Leaders are constantly bombarded with mind-boggling complexity, the exponential speed of change, and the application of new technologies. Meanwhile short-term pressure from the investment community continues to intensify.
It’s understandable that even the best of the best business leaders will occasionally miss something. Some misses, however, can be devastating, chief among them: the move to digitization.
Everyone is aware of the handful of born digital companies that command outsized market valuations.
Yet many business leaders across the globe underestimate the speed and impact that born digital companies can have on their business. So-called legacy companies still dominate much of the world’s business population, but that will change as digital players move into their market spaces through unlikely points of entry.
The new players are using algorithms and artificial intelligence (AI) to offer customers a superior and increasingly personalized experience, and their digital platforms allow them to scale up at breakneck speed and low cost.
They won’t just disrupt the existing order, they could outright destroy a company or industry. Nokia and Kodak have practically vanished, and Sears is on the brink.
This digitization phenomenon will continue. Those who miss it and delay dealing with it could be badly damaged, as is happening in retail across the globe. Those who grasp the immense possibilities it creates can lead their business to new heights, as Starbucks and Adobe have done.
What specifically is causing business leaders to be late to the digitization game?
1) First, trying to fit square pegs in round holes when it comes to talent.
Taking advantage of digital technology requires people with technical skills many companies lack. Leaders can assume that people will learn, but it might simply take too long.
It’s also possible that people who grew up in a stable environment will have difficulty imagining a trajectory of exponential growth. Think “people before strategy” and make sure the right talent is place.
2) Second, not learning what AI and algorithms can do.
Many business people are afraid of these things, and assume they can hire experts and leave the thinking to them. I’m not suggesting that business leaders have to become computer scientists, but they should learn the basics.
Knowing the types of business problems algorithms can solve opens the mind to the kinds of new markets, new consumer behaviors, and new business models born digital upstarts imagine.
There are many ways to learn: online courses, short-duration programs, or tutors from the local college.
3) Third, not accepting the fact that power has passed to the consumer.
The fact that consumers have many options available to them and access to a ton of information to help them make a choice demands a new way of thinking about how to compete.
The starting place must be the consumer experience, not the product or the service you provide. Focus first on the end-to-end customer experience. Observe it, research it, then consider how to improve or reshape it.
4) Fourth, avoiding the financial conundrum.
Becoming a digital company requires investment, much of it in the form of salaries for people with sought-after expertise, which nicks earnings. At the same time, the core business may have thinning margins and slowing revenue growth, especially if digital competitors have begun to encroach.
Sustaining earnings from the existing business and building something new must be kept in balance as the business moves forward. Funding the future might require tough actions, such as reducing overhead by as much as 50%.
No leader can afford to be blindsided by digitization. Mustering the courage to lead the change will be personally exhilarating and highly beneficial to the company, its stakeholders, and society as a whole.