Disruption is rampant. And digital transformation is the answer.
If only it were that simple.
Tom Goodwin, author of the book Digital Darwinism: Survival of the Fittest in the Age of Business Disruption, believes that most business leaders understand the importance of digital transformation. But he fears their strategies fall short — by bolting on piecemeal digital solutions to avoid a complete revision of their businesses and their technology infrastructures.
“I think every company needs to go into this with their eyes wide open,” Goodwin said. “More companies are in denial than are overly aware of the change that’s coming.” (Also see research findings in Industries in the Cross Hairs of Disruption.)
A good start, Goodwin stresses, is to begin with the right questions. Tough questions.
“I think the most profound question you can ask yourself,” he said, “is what would your business look like if you set it up today?”
For many longtime incumbents, success was based on years of bold, creative decisions. But those strategies may no longer be relevant.
“If you were going to set up a banking network today,” he explained, “you wouldn’t think how can we own several hundred marble buildings around the U.S. If you were to create a car company, you probably wouldn’t be building huge combustion engine plants.”
Once looking at your business from that perspective, Goodwin added, a range of tactical questions arise.
“How do you undertake to become the thing you would have set up if you were to start today?” he asked. “And what does that mean for the culture? What does that mean for budget? More than anything else, how does technology play a role in that?”
Not to mention, how do you transform while still staying competitive?
“Do you metaphorically change the engines on the plane while it’s flying,” Goodwin continued, “or do you accept what actually may be the bravest decision of all as a CEO, to manage the decline of the incumbent business and also invest in the future of the business.”
Of course, incumbents shouldn’t abandon everything that made them successful. And there’s great value to be found in physical assets like stores and bank branches — if they are transformed in ways that optimize technology for an all-new customer experience.
“We need to completely rewire businesses,” he clarified, using retail as an example. “And they need to be based on what technology makes possible. But they also need to be based around consumer expectations. When you can find things quickly online, you expect to do the same in store. When you can get recommendations of products that go alongside each other, you then expect that in store.”
‘The Folly of Incremental Change’
One common mistake is attempting to transform without an upgraded technology foundation.
“Most legacy industries that have technology that underpins core aspects,” he said, “probably need to go through a fundamental rewiring of all of their systems, but it’s scary for them to contemplate.”
Instead, many add disparate digital solutions over outmoded network infrastructures, what Goodwin has called “the folly of incremental change.”
“You can make a customer-facing app that sits on top of this worrying foundation,” he said, “but the reality is changing your seat on a flight is impossible. And the banking infrastructure is very susceptible to security problems or just having systems that aren’t particularly robust and networks collapsing at key times.”
Rebuilding the foundation from the bottom up is never an easy prospect.
“These companies face very difficult decisions,” he said, “which is actually to completely rip out the guts of these systems, which quite often literally are server rooms with some machine running Windows ’95 in a corner and a floppy-disc drive.”
In the long run, Goodwin argues, investments in a modernized technology infrastructure will be cheaper than continuing to cobble together digital solutions over a slow, insecure network.
“You end up spending lots of money to maintain a system which isn’t what you should have,” he warned. “Effectively you’re polishing things, making small-scale changes, and putting a slightly glossier interface onto something which is fundamentally broken.”
Empathy for the End UserOnce those foundational technology investments are in place, a world of digital possibilities opens. But no matter how dazzling the technology, humans must take center stage.
“The act of creating experiences which people clearly would love, that’s a much better application of technology,” Goodwin stressed. “They may be driven by 5G, or they may rely on blockchain, or they may have an underpinning of Internet of Things, but it’s not about that. It’s about making sure that people can get fresh groceries, or have apartments with lower energy bills, or get on earlier flights without thinking about it.”Empathy is probably the skill which is most important, but is least talked about.Empathy for that end user, he added, is an essential but often overlooked element of any tech initiative, and should be built into any project from the start.
“Empathy is probably the skill which is most important,” Goodwin said, “but is least talked about in the current environment.”
Empathy drives some of the fresh thinking that enables disruptors to reimagine established industry practices. But Goodwin argues that too few older companies think that way.
“The number of companies that you look at and you think yeah, they really understand both people and technology,” he added, “it’s a pretty small number.”
Moreover, skills like empathy will be essential as machines take over more and more rote tasks.
“As increasingly many of the tasks in the world are automated,” Goodwin continued, “how can we celebrate the things that we can do better than computers? Certainly, creativity is one of those things, relationship building is another, and empathy.”
A Culture of Continual ReinventionIn the digital age, Goodwin believes, small bets rarely pay off. And bold, continuous innovation needs to pervade the company culture — even if the decisions it drives are challenging.
The Internet will continue to break barriers, Goodwin predicted. Not just social and national boundaries but industry barriers. And business leaders need to create a culture that’s prepared for disruption that come can come from seemingly anywhere.
But more importantly, they need to drive their own disruptions, innovating the kind of experiences their customers may be accustomed to elsewhere.
“I think this is probably the single easiest opportunity for businesses to explore,” Goodwin said. “To look at common experiences in other sectors and then transpose those over to your environment.
"It drives me nuts that banks only look at other banks as a competitive set. Actually, your experience of banking is set by your experience of hotels, which is set by your experience of car rental companies, which is set by your experience of grocery stores or car garages.”
For now, Goodwin said, we remain in a challenging environment, in which change is disturbing and finding the right path forward is a constant challenge.
“We’re probably in the peak malaise,” he said, “where we have incredible complexity to our life where things don’t really work that well and lots of companies are struggling to make money, where there’s just tensions all over the place.”
But he sees major breakthroughs on the horizon, with seamless technologies that “just work.” And a better world for business leaders, if they make the tough decisions to ensure they thrive in it.
“We may have more years of the cracks growing,” Goodwin concluded, “of algorithms not being particularly helpful, of people struggling to adapt to a world which is quite difficult.
"But when you look at all of the long-term implications of technology, pretty much all of those changes are going to be an incredible force for good.”