The term ‘digital’ is bandied about a lot these days, and with its overuse comes the risk that it will be perceived as just another wave of new technologies – another ‘flash in the pan’ or ‘fad’ that will prove to be more hype than anything else. However, this is different and the aggregate effect of social, mobile, analytics and cloud is having such an impact on businesses, entire markets will be restructured and every corner of an organisation’s operating model will be affected.

So, how is this the case? It differs from sector to sector, with those more dependent on digital products and services (e.g. media, entertainment) affected sooner than those that are less dependent (e.g. utilities, mining), but every sector will feel the disruption. Firms created in this digital era benefit from radically lower cost bases than their ‘establishment’ counterparts, meaning all companies need to act fast to lower their own in order to remain competitive. For starters, this is going to involve a flattening of corporate structures and an embracing of lean and agile business principles. In short, and belying the complexity involved in such a change, this is going to require even large organisations to learn to behave like start-ups.

Such large-scale transformation will be a tall order for many, but Moorhouse believes the prize is well worth pursuing. To consider just one example, distribution costs will approach zero for companies offering digital products and services. After all, mobile apps can be rolled out for minimal cost and almost instantaneously – no matter whether you’re a-two-day-old start-up or a 200-year-old company. New market entrants can avoid significant capital costs on property and IT (not to mention avoid delays in starting up) by working remotely, outsourcing commodity tasks, transcending traditional working hours, and licensing cloud-based software seats. Digital social structures allow new products and markets to be tested easily, at low cost, and quickly, revolutionising the way R&D works and encouraging innovation. But established players can benefit from these developments too, if they’re willing to take the initiative.

Meanwhile, the penalties for failing to respond are severe. Digitisation levels the playing field between established companies and start-ups, as it lowers the barriers to entry, and results in greater choice for customers. The increasing number of distribution channels mean that it is unlikely one organisation can dominate, leading to price competition as organisations battle for customer share. Companies must therefore ensure that they focus on each and every customer interaction to encourage loyalty, as every touchpoint counts in the digital age.

The case for digital transformation seems clear-cut, but the journey the organisation and its employees must undertake looks daunting at first sight. Indeed, anyone who believes it will be easy is likely to be in for a rude awakening. That said, Moorhouse believes there are five strong principles any digital transformation can hold to in order to keep the destination in sight:

  1. A simple, powerful value proposition will help a firm to stand out in a crowded market where the customer has an excess of choice. Even the most complex of organisations should be able to come up with one: Apple has just five product lines
  2. Every interaction matters because customer experience is a key differentiator. Pay attention to the less obvious opportunities for interaction, such as client on-boarding, product delivery and claims experience
  3. Recognise that R&D has changed forever: the new economics of digital allows established market players to behave like start-ups, so don’t constrain R&D. Running an effective intrapreneurship programme will help you both harness the best ideas and increase workforce engagement
  4. Strive for lean in all things: a relentless focus on eliminating every source of inefficiency is necessary to compete with new entrants that suffer no pre-digital era legacy issues. Software-as-a-Service and cloud-based services eliminate unnecessary layers of management and exploit collaboration to shorten decision times, reduce costs and increase flexibility
  5. Understand that everyone is digital: technology is not the back office - it is the heart of everything, and therefore a CEO and board-level challenge. Every member of the workforce needs to actively participate in the transformation

Realising the potential of digital will be no easy task and transforming the operating model – while fending off leaner and more agile entrants – will require a programme of deep, organisation-wide change. But digital is primarily a challenge of leadership: disruption is going to be a constant companion for many years to come, and it is only through strong and inspired leadership that new powerhouses will emerge. Where it is lacking we will see organisations break apart or even fail entirely – even the formerly mighty. Nonetheless, a wholesale transformation of the business need not occur in a single, large-scale change. Instead, breaking the challenge into a portfolio of change programmes with clear, smart objectives is likely to be both easier to accomplish and more effective.

Just don’t stand still.

By Stephen Stanton-Downes, Digital & Technology Transformation Lead at Moorhouse

unnecessary layers of management and exploit collaboration to shorten decision times, reduce costs and increase flexibility