Digital Transformation: A Model to Master Digital Disruption

transformation.

1

How digital

finally became important

1. SMILE, YOU’RE IN A CRISIS

The world is still in a deep crisis, considered by many as one of the most dramatic economic moments in recent history. Europe, the US and even emerging BRICS countries have suffered severe blows, impacting governments, businesses and individuals.

It is not the purpose of this book to explain the reasons and mechanics behind this specific situation. Nor is it the intention to make everyone depressed and pessimistic about the future. Although our book deals with the great challenges that lay ahead for many of us, our aim is to provide insights and context. This makes it important to understand why the current crisis is so different compared to what the world has previously seen in our economy over the last century.

As many crises before, this great depression that began at the end of 2007 started as many other financial crisises have started with the shortage of liquidity. As a result, the worldwide banking system nearly collapsed.

Governments all over the world had to step in and bail out some of the largest banks. It was apparently the only way to prevent a global collapse of the economy and possibly of society as we know it. The impact of these and many other political decisions will probable continue to resonate for years to come.

This great depression revealed the underlying banking crisis that triggered the current situation, one crisis setting the other in motion. The true nature of the banking crisis was of course not just the shortage of liquidity nor the following distrust between banks and the rest of society. The real nature of the problem was rather ethical and philosophical: the risk we were all taking by having a handful of people manage a hyper-complex technical financial construct as the backbone of an even more complex world and economy. With this crisis it was clear that the system has simply become too complex for anyone to understand and manage. We are all doing the best we can but we are no longer smart enough to deal with all the consequences of change in the world and economies as we know it today.

While we are writing this book some first signs might indicate the end of this economic crisis. We might even become optimistic if it weren’t for many economists all over the world that do not believe this crisis will ever pass. They are talking about system-crises, a possible chain of small and big crises following one another. At least there is a consensus that this crisis did not behave like previous ones, making it almost impossible to predict the next steps. The economists believe that if we define the end of the crisis as going back to normal, that will never happen again. Ever.

There is no more normal in the economy of tomorrow. The days of a few years in recession followed by a relatively long stable period of growth are over. We have to accept that everything is currently changing and that one wave of change is quickly followed by another. One important insight is that change is no longer a one-off thing: the media changed so now we are done for a while, is probably not how it will be. The media (and with it many other industries) will continue to be in a permanent state of flux. The biggest mistake is to believe that transformation will happen once. Transformation has become a permanent condition. Something that works today might suddenly not tomorrow. This forces us to consider change as a permanent factor. This makes it difficult to design 7-year plans. This makes long-term investments that force you to follow a certain road without the ability to change course along the way very dangerous. Organizations and their leaders that do realize this challenge are the captains of tomorrow. They will lead the pack.

This is where the story turns positive again. The better you understand the change that is upon us, the more agile you and your company become which enables you to be prepared to respond and deal with these changes. If there is one thing we should learn from this crisis, it is that we need a different mindset; one that allows us to deal with rapid change in permanently uncertain times. Those who master this will win. This change in mindset will be necessary as the impact of the financial crisis is far from the only challenge we need to deal with.

In the long term, we are facing the consequences of climate change that will have a huge impact on policymaking, economy and our personal lives. The investments for dealing with floods, droughts and possible migration of millions of people might represent billions of euros and make up a substantial part of the gross domestic product of most countries.

At the same time we see the shift in focus from the traditional (mainly western) superpowers to new emerging economies like Asia, South-America and Africa, which are slowly taking over part of our dominance. This will not only have an impact on economy but possibly also on our self-esteem as nations.

Let us end with the nearest and probably largest challenge we face in the short term: digital transformation. As we approach the end of the great depression many companies will be unable to go back to normal. Even though consumer trust and spending will rise, many traditional industries will not be restored to their initial position. They are losing ground due to the constantly changing rules in each of their markets. The main driver behind this is digital disruption. Many industries face the biggest challenge in their existence: weakened by the economical crisis and constrained by their legacy business, it will be difficult for them to adapt to and embrace the new rules dictated by digital change. The temporary economical crisis will be replaced by a long term structural crisis that is impacting the very essence of their being.

In this book we will discuss industries that have already faced and barely survived this evolution. We will also touch on others that are currently in stormy weather or might be in the near future.

Should we be depressed? That depends on where you stand and how you deal with digital innovation. This book is about showing you the drivers of digital transformation and how they might impact your business. This book will help you understand what the future of your industry might be and the role you may play in it. Of course you will need to be able to adapt some of the basic rules you have been working with for a long time and embrace the power of digital change.

Digital in itself is not a destructive power. It is a power that emancipates people, companies and movements. A power that creates new opportunities and ways to do things that were previously unthinkable. If we use this digital power in a positive way, it will create enormous future value. Not just in revenue and profit, but it might also prove to create solutions to the major worldwide challenges we are facing.

One last word of advice: if your business is not performing as it should, do not automatically blame it on the economic crisis. You should also consider the possibility of being subject to a structural crisis: the disruption and transformation of your industry.

2. A SHORT HISTORY OF GOING DIGITAL

This book deals with digital transformation and how it shapes your future for better or worse. In order to understand this future, we must first look at the past.

I (Jo) was born about 45 years ago, in 1968, in a time when there was no such thing as digital. My first recollections of media, communication or entertainment date back four decades and are based on pure analogue models. A simple world where radio, TV, newspaper, telephone, photography, business, shopping and all other things, had nothing in common. They all existed on their own islands, without links between any of them. This was an easy to understand physical world, with physical boundaries, strict opening hours and a TV-programming schedule that was holy for everyone.

About 30 years ago my world became digital. I got my first computer at the age of 12 (a Sinclair ZX81) and I was hooked on it from day one. In the years that followed more and more digital technology entered my and other peoples lives: CD-players, gaming consoles, digital cameras, navigation systems, handheld computers and so on. In barely 30 years time everything has become digital. Today the world is a digital place in which analogue merely exists because its vintage (like vinyl) or because it is still transforming to digital (like newspapers). Digital has become the backbone of change, introducing the first wave of emancipation. Digital technology allowed us to easily create things that previously were reserved for a select group of people: writing and lay-outing a book suddenly became possible for everyone. Making music or editing movies was also no longer the exclusive privilege of a select few and became mainstream.

In the mid-nineties the Internet became the next big thing. All our digital machines (mainly computers in those days) started connecting with each other. Putting them into a network created so much additional value. This was the sign for the next emancipation wave: the restrictions of the physical world suddenly mattered less. Through the Internet we could start doing business with people all over the world, 24/7. Physical boundaries disappeared and the world became a global village.

About a decade ago, people discovered that their computers and the Internet could be used to not just connect to servers anywhere in world, but also to people. Social media was born and was about to accelerate change even more. Facebook, LinkedIn, Twitter, YouTube and the other large networks facilitated the third wave of emancipation. It allowed everyone to play an important role in the distribution of headlines and opinions. In a way we are now all gatekeepers for at least part of what is happening in the world.

Around 2007, the last acceleration happened with the new mobile ecosystems. Although the early efforts to bring Internet to mobile phones date from the late nineties, we had to wait for Apple (with the iPhone) and Google (with Android) to actually make it happen. We simply cannot overestimate the impact smartphones and tablets have on the behavior of people and how this is speeding up digital transformation.

Mobile started the fourth wave of emancipation. Access to information, communication and interaction has been available everywhere at all times ever since. This wave is creating new habits and expectations focused around the here and now, instant gratification and more impulse based decisions. Another effect of the mobile ecosystem is that more and more people that previously had no access to the Internet or social media, are now jumping on the digital bandwagon. Expect to see many more billions of users join the digital space, resulting in a more multi-cultural, complex and vibrant environment.

The last key driver of change that mobile brings to the table is its ability to bridge the physical and the virtual world. Through mobile devices, we have started to use the world around us to trigger digital information and services. The physical world has become our navigation interface, often without us even realizing it.

Nobody knows what the next wave or accelerator will be, although we could easily theorize about the potential of smart TV’s in the living room, wearable computing (like Google Glass or smart watches) and the Internet of Things. One thing is for sure: we haven’t seen the end yet.

3. THE SPEED OF CHANGE

Change and evolution are nothing new. Humanity is subject to permanent change: every cell, every person, everything around us, every part of the universe is changing and evolving. This has been the case since the big bang and it will go on forever. So why is digital change so scary? Why is it so difficult to manage?

The explanation is probably that humans can only deal with a certain amount of change within a general framework, This gives us the overall impression that it remains relatively stable. People change, companies change, industries change, political systems change, but until now, this change always happened at a speed that was mostly slow enough to adapt.

Digital is increasing and speeding up the amount of change we have to deal with. The explanation for this can be found in the four waves of emancipation that we introduced in the previous chapter.

The analogue world was characterized by physical boundaries which, by definition, made it difficult to introduce change. A retail company that wanted to compete with another player in a certain market, would have to open up stores (and thus find good locations), attract people, build physical logistics and distribution, build up an inventory and so on. This made it very expensive and complex to enter a market as a new player. It was the same case for so many other activities, like creating a new newspaper, a TV-station, a record company, etc. If you wanted to succeed, you needed the power to enter the physical world. Only a select number of wealthy organizations had this kind of power.

The first wave of emancipation (the rise of digital) made it much easier to create and produce (mainly digital) products and/or services.

The second wave (the Internet) led to the disappearance of physical borders and time zones, enabling the potential for any smart solution to become a worldwide success. Yet as many experienced during the first decade of the Internet, being globally available was no guarantee for success. Most new initiatives never made a blip on the global radar and died once the ventures ran out of money.

The third wave (social media) changed the ownership of the distribution of headlines and opinions. Suddenly we could all become gatekeepers of interesting stuff. Social media distribution of new ideas and start-ups paved the way for a whole new generation of mean-and-lean companies that found international recognition, distribution or even funding.

The fourth wave (mobile) is accelerating everything even more. It reduces the time between impulse and response from hours or even days to minutes or seconds. The moment something good (or bad) happens it starts spreading around the world instantly.

The combination of all of these waves of emancipation has created new ways of thinking about the world. We have evolved from a situation in which scarcity dominated market position and business models (keeping prices artificially high) towards a model of abundance. We now have a huge amount of players offering interesting, similar solutions. They are all potentially competing on a global scale, without the traditional geographical protection from the past. This of course had a disruptive impact on product development (always in beta), pricing (the rise of freemium), go-to-market and so on.

To say it in the words of Forrester Research: digital product disruption is better, stronger, faster. In one of their 2011 reports (and they are now publishing more and more on digital disruption), they state that compared to old disruption, digital disruption will see 10 times the number of innovators, who will have 100 times the power to disrupt and this all at a cost that is 10 times less than in the traditional world.

4. DIGITAL: FROM THE SIDELINES TO CENTER STAGE

Although the digital industry has evolved over the last two decades, one thing has remarkably remained the same: most of the time, digital is considered as something that happens on the sidelines. In the early days, digital investments (in sites, transactional platforms, e-commerce, campaigns, advertising, video, etc.) were mainly experiments, with no real purpose other than businesses being present in these fields. Even when these digital aspects became a substantial part of the business, they rarely touch the real strategic core of a company.

Most of the companies in different industries like media, retail or HR mature in their digital knowledge and execution. They now have online, social and mobile strategies, introducing objectives, KPI’s, ownerships and accountability.

Yet for most online remains just another channel, alongside their traditional business. Unless they are Uber, Amazon or Monster.com, they do not embed digital in their core company strategy.

Starting in 2010 we began to see the first signs of change. There is a slow but steady mindshift going on, introducing the notion that digital is no longer an activity that can be separated from the core business. Examples from declining industries like music, classifieds, print media, tourism and many others have raised concerns and created consciousness that digital is potentially transforming the very essence of companies, entire industries and even the world.

What triggers this shift will probably remain unclear, but we believe that it is due to a mixture of increased economic pressure, the maturing digital landscape and the new rules introduced by mobile, social and other recent evolutions. More relevant though is the fact that many business leaders are finally starting to embrace the reality of digital transformation. Suddenly digital is no longer considered as just another nice-to-have channel. For those who are making this mindshift, it is now clear that the future of their company lies in making it a digital-first organization.

DIGITAL TRANSFORMATION MODELING

Unfortunately there is an issue with this digital ambition to simply inject digital thinking into your core strategic DNA and thus to become a digital-first company.