Strategic principles for businesses operating in a digital disruptive economy

Digital technologies are not new. They date back to at least the 1980s. What is new is how this technology is being deployed.

The big change is data and information is readily available, trade secrets and proprietary information is hard to keep private. Algorithms crunch data, smart phones, cloud computing, the Internet of Things, actually makes information available to anyone who seeks it.

The importance of data

The first principles for business therefore have to be:

• Security
• Process for data collection
• Using data for research and analytics
• Data R&D
• Using data for outcomes and improving management decisions

The economics of disruption

Many people are running round thinking the sky is falling, all talking about disruption, without understanding the economic model for disruption, which hasn’t suddenly arrived with Uber. It existed way back. Any disrupter goes for the low margin of the market that large incumbents don’t focus on.

So for example in FMCG, we see consumers flocking to discounter channels for staples such as bread and milk. Dell gave away its market to low cost parts manufacturers, mini mills disrupted integrated steel mills, we use mobile not fixed lines and so on. Add to that a savvy consumer and price and product comparison sites have emerged at a faster pace than anyone predicted.

Taking competitive advantage

Competitors arrive from unexpected places; digital undermines long-standing product differentiation, distribution networks and consumer preferences. The cost of building brands online is relatively small, leveling market access and competitiveness between the large giant incumbents and the small digital nimble and savvy new entrants whom can reach scale in a way not seen since the industrial revolution.

Digitisation of a business can deliver:

• Reduction in transaction costs
• Reduction in employment costs
• Increased returns to scale from aggregated data
• Quality of digital talent and intellectual property
• Leverage bundling products with other like-minded non-competing brands to open up new sales channels
• Competitive advantages can rapidly appear in the information intense model in a short-time period.
• Driving high levels of customer satisfaction and engagement through social media will enable substantial increases in market share to be realised.
• Scale of economy from data and talent should not be underestimated, the challenge is that the digital native is attractive to a successful startup environment, so culture is an important factor in attracting “short-in-supply” digital talent.
• Auditing current systems and utilising plug and play technology can also deliver key competitive advantage, quickly integrated and plugs gaps. For example, plugging in Amazon’s business logistic system, or outsourcing IT services simply by plugging in to the current legacy systems could bring substantial cost efficiencies.

People are still important

It is true that software has replaced people in many functions. The challenge is that digitisation will encroach on a growing number of knowledge roles within the company as frontline and middle-management jobs are automated. Finding talent in the right areas that can’t be automated, reallocating savings from automation to talent needed to forge a digital business is a challenge.

A key part of the strategic principle of moving from an analogue to a digital business model is to get digital ready with:

• The right mix of outsourced specialists and internal investment of your people
• Keeping ahead of HR developments and new emerging roles
• Culture
• Keeping up to date with trends and disruptive operating and channel models
• Digital technology knows no geographical borders; this is important due to a need for global positioning for big or small business.

In conclusion

Digitisation and its strategic business principles is also not a one-stop journey, the model is continually shifting, the technology continually emerging and the consumer expectation getting more demanding. It has propagated a powerful non-ownership channel, where in the face of those forces, all organisations will be in a position to innovate and create, but also face difficult decisions and trade-offs.

Fi Bendall is the managing director of Bendalls Group, a team of highly trained digital specialists, i-media subject matter experts and developers.