Tom McEwan and Anita Chandraker
21 June 2014
After the recent unveiling of Google’s latest driverless car, stories appeared in the British and US media highlighting how cars controlled by sensors and cameras would need a completely different kind of Highway Code. There is a parallel here with business leaders who, like transport officials, must realise that the old rules of the road are not suitable for an increasingly automated and connected world.
Technology is driving behavioural change and creating new economic value, and if organisations do not have digital in their strategy, they really do not have a strategy at all.
Yet the latest findings from PA’s digital barometer show that only 25 per cent of respondents – more than 200 senior IT managers, chief information officers, technology officers and chief executives across a range of sectors worldwide – believe their organisation has the mindset to survive and thrive in the digital age.
Just 24 per cent agree that the organisation’s leadership team understands the digital issue. Significantly, only one-third think they understand how digital will transform their organisation.
A clear distinction is forming between companies that were “born digital” – where the use of technology to create a different customer experience is in their DNA – and those that need to transform a legacy business to make it fit for purpose in the digital age.
As a result, some pioneering digital businesses are already ahead, while others are falling behind in a race against time to adapt and reconfigure their organisations. What many of those “chasing” companies have not recognised is that catching up with the leaders may require a huge change in their business model.
Such changes have become a familiar sight on our high streets. UK retailer Argos saw online account for 44 per cent of total sales last year, with mobile commerce growing 89 per cent to reach 18 per cent of total sales. Embracing a broad omnichannel strategy – online, on mobile and in store – is paying off and represents a fundamental shift for a business historically known for its printed in-store catalogues.
In the pharmaceutical industry, companies are moving from product-centred businesses selling drugs and therapies to service businesses focused on telehealth and remote healthcare.
In retail banking, celebrated industry leaders are challenging incumbent business models and seeking to serve customers differently. The chief executive of telephone and internet-based bank First Direct, which has a reputation for excellent customer service, has recently left his post to lead the team setting up Atom bank, the UK’s first completely digital bank.
Clearly, these moves require leadership and vision from a strong chief executive, but every executive must play their part.
So the chief marketing officer has to understand that centralised brand control has gone and that the task is now about shaping the brand through a variety of channels. Brands are what people say they are on social media, not just what businesses claim in their advertising. This means that companies need to engage in a personalised dialogue with social influencers whose personal recommendation will affect people’s purchasing behaviour.
For the chief information officer, the challenge is to provide flexible, scalable platforms that enable the organisation to be nimble in the face of rising data volumes, increasing mobile traffic and a broader range of connected devices. Success means agile, cloud-based platforms, new skills to manage changing demands and fresh ways of operating. A “two-speed” IT organisation is required to enable experimentation as well as robust and well governed infrastructure.
The digital supply chain brings huge change for chief operating officers. This ranges from the digitisation of consumable content (books, films, music), to the logistics of real-time procurement or 3D-printing to build custom products in situ. One Dutch architect is experimenting with using the technique to build a house.
Even the chief financial officer will have to adapt to a more unpredictable world driven by innovation and creativity, where investments may sometimes fail to deliver returns. That means risk appetite will need to be reconsidered and investment decision-making processes will have to become more agile and flexible.
In short, to survive and thrive in the digital age, it is not enough for the chief executive to have the vision, and for the chief information officer and chief marketing officer to drive the agenda. All must play their part.
Given the scale and pace of change, navigating this environment cannot be left to the executive team alone; it must be backed up by strategic direction from the boardroom. Here again, roles need to adapt to the new realities and the counsel the board brings must reflect the priorities of a digital world.
So the question now is whether boards have the expertise to fulfil this role. A Korn Ferry report from 2012 indicated that just 1.7 per cent of FTSE 100 non-executives were focused on the digital agenda. While knowledge and awareness is increasing, there is significant room for improvement and the case for a digital non-executive director remains compelling.
The executive team can also look outside the organisation for fresh perspectives. There are plenty of opportunities for this, from partnerships with start-ups, through open-innovation sessions with customers and hiring digital talent from outside the traditional recruitment pool. However, these outsiders’ views will challenge convention and cause disruption.
It is clear that the rules of the road are changing and that successful businesses will be those that take control of their own direction. They will understand the scale of the change and respond by adapting both what they do and how they do it, and do both with a sense of urgency.
Tom McEwan is global head of IT consulting and Anita Chandraker is head of IT delivery, at PA Consulting Group