Why Managing For Digital Disruption Is So Challenging

Disruption is easy to yammer on about. It's much harder to execute because it's, well, disruptive. Which means that beyond the shiny new buzzwords like AI, machine learning, blockchain and the like, organizations' actual muscle and sinew: supply chains, value propositions, reporting relationships and financial objectives, must be re-imagined and, in many cases, rebuilt.  

This is not to say it cannot be done, but the instructive examples that abound: GE, Pepsico, Xerox, HP, et al, suggest how time consuming, challenging and expensive the process may be. Which is why successful companies recognize both the opportunity AND the threat, planning accordingly. JL


Peter Weill and Stephanie Woerner report in MIT Sloan Management Review:

Over the next five years companies may be at risk of losing an average of 28% of their revenues because of digital disruption. Many enterprises won’t succeed by tweaking management practices. This is especially the case with larger enterprises, which are particular targets of digital disruption because of their large customer base, juicy profits, and sometimes patchy customer experience. Companies must create ecosystems of relationships with partners that help them become a go-to for customers. The key is using digital to differentiate a company, offering customers something new and compelling

With the trend for individual and business customers to prefer just one or two powerful ecosystems in each industry, leaders need to understand their options and clarify their own game plans.

In the digital economy that’s now upon us, many enterprises won’t succeed by merely tweaking the management practices that led to past success. This is especially the case with larger enterprises, which are particular targets of digital disruption because of their large customer base, juicy profits, and sometimes patchy customer experience.Indeed, in a 2017 survey conducted by the MIT Center for Information Systems Research (CISR) with senior leadership from across the globe, 413 senior executives reported that over the next five years their companies may be at risk of losing an average of 28% of their revenues because of digital disruption. This means that many companies may need to figure out how to replace over a quarter of their revenues — and figure it out soon.
In order to succeed, companies need a new playbook for how to do business, new ways of engaging customers, and new forms of leadership.

The New Playbook: To Become a Destination

A new playbook requires companies to move beyond Michael Porter’s idea of controlled value chains, where companies focus on control and doing one thing really well. In a value chain, companies know a lot about their products, including where they are physically and when they are sold.
In the digital world, companies need to move to more complex, networked systems. They must create ecosystems or webs of relationships with partners that help them become a go-to for customers. The key is using digital to differentiate a company, offering customers something new and compelling — to create a destination they want to visit.

We recently conducted workshops on digital disruption with CEOs and senior leaders from four companies: a bank, an insurance company, a law firm, and a real estate company. All four groups separately came up with the same model: to become a destination for customers to find and acquire a house. Instead of just providing a mortgage, or insurance, or legal contracts, or home search services, they all wanted to provide integrated bundles of services for the home buyer, creating an attractive, Amazon-like ecosystem for home buying. This vision has the potential to upend the real estate market — but it’s unlikely that all four companies will succeed.
Deciding on a new business model requires an honest assessment of current capabilities. Is a company already part of a complex digital ecosystem? How much do its leaders know about the needs of their end customers? How much can they know? To succeed in becoming a top-choice destination for customers will require companies to partner with others with complementary offerings to build the required capabilities.
We’ve already seen ecosystems emerge in retail (Amazon), health care (Aetna), energy management (France’s Schneider Electric), online entertainment (Netflix), and daily life (China’s WeChat). In the future, we believe the trend will move toward individual and business customers preferring only one or possibly two powerful ecosystem drivers in each domain. Our recent research suggests we will see significant industry consolidation, which raises the stakes for leaders to better understand their options and clarify their game plans.

Customer Engagement Must Drive Strategy

Besides building ecosystems to offer customers new types of products and services, companies will have to develop new ways of attracting and engaging customers. For example, DBS Bank in Singapore recently decided to expand to India, where it didn’t have any customer base. It partnered with a popular coffeehouse franchise to create a branchless bank, where customers can access the technology at the coffee company’s stores to enroll and start banking immediately on their mobile devices. The bank could have set up branches and data centers in India, but its coffee-chain partnership was a far more efficient and lucrative model. Within a year, DBS had 1.2 million banking customers in India.
Engaging customers goes beyond attracting them — it means that a service or product must be efficient and even joyful to use. DBS aimed to make banking joyful by engaging more than 14,000 of its 22,000 employees in an innovation activity. The company picked a single metric to motivate employees and coordinate actions: eliminating wasted customer time when doing business with the bank. While the original goal was to eliminate 10 million wasted customer hours, DBS ended up hitting 250 million hours saved.

The New Playbook Demands New Skill Sets From Leaders

Finally, to compete in these ways, companies will also need to assess their leadership. Do they have the right leaders at all levels to make transformation happen? Our research has shown that boards of directors need different skills, too, to help their companies deal with digital disruption. Meanwhile, motivating and guiding the front-line workforce has the potential to help increase customer engagement.
CEOs and executive teams will face many challenges in leading their companies as they change the way they do business. They’ll have to consider new pathways and then move in directions that may feel strange and challenging. Ultimately, most companies may need different skill sets to successfully adapt and evolve.Digital transformation isn’t easy, but it’s something every organization must undertake. It’s not a question of whether companies need to do this, but rather how and when. Doing nothing will lead to a slow death of a thousand cuts. Doing something means that a company stands a chance of being like DBS, which saw its share price rise by around 50% in one year and was named the No. 1 digital company in its industry.