DIGITAL transformation is about reorienting our businesses to serve the ever-shifting needs of the customer. It requires the mastery of continuous innovation with technology and more than anything else, the courage to disrupt long-standing business models.
The Chinese proverb "big fish eat small fish" rang true for many generations, but in the business world, those days are long gone. Today, the "faster fish eat the slower fish" and the "faster fish get bigger faster". One only has to look at the rapid evolution of the Top 10 Fortune 500 list of companies over the last five years.
This pattern is repeated across industries and geographies. It happened in the media and retail industries a decade ago, made its mark on the banking and hospitality sectors more than two years ago, and is now happening rapidly in traditional industries like insurance and transportation.
Technology has played a key role in this change. The balance of power has shifted from businesses that once controlled customer choice into the hands of consumers who are choosing businesses or "ecosystems" that can help them accomplish their end-to-end needs.
Technology is greasing the wheels of this mega-trend - making information about newer and better services easily available, reducing geographic and regulatory barriers to competition, improving access to risk capital and raising a new breed of companies.
CAN THE BIG FISH BECOME THE FASTER FISH?
With companies like Kodak, Nokia, and recently Sears losing out, is there hope for incumbents? It's not easy, but there are incumbents which have successfully reinvented themselves. Netflix - which most of us today think of as a digital native startup - in fact started life as a blockbuster competitor, shipping DVDs to customers' homes. In 2011, they made a bold move to disrupt their successful business model by splitting their DVD shipping business from a nascent online streaming business.
The move decimated their share price for a while and killed their DVD business, but over time, they have become a leader in media streaming. They then reinvented themselves again in 2015. When faced with challenging negotiations with content owners, they chose to let those licensing deals fall and invested in their own content development. In less than a decade, they have reinvented themselves twice.
ON THE CUSP OF CHANGE, COMMIT TO THE COURSE
So, what does it take for an incumbent to transform?
Humility: We must recognise that we live in the age where customers and their preferences can shift in an instant. We must acknowledge that we are privileged to have their business today and need to stay ahead of the curve to continue to deserve it. Most importantly, we must accept that our current business model will expire within our working careers, and that we need to reinvent ourselves to remain relevant and employable.
Commitment: "The innovators dilemma" is one of the biggest challenges to successful incumbents innovating. Expectations of a stable and growing return on investment (ROI) can prevent commitment to true innovation. Investments in innovative assets may dilute earnings before showing returns, or worse, threaten existing business models before new ones take root. Shareholders, boards and leadership teams need to have the conviction and commitment to stomach these financial risks.
Innovation mindset & culture: We need an R&D approach, where functional silos need to be broken. Hierarchy, command and control have to be replaced with trust, empowerment and accountability. Agile ways of working must be embraced. Design thinking and empathy for the customer must be ingrained. Venture capital styles of project appraisal and funding must be adopted and intrapreneurs and founders must be cultivated. Open innovation with ecosystem partners must be incentivised.
Technology mastery: In traditional businesses, technology largely plays the role of keeping the lights on, with episodic innovation often outsourced. To stay ahead, businesses need to build a continuous innovation engine, powered by engineering and architectural capabilities paired with business technology. Customer engagement platforms that continuously wow the user have to be built on top of application programming interfaces (APIS), leveraging data and analytics.
The thing with disruption is that by the time you realise you are being disrupted, it's game over. Till that time, things are going great and you are delivering healthy results. For incumbents to have a chance at being at the leading edge of disruption, commitment from the top, right to the shareholders and board is required. Management must be given the mandate to take risks, the room to make mistakes and a period for the seeds of investment to grow. Above all, they must be rooted in the conviction that they want to "create something new" versus be swept away by it.
- The writer is Chief Information Technology Officer, Prudential Singapore.