Last week, I talked about the many myriad flavours of “digital”, and the importance of seeking clarity on your ultimate objectives. More specifically, whether you are pursuing an enhancement to your current business or exploring a complete disruption to your current operating model.
Or put another way, it’s the difference between “inside-out” digital improvements, versus “outside-in” digital disruptions, looking at opportunities as a third party attacker or disruptor might. (One of my fellow directors refers to these as little “d” and big “D” initiatives.)
So what, you might ask? Does it really matter which bucket your digital initiatives fall in? Isn’t it just worth getting on with things fast? To a certain extent yes, as again, it’s worth repeating again that initiatives in both buckets deliver value, both potentially provide benefits. After all, anything which improves an experience for customers, or improves the efficiency of your business is worth considering. And the answer as to whether you need to pursue something as radical as a business model disruption, depends largely on the threats facing you in your industry and the competitive barriers to new entrants in market.
But each path carries with it a different set of challenges, and as with anything, being forewarned is forearmed.
- Digital enhancements to one’s current business model encompass initiatives which don’t require a complete rethink of your entire business, but can, because they work within an existing business framework, be tricky and complicated to implement. This is especially true for long-established incumbent businesses, who’ve been around long enough to have developed a spaghetti mess of technology and processes.
- Digital disruption sounds from its very name that it could be far and away the more radical option, but because this can be achieved in a “clean sheet” environment, often using more incremental build techniques, disruption options can be less risky, easier to design and put into place. It’s how many of the billion-dollar unicorns, like Uber, have achieved their remarkable success, starting with the customer and rethinking entire industries from the customer back, with little baggage from legacy infrastructures holding them back.
Incumbents are often obsessed with projects in the second category of initiatives, partly because they feel the greatest threat from disruptors who don’t have any of the burden of any baggage, but here’s the rub …. it’s damn hard to achieve that scale of change from within an incumbent model for a number of reasons, including the three I’ve outlined below:
#1: “Oil” and “water” culture clash
There is something about the completely different approach to development and change in both current and new worlds that seems to exacerbate all the internal friction points in an incumbent, breeding antibodies that call for a rejection of the new and foreign organ transplant (usually the innovation, growth or incubation team). The adversarial nature of business planning cycles, pushing people into force-ranking initiatives for scarce resources and dollars, often breeds an “us vs them” mentality between those generating the cash (usually the “cash-cow” core business) and those consuming it (the digital/growth/innovation units). Each business unit strives to articulate why they are more deserving of funds, and the internal competition starts … with everyone forgetting that the whole idea of exploring an outside-in disruption option in the first place is to sock it to your external competitors in market, and to future proof your company in the process.
#2: The tension between short-term performance vs long-term health (… “and the winner is”…)
The pressure to meet next-year’s target, combined with that of external stakeholders and investors generally demanding strong near-term returns, can drive companies to strongly favour short-term outcomes over long-term. However, for a disruption play, the ability to not lose one’s resolve during the first few years of low returns and uncertain outcomes, while managing external and internal shareholders who may not understand the attraction of a programme with a payback over 12-18 months, makes pursuing disruption by incumbents one of the most tricky rabbits to pull out of the Transformation hat. Tricky, but not impossible, as some have managed to demonstrate. Think of Air New Zealand and its complete revamp in recent years of its customer experience, as well as Spark New Zealand’s launch of new ventures such as Skinny, Bigpipe, Morepork and Lightbox. Avoiding the “Core vs Growth” sudden-death playoff requires a long-term vision and foresight by the executive and Board, and a determination to take the calculated risks…. repeatedly.
#3: Lack of digital experience and knowledge at Executive and Board level
Unlike other initiatives which seem to be able to drive themselves from grass roots up, digital initiatives are like seedlings which need nurturing and incubating (mostly for reasons related to #2 above), and so without strong leadership sponsorship and air-cover, many digital initiatives wither and die a quick death. Those executives with digital experience, who have “seen the movie play out before” understand the typical lifecycle and rhythm of a digital programme of work, are more likely to have the patience to wait for the punch line. They can also act to pour sand on the flames of internal infighting, as outlined in #1 above.
Having clarity on where specific digital initiatives sit, either with the “digital enhancement” bucket or “digital disruption”, can allow both groups to pursue their projects in peace/parallel, by applying different sets of success criteria, horizons for payback and milestones to each bucket of initiatives, and distinguishing these success criteria for executive management and board. Also, being aware that these friction points will come up will hopefully enable you to navigate through (if not avoid) the great internal digital divide, and act as timely reminder to you that you’re doing all this to win in the market, not compete internally.