The myth of the game changing power of “Digitization” has outgrown the garages in Silicon Valley and the classrooms of Tech driven elite universities. It is a driving force behind change and growth in many parts of the economy.
Private Equity and Venture Capital investors are aware and notorious to seek for the best ideas and equip some lucky founders with funding, surreal to managers in traditional industries. Technologies – such as Internet of Things, Big Data, Cloud Computing, Artificial Intelligence or Industry 4.0 – give basis for business model innovation and future disruption.
Ramping up digital competencies and setting a CEO agenda for the digital transformation is imperative for any given business, in order to protect the competitive proposition in tomorrow’s hyper-connected economy.
By 2020 at least 50 billion devices and a trillion sensors are expected to connect individuals with economic processes. The whiteboard drafts in research labs around the globe will be available to consumers as devices and applications even faster. Innovation to come will change all the rationales of any business model in any given industry.
Observing the accelerating speed of innovation over the past years, disruptive business developments will be the major reason for businesses to fail.
This is leading to three elemental rules:
Do-or-die – excel on Digital Transformation
For existing industries – focusing on the digital transformation is imperative.
Companies failing on digitization, as well as industries, with a low level of digitization, will be prey to disruption. An example is provided by the current digitization in the healthcare industry.
Digital champions like Apple, Google and Amazon are launching their health-initiatives and create new business models as new-be’s to the industry.
Second will be first looser
Digital business models work are poised to scale. According to the textbook, success is subject to technical proficiency, speed of go to market, fast scaling of the organisation.
From the perspective of a turnaround executive; authors and academic lecturers are disregarding a simple, yet brutal fact: Creating growth with investors’ money is exposing entrepreneurs to a brutal reality. Only one in 10 start-ups is considered to survive. Among those only one in 10 meets the investor’s goals. Consequently, leaders from legacy industries, face fierce attackers from the start-up economy. Highly motivated, eager to enter and disrupt their target industries, trained at top universities, masters of the very latest technologies and equipped with sufficient funding, they have nothing to lose but a lot to win. These entrepreneurs have become a true nightmare for “old school” managers.
The truth is simple. No one is really “too big to fail”. A brand like Kodak disappeared practically overnight. Many companies are just existing in a transitional phase, the digital death is waiting just around the corner. Managers of the automotive industry may relate to this very well. The sound of the V8 engine might get you goose bumps, but the soft sound of an electric car, serves as soundtrack industry’s future.
Business is local? No way!
Business, hence competition, is global. The good news is: It is easy, to address a global market from the remotest location on earth. The cloud, available payment solutions and logistic service providers take care of the rest. Yet there is a bad message included: Chances are the same for everyone else.
Capital, goods and services are moved almost without limitations around the globe. Competition can hit at any point of time, from any direction. It is no longer sufficient to engage with the local business community or visit the national conferences to keep an eye on the competition. Borders, taxes, tariffs and protectionism are out-dated.
With borders diminishing, it is a battle of the brains and the talent for execution. As distances are irrelevant in a digital world, the next disruptor might be working right now in her lab on the other side of the globe, just to enter the local market and provide highly competitive and well thought through offers to the local customers by tomorrow morning.
Digital disruption is not the website or online store, serviced out of China for customers e.g. in the US. Evolving technologies like block chain and 3D printing, are taking the mobility of funds, information and services to the next level. Very few business owners and even less representatives of regulatory authorities have yet understood these technologies. Whereas this is opening doors for a vast number of new business models, it is also exposing new, as well as established business initiatives to uncertainties, as the legal situation remains unclear in many cases for the time being.
Learnings & Conclusion
- If you are not digital, you are out! A digital business model, plus being on top of hype is no guarantee for long-term survival. Digital heroes of their time like AOL or mySpace, to just name two, have already left the business community again and remind us, that even the disruptors themselves are very vulnerable to competition and change.
- Expect the unexpected: Globalization and technology are tearing down the walls of protection. Even the unthinkable will become a technological reality. As an example, chatbots are considered to fully capable to subsidize human customer service operators within the next two years. Quantum computers will reshape the world of IT and put a big question mark behind todays security standards, protecting vital infrastructure, but also open gateways to a new dimension of science. The world as we knew it already doesn’t exist anymore.
- “Three words: Tempo, tempo, tempo” (Lt. Col. Stephen (Godfather) Ferrando) The evolution of technology is ever accelerating. For executives and business owners, this creates the urge to adjust, test, innovate, deploy and constantly re-invent, in order to maintain their market position and command a relevant competitive proposition. This is a global race for the best business models and the fastest execution. Traditional industries, with hierarchies in place and legacy issues, to deal with, have often difficulties to catch with the speed and agility of the new world order.
About the Author
Kolja A. Rafferty is practice lead strategist at Leverage Experts, a mid-market strategy and corporate finance consulting firm with a focus on start-up, scale up and turnaround cases in the technology field. The Leverage Experts team is operating out of Zurich, Switzerland and Frankfurt, Germany, with outposts in Toronto, Canada and the Californian Bay Area, USA, covering Europe and the Americas.
Kolja serves as executive and advisor to companies in distress and turnaround situations. He is a certified non-executive director and renowned author and spokesperson on conferences. His personal view on various business subjects, he is publishing on his private blog. He concluded a legal education, holds an US MBA degree from a renowned business school and received his non-executive degree from INSEAD.