first of these new behavioural patterns is speed. You’ll need an agile and flexible organisation that makes decisions quickly and efficiently, and can change direction if it needs to, one that maximises the data and insight digital can provide. There’s no aspect of the business that’s immune here: everything from processes to supply chain, reporting to risk management must be made leaner and faster. So how do you do that? The fundamental principles are straightforward enough: ‘simplify, standardise, and share’.
The second is empowerment. You need a culture which challenges convention and encourages experimentation and entrepreneurship, where taking reasonable risks is rewarded, within a framework of values and policies strong enough to make sure the business and its assets are protected. And why is empowerment so important? Because it drives innovation. One thing we’ve learned in the last few years is that innovation no longer belongs to R&D, or lives in a lab, and in a genuinely empowered culture new ideas really can emerge from anywhere – including your customers – whether ideas for new products, or ideas for new approaches or ways of working. This is vital because to succeed in the digital age you need to innovate faster and be prepared to fail, as long as you fail quickly and move on, knowing that there is no longer one right answer, because the world, as well as your business, is in permanent ‘beta’.
Lastly, trust. The winners of the future will be those businesses that understand the value of trust, and place an extraordinarily high priority on protecting it. But before customers trust a business, a business must trust itself, and that depends on having the right information to make the right decisions at the critical time.
Only then will you have the confidence to experiment, to innovate, and to breathe new life into all areas of your organisation.
In the past, new technology has changed the way products and services were developed, distributed and consumed. Digital technology is doing the same, but doing it faster, and more fundamentally than ever before. It’s already having a major impact on the way businesses operate; in the future it will determine how they create value and defend competitive advantage, how they develop and manage their brands and customer relationships, and how they engage with customers, the capital markets, and their stakeholders.
We believe the winners of the future will be those organisations that exploit the potential of digital to transform both what they do, and how they do it. They will constantly find new ways to engage with their customers, and keep the products and services they offer exciting and relevant; and they will owe their success to the speed of their decision-making, the empowerment of their employees, and the trust they earn.
The new digital economy will be an exciting, creative, and dynamic place to be. If you have the imagination, the leadership, and the confidence, it’s a great time to be in business.
