Exploiting the Digital Opportunity

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By Jean-Pierre Green. Published on 16 August 2017

Our recent IT Leadership Roundtable tackled one of the toughest questions facing businesses today. How to transform to meet the digital needs of your users and customers, whilst warding off the threat of disruption?

Chaired by Ed Hutt, a specialist in digital transformation, the morning saw a group of CIOs discuss the opportunities and challenges presented by our increasingly digitised world.

Ed kicked off the session by getting to the heart of the issue. He said, “If you were building a business today, you wouldn’t do it in the same way as traditional businesses had. You’d do it differently. You’d do it more efficiently. You can see that difference when you look at the leaders of pure digital, the Ubers, Facebooks and Airbnb’s.”

By difference, he pointed to businesses built around a digital core of cloud computing, mobile technologies, social media, analytics and self-service. An approach that’s resulted in a platform driven ecosystem that is asset light, flexible and agile.

If traditional businesses are to compete in this new digitised world, where new entrants can kill off established industry players in a blink of an eye, they will have to transform.

The problem is transformation is expensive and complex for large established corporates. Businesses whose forward momentum is slowed by largescale legacy tech, entrenched ways of working and who must balance the desire for innovation, with satisfying short-term shareholder pressure to achieve ever increasing heights of market capitalisation.

But, as Ed points out, not all organisations are going to be digital organisations. Only a small proportion are what he calls ‘digital core exploiters’. For example, Airbnb isn’t a hotel business and Uber isn’t a taxi business. They are integrators that have created a customer service platform upon which a new disruptive industry model can flourish.

Conversely, the majority of businesses operating today continue to be producers of physical goods. For them, exploiting digital isn’t about a change in product but seeking opportunities to achieve both efficiency and competitive advantage.

Ed used the fish and chip shop as an example. The traditional operation is transformed through platforms like Just Eat. A simple change that has a profound impact on the fish and chip shop’s reach and demand curve.

He asked, “If you can do it for something that simple, how many other businesses or parts of business or processes in business can create a digital model that delivers a competitive edge?”

In this new reality, Ed outlined his vision for digital. One where a business:

1 – Creates new values at the frontiers of business.
2 – Creates value in the customer experience.
3 – Builds capability to drive and sustain change.

He says, “The question a business must ask is, what are we doing and what technology are we going to use to facilitate that? Vitally, what new model for our business are we going to adopt?”

The group agreed that this was no longer a technology question, but one that requires a fundamental change to the way a company operates, which throws up another important question, who should be accountable for leading digital change?

We asked the party to vote and opinion was spread equally across the CEO, CIO and ANO (another) who all scored 29% of the vote. The CMO scored the remaining 12% and the CDO received no votes.

Ed felt it should be the CEO. “With similar levels of disruption that were seen with .com, we’re talking about what amounts to a major business process re-engineering exercise. And because it’s a strategy issue, it should be the CEO,” he said.

The group agreed that the CEOs has to build an effective team including the CIO, marketing and finance. There should be some economics input as well.  They have to identify the potential hot spots of disruption in their business and ask what would happen if a platform business appeared today and started operating in the market we work in.

It’s not just a question of technical innovation, but of cultural change, which Ed believes is the hardest part to do.

He said, “If you’re a new business, you can pick the people you want and operate it the way you want. If you’re a 200-year-old company, with fixed ways of working, cultural change is very hard to achieve.”  This is really about doing things differently.  Not doing the same things with different people.

The group agreed that most businesses are not investing enough in cultural change. That it’s not something that can happen organically. You have to build structures around it. That the easiest lever to pull was to make a leadership change.

It was agreed that if and when a business can do this, the focus is then put on the technologies that will help support the creation of the new company vision.

Of course, exploring new technologies presents its own set of challenges. How do you choose, when technology is evolving at an exponential rate? Worse, when you’ve only recently made a huge investment in technology, how do you make the business case for investing in more?

This is an all too common experience for the group. Ed explained, “The CAPEX to OPEX argument is one of the things that stops existing organisations from evolving their IT Infrastructure & Systems”. The move to OPEX based financing is a challenge for established organisations, especially where they have IT assets that are not yet fully written down and could be progressively upgraded in the ‘traditional’ manner at lower short term cost, so locking in the old ways of pre-Digital working.

Gary Thomas agreed. He said, “There are different types of digital change. I’ve yet to meet a CFO that isn’t just focused on efficiency but there is only so much you can make efficient.”

Picking up on this, Ed explained that he felt it was this efficiency agenda that was, “starting to drag businesses down.”

He said every CFO he’s worked with has always asked him to find ways to reduce the IT budget. But he questioned why you’d want to do that. Surely, you’d want to push it up to expand the use of technology at the expense of traditional cost categories in people, bricks and mortar, and physical presence?

The challenge according to Nick Berman is, “there is a massive difference between efficiency and cost reduction. A lot of CFOs, even though they talk about efficiency, they are still talking about driving down the operating cost of the organisation rather than looking at top line growth.”

The party agreed, the challenge was one of perception. That IT was traditionally seen as a cost, whereas in forward thinking enterprise it was considered a digital asset.

Wayne Grundy felt the businesses who were doing well, were the ones where there had been a perception change around technology. He described his experience at British Aerospace saying, “IT changed there from being regarded as a cost that was outsourced, to a service that was sold within the through life support contract for the planes.”

It was agreed that the question wasn’t how to reduce the IT budget but how to change perception around what you spend it on.

Anthony Meadows explained the challenge of persuading the CFO to invest in transformation. “It’s a difficult argument to make. You’re asking the CFO to make investment decisions in the light of a digital transformation where a lot of things fail, a lot of things don’t work and where it’s costly to do.”

He said that in his dealing with CFO’s, IT investment decisions fell into the 3 categories of fact, fear and faith. Where fact and fear are relatively easy to argue but faith, where digital transformation exists, is a hard sell.

Cost, however, is only one issue. There’s also the complexity of introducing a framework for digital into a legacy environment that has been built piecemeal over a considerable amount of time.

Jerone Walters put the argument into perspective saying, “The run side is the biggest challenge to innovation or indeed anything digital because everything needs data or some sort of common connectivity. When you come from a 200-year-old business like ours where nothing is connected or standardised across the whole group, what are you going to digitise?”

One potential answer is a bi-modal approach that separates digital transformation from the rest of the business. A number of people in the group talked about companies who had set up a new division, specifically tasked with looking at ways to make the business Digital.

Either the new business evolves into the core operation and the old is sold off or it provides the digital layer that is integrated at the edge and presented to the customer.

An interesting and encouraging trend for Jerone Walters was his business was now starting to think in digital terms and different departments were coming to him to find the right direction to execute on their digital ideas.

This provided a good opportunity for Ed to share his approach for engaging the business in a transformation conversation. The key for him was looking at the attributes of the digital core and identifying the elements that were already present or offered a natural fit.

He spoke of his experience at Fitness First where competitive advantage had been found in a cloud based user experience that was delivered on mobile devices. He said, “Everything you needed to drive and track your exercise regime and therefore to motivate you was in that device.”

The gym would always be something people needed and would clearly remain a physical component. The user experience, the thing that bound the customer to the brand was digitised and contained all the elements of the digital core.

The application ecosystem was hosted in the cloud, delivered via mobile, used analytics to improve the experience, was shared on social platforms and offered a means by which the customer could self-serve their workout regimen.

As the breakfast came to a close, it produced a light-hearted discussion about the often stated but rarely achieved start-up mentality. The success of the digital first disruptors inspiring many to emulate the way they operate. In effect, to act more like a start-up.

However, when asked if their organisation operated in this way, the overwhelming majority, 75%, answered no. Gary Thomas put it best when he said, “It’s something that many aspire to, but behaviourally, it’s not something that can be achieved.”

When you look at the attributes of a start-up, agility and speed, small and focussed, innovative with a truly differentiated service offering, the challenges are clear.

As Ed explains, “If you’re a new organisation, you can pick the people you want and work the way you want. Start-ups can piggy back someone else’s platform. They have no legacy constraints and so aren’t tied to one way of doing things. They have flexibility, agility and speed built in.”