Perspectives

Digital disruption in 2017

Private company issues and opportunities

Overview

First, there was ZipCar. Founded in 2000, the car-sharing company became a hit with urban consumers by eliminating the costs tied to car ownership in providing a cheaper, shared alternative that could be used on demand. In the years since, vehicle-sharing has made way for ride-sharing, with services such as Uber and Lyft granting the gift of go in the palm of their hands. And pretty soon, we’ll be talking about driverless cars that can be deployed for revenue-generating opportunities while their owners are shopping for groceries or dining out.

What do all of these innovations have in common? One, they were empowered by digital technologies. Two, they disrupted business models that hadn’t fundamentally changed for decades. It’s the same story across multiple sectors: online shopping has hurt many bricks-and-mortar retailers, crowdfunding has contributed to the democratization of financial services, and house-sharing has roiled the commercial hospitality industry.

With a raft of new technologies set to disrupt business as usual across every sector of the economy (see sidebar), are private companies doing enough to get ahead of them? The threat of disruption may be bigger than many think, says Doug Palmer, principal, Deloitte Consulting LLP and a leader in Deloitte Digital’s strategy practice. In 2016, Palmer was part of a team comprised of Deloitte and MIT Sloan Management Review professionals that developed a digital business report based on a global survey of more than 3,700 business executives, managers, and analysts from organizations around the world.

A cultural dilemma

One of the key findings was how business leaders believe digital technologies will disrupt their industry, but how few of them think they are adequately preparing for it. The gap between awareness and execution was even bigger for mid-market companies.1

When it comes to digitally transforming an organization, execution can be hampered by many challenges. However, the biggest challenges may actually be internal rather than external. According to Deloitte and MIT SMR survey findings, the biggest threat facing companies due to digital trends are issues relating to a lack of company agility, inflexible culture, and digital not being a priority. “There’s a pretty clear call to action in these findings,” Palmer says. “Digital’s simply not as big a priority as it should be, and more often than not companies are simply getting in their own way.”

One of the critical ways private and mid-market companies do this is by simply failing to ask the right questions, Palmer says. “The business you’re in may not be around in five years,” he says. “Companies tend to address problems one as a time as they crop up, but not in the grand scheme of things. If you’re just focused on the here and now, that might save you for a year or two but if you’re not looking out five to 10 years from now and thinking about where the marketplace is going, you’re not going to identify industry or large scale societal trends before it’s too late.”

To address the digital future while meeting today’s needs, John Hagel, co-chairman of the Center for the Edge at Deloitte, suggests that organizations use the zoom-out/zoom-in approach used by many Silicon Valley companies. The zoom-out dimension looks at a time horizon of 10 or more years by predicting and defining what the market will look like and what customers will expect. The zoom-in component addresses the next six to 12 months and identifies the two or three business initiatives that will have the greatest potential to accelerate movement toward the longer-term destination.

Palmer notes that zooming out is a challenge endemic to many private and mid-market companies, and it tends to tie back to a company’s focus on surviving and managing the issues impacting it today rather than reimagining what their organization needs to become in order to compete five to ten years from now. To be sure, people generally like working for family-run and other private and mid-market companies because of the working environment they offer: close proximity to senior leaders, more flexible work environments, and a greater commitment to work-life balance. But when it comes to identifying and addressing the impact of technological disruption now and in the coming years, such companies can have a hard time reinventing themselves, Palmer says.

One aspect of this is tightly controlled decision-making. It can be hard for many private and mid-market company leaders to let go of control and allow a bunch of ideas to flourish. “Even when you find people trying to innovate for some end, either the company doesn’t fund it enough or it’s seen as competing against the organization,” Palmer says.

Encouraging risk-taking

Rather, private and mid-market companies need to explore new portfolio approaches, in which innovation is happening in a variety of different contexts and failure is encouraged provided it offers opportunities to learn. In the past, employees might have been concerned about their careers being in jeopardy if the projects they managed didn’t pan out. But if your company isn’t experimenting enough, then it may not be driving innovation as much as it should. Not only that, the company’s employees may be recognizing that they can move to other organizations that do embrace risk taking and learning. According to the MIT/Deloitte research, employees are more likely to leave on their own—even after less than one year—if they’re not given the opportunity to pursue opportunities to develop in a digital environment.

In addition to developing their own talent, private and mid-market companies also need to add new employees with digital skills. Asked how their organization was primarily strengthening its digital innovation capabilities, respondents from digitally maturing companies listed this as one of their top four priorities.2 But this tack didn’t make a similar list for mid-market companies.

Palmer cautions that this isn’t merely a check-the-box exercise, where companies match job openings to resumes. These new recruits also need to be able to bridge the gap between the company’s traditional culture and where it wants to be in the future. That means that soft skills should often trump technology knowledge when it comes to driving the digital transformation, especially for organization leaders. In fact, the survey found that only 18 percent of respondents surveyed across companies of all sizes listed technological skills as being the most important requirement for leaders to succeed in a digital environment. Instead, they pointed to managerial attributes such as having a transformative vision (22 percent), being a forward thinker (20 percent), having a change-oriented mindset (18 percent), or other leadership and collaborative skills (22 percent).

Intentional effort

Even when you hire the right talent, it still takes time to get everyone on the same page. Palmer said it took the leader of one private organization he worked with an entire year to establish a shared agenda between leadership and those hired to lead the technology charge. For years, the company had embraced a distributed model, in which leaders on the ground in key markets relied on in-person communications and relationships to push the company’s strategy. This made it particularly challenging for them to embrace a digital future.

“The new people were using terminology and lexicon that didn’t match the way the organization worked,” Palmer says. “They knew they needed to change, but it was a process in itself to overcome some of that.”

The bottom line: creating an effective digital culture takes an intentional effort. Digitally maturing companies are constantly cultivating their cultures, by engaging in efforts to bolster risk taking, agility and collaboration. “It may seem like a lot to manage, but compared against changes in the market environment and competitive pressures, these internal issues are entirely within your control,” Palmer says. “All a company needs is the ambition to change.”

Sidebar: Three technology trends that could roil your market

Virtual or augmented reality: VR technology makes it possible for users to immerse themselves in manufactured surroundings that depict actual places or imaginary worlds, while AR overlays contextual information on the immediate physical environments users are experiencing. Already, the disruptive impact of both VR and AR is being felt across consumer technologies as dozens of new products enter the market. Companies are employing them for a range of functions, including communication and collaboration, training and simulation, and field and customer service. But more targeted deployments are underway as well, with AR creating a competitive advantage in building construction, parcel delivery and patient care.

Blockchain: This shared-ledger technology makes it possible to store digital records, share information selectively with others to exchange digital assets safely and efficiently, and proffer digital contracts. These capabilities are transforming reputation into a manageable attribute that can influence one organization’s interactions with another. In the next 18 to 24 months, entities across the globe will likely begin exploring blockchain opportunities that involve some aspects of digital reputation, in some cases removing trusted intermediaries who once served this purpose.3

Dark analytics: There’s an astonishing amount of raw data that lies deep within the Internet, and now technologies are beginning to allow CIOs, business leaders, and data scientists to use that information to unlock valuable business, customer, and operational insights. As innovations such as the use of Internet-enabled devices spread, this dark data will proliferate. In an example of how this information might be utilized, one online subscription shopping service is using images from social media and other sources to track emerging fashion trends and evolving customer preferences. This data is helping them to select style-appropriate items of clothing that can be shipped to individual customers at regular intervals.4

Visit the Private company issues and opportunities homepage to view a list of additional topics.

References

Mid-market companies as defined in MIT SMR and Deloitte Digital’s 2016 report refer to organizations with $50 MM to $1 BN annual revenue, https://dupress.deloitte.com/dup-us-en/topics/emerging-technologies/mit-smr-deloitte-digital-transformation-strategy.html.

2 In order to measure an organization’s digital maturity, MIT SMR and Deloitte Digital asked respondents to “imagine an ideal organization transformed by digital technologies and capabilities that improve processes, engage talent across the organization, and drive new value-generating business models.” Respondents were then asked to rate their company against that ideal on a scale of 1 to 10. Three maturity groups were observed: “early” (1-3), “developing” (4-6), and “maturing” (7-10).

3 “2017 Tech Trends Report,” Deloitte University Press, February 2017, https://www2.deloitte.com/content/dupress/dup-us-en/focus/tech-trends/2017/blockchain-trust-economy.html.

4 “2017 Tech Trends Report,” Deloitte University Press, February 2017, https://www2.deloitte.com/us/en/pages/technology/articles/technology-consulting-tech-trends-collection.html.

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