Many incumbents underperform digital native companies. As the pace of change accelerates, speed will be of the essence to ensure that current advantages are not eroded, according to Oliver Wyman analysis.
The success of digital businesses in transforming established markets is out in the open. However, what about the incumbents which aren’t digital from birth? The third volume of Oliver Wyman CMT Journal delves into the digital journey of such incumbents.
Incumbents have several advantages like established brands, markets, knowledge, customers, suppliers, cash flow etc.; however, they have their share of problems as well. They have the baggage of legacy to deal with, which makes competing a challenge. Transformation isn’t an easy task for such organisations but the ones who make the cut surely reap rewards that make the cumbersome journey worth it. The research has unveiled six patterns that set the leaders apart from the laggards and set out the playbook for digital success. Incumbent leaders envision how their industry will evolve far ahead, define their strategic positioning, and act to transform their business by:
Reinventing existing processes through digital thinking, reducing back-office operations
Systematically transforming underlying systems to enable digital action
Developing next-generation data approaches in every area of the business
Building structural and cultural agility within the organisation, including recruiting and developing digital talent
Creating capabilities to access, nurture, and launch innovative offerings
Growing from today’s strengths to eventually become a truly global business
Such leaders have the first wave of digital transformation covered and are now investing in long-term capability transformation.
1. Digitise what you have
The future is all about putting customers in charge, empowering them to choose what they want and how and when they engage. Leaders recognise that digitisation goes way beyond automation. They fundamentally rethink processes, turning them upside down starting with data. They zero base their design to meet only genuine customer needs, carefully weighing every step. By following this approach, the leaders can move from a situation where 1% of customers are serving themselves to where >30% are, and from one where manual interventions are the norm to one where they are the exception. This reduces opex by half.
2. Decouple old and new technology
For incumbents, IT systems are all too often a brake on digital process, as are the siloed organisations typical of incumbent IT. Replacing legacy technology often comes with the fear and risk of failure, and lack of immediate benefits.The way leaders solve this dilemma is by inserting a mid-tier layer between the front end and the core; and creating a new digital front-end organisation and ownership for the mid-tier itself. This allows for the most appropriate development approach. Decoupled environments allow for the rapid deployment of new products and applications at the points where they matter, i.e. at the points of direct engagement of the business with its clients or employees.
3. Put analytics on the front lines
Instead of thinking only big and long-term about data, leaders see sophisticated big data capabilities as a mid-term goal. They focus on building small nuclei of dedicated, high-powered data capabilities near to the business user. Building a data foundation for the long term is very important. However, these investments will take time to pay back. Significant improvements can be created immediately by ensuring that the most important data are available instantly to support decision making, on demand, and in a flexible form. Through this transformation, incumbent leaders can reduce decision times and start building data science capabilities to ensure future competitiveness.
4. Free the digital team
Often incumbent businesses prove unattractive to highly skilled digital talent, who have too many choices and seek evidence of commitment and the potential for making an impact. Leaders often start by putting together a stand-alone but well-connected digital team. Freed from legacy silos and culture, and with support of senior executives, such groups can become capability incubators and a rallying point for digital transformation, knowledge sharing and marketing. It should be worth noting that ‘stand-alone’ doesn’t mean isolated; successful digital teams retain strong links to the core businesses, creating a transition path from non-digital to digital for the business model. By freeing the digital team, leaders are able to grow the native talent critical to digital transformation, and are able to embed the product management mind-set required to support the development of digital properties, support agile penetration, and explicitly anchor commercial digital metrics.
5. Innovate without borders
Innovation definitely should not be confined to the boundaries of the R& D department. New ideas should span the entire organisation. In order to tap into as much creativity as possible, leaders play the numbers game and build an innovation ecosystem. This comprises partnerships with external labs, academia, investments in start-ups, and strategic partnership with other companies etc.
6. Disrupt yourself
The fear of disruption to legacy business tends to paralyse incumbents. In the near term, leaders explore digital businesses side by side with their legacy business. They understand that the risk of disruption and short term profits is a necessary trade-off for long-term survival. Incumbents need to keep in mind that in the digital era, the right combination of speed and skills is the ultimate differentiator. There are opportunities for leaders who dare to make the change, the laggards will ultimately wind out as losers.