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Digital transformation is not for a faint-hearted leadership team. Indeed, the authors of a recent study by Deloitte, the management consultancy, and MIT Sloan Management Review, the business journal, suggest that risk-taking needs to become the cultural norm for companies with digital aspirations.
“For every Google, Amazon or Facebook taking major risks, hundreds of companies are still playing it safe,” says Phil Simon, a report contributor and business author.
In doing so, they are simply giving digital disrupters further opportunities to outpace them. “Today, the costs of inaction almost always exceed the costs of action,” Mr Simon says.
Textbook cases of businesses that paid the ultimate price for failing to anticipate the effects of digitisation would include Borders bookstores, Blockbuster video shops and Kodak, the photographic technology company.
In the UK, WM Morrison supermarkets did not introduce online shopping until 2014, forcing it into a painful game of catch-up with digitally-savvy competitors such as Tesco and Waitrose.
The pace of digital disruption is “sweeping, breathtaking and accelerating,” said Richard Fairbank, chief executive of Capital One, in a July earnings call about the US bank’s second-quarter results. “To win in the digital world, we can’t simply bolt . . . channels on to the side of our business or [transfer] analogue banking services to digital channels.” Instead, digital must become the centrepiece of the bank’s strategy.
Some business leaders, however, seem happy to simply add digital channels to existing systems and processes. The danger with this kind of thinking, say experts, is it allows digital disrupters to maintain their technological lead. Businesses such as Uber, Airbnb and Netflix were built on — and for — the digital age and have mobile and social media technologies at their heart.
Such newcomers do not have older systems and processes to worry about, and can focus on fine-tuning customers’ digital experiences. As a consequence, they will continue to disrupt more established and less agile competitors.
Martin Gill, an analyst with Forrester Research, an advisory firm, says digitally focused companies need to put their organisation’s purpose and underlying business model first.
Too often, he says, established companies find themselves hampered by existing ways of doing things.
Philippe Trichet, digital expert director at Boston Consulting Group, the business consultancy, agrees: “Companies need to be prepared to change everything — how they think and how they breathe.” In his previous role as vice-president of customer experience at Schneider Electric, the industrial equipment company, Mr Trichet was involved in a digital transformation project that involved 30,000 employees in more than 90 countries.
“What made a big difference for us was that we had clear goals and the effort was led from the top,” he says.
From the chief executive down, a common vision of the benefits the management wanted to achieve was communicated to staff. Says Mr Trichet: “It was made clear that digital transformation would affect everyone, so everyone needed to be involved in delivering it.”
The project was deemed a success, despite significant challenges, including a large legacy IT estate and the need to join up fragmented sales, marketing and customer support processes.
The programme, says Mr Trichet, was not just about rolling out new IT projects, but about rethinking business processes to achieve greater agility, lower costs and greater customer satisfaction.
He adds that it resulted in increased revenues from cross-selling, improved satisfaction from routing customer service online, and increased efficiency by consolidating 145 call centres into 45.
Case studies: Some technological transformations that have gone well — and others that crashed
Failure: BBC’s Digital Media Initiative
Too much focus on technology, not enough on change management — that was what scuppered this initiative, according to an investigation by consultancy PwC.
The programme, which was cancelled in May 2013 and resulted in an asset writedown of £100m, lacked an executive steering committee to assess progress against agreed measures of quality, time and cost.
The project “focused on technology risks and issues, rather than [driving] operational change to business practices in the BBC”, said PwC.
Success: Capital One
According to a mid-2014 report from Capgemini Consulting, this US bank “has an unflinching focus on digital”, with about 75 per cent of its customer interactions now handled digitally.
The bank has also been buying talent: in 2014, it acquired Adaptive Path, a San Francisco specialist in high-tech user experience design; in July it bought Monsoon, a Californian digital design company. “With its radical digital approach, Capital One is not just challenging its own wisdom, but that of the entire financial services industry,” say the authors of Capgemini’s report.
Failure: The Co-operative Bank
In 2013, Co-op Bank cancelled an IT transformation programme resulting in a £300m investment write-off. This became a part of Sir Christopher Kelly’s independent review into the bank’s crippling capital shortfall. The project’s problems, he wrote, included “changes to leadership, a lack of appropriate capability, poor co-ordination, over-complexity, under-developed plans in continual flux and poor budgeting.”
Co-op Bank has since launched a £60m digital catch-up scheme that has had its own problems, according to consultancy Verdi.
Success: John Lewis
UK retailer John Lewis has been one of the most successful companies in the fightback against online retailers, creating a “bricks and clicks” experience. Online sales account for about 33 per cent of revenues.
While half its customers buy in store, the rest combine experiences through hybrid services that let customers buy online but collect in store.
Last Christmas, group sales were up 5.8 per cent year on year to £777m in the five weeks to December 27, helped by a 19 per cent rise in the value of online sales year on year.