Top Risks 2019: Anxiety Grows Over “Born Digital” Competitors

Jonathan Wyatt, Managing Director Global Head of Protiviti Digital

Ask anyone what’s more authentic and durable – a table made of solid hardwood or one wrapped in a thin veneer, and few would choose the latter. So why is it that when it comes to digital transformation, so many companies seem willing to settle for a “digital veneer”?

For one, not many executives recognise the difference between authenticity and veneer when it comes to digital – even though they recognise the danger digital companies pose to the status quo. Competition from “born digital” firms (those with a hardwood core, to use our analogy) topped the list of executive concerns in Protiviti’s 2019 Top Risk survey. In fact, nine of the top 10 risks identified in the survey are driven, at least in part, by digital challenges.

More remarkably, if last year’s survey revealed senior executives who were worried about the potential impact of innovation, this year it reveals leaders concerned with the disruption that’s upon them. The problem is that despite more than a decade of talk about digital transformation, most companies are still in the beginning stages of digital maturity. They aspire to be, but are not today, digital at the core.

These aspiring companies, in general, do digital things in response to what everybody else is doing. They know they need to get on par with their digital competitors, but they struggle to execute on it. More fundamentally, they haven’t got to the point of developing a coherent strategy of their own for the digital age that differentiates them and responds to the changes in the digital economy. They have not yet realised that what will define them as digital companies is not how others have done it, but how they do it themselves.

Another way most of these digitally immature companies go wrong is by thinking about digital transformation in terms of technology first. A true digital transformation is about changing the way the organisation acts and thinks. It has much more to do with people and culture than it does with technology. If you have digitally minded people and create the right culture, technology will follow naturally. If you try to force digital technologies into an organisation that is not mentally ready for them, it won’t work.

Obtaining a Digital Mindset

To get past those limitations, companies need people at every level of the organisation who understand the digital economy, even if they themselves don’t possess every competency it demands. Having a small “digital team” doing “digital things” in a sea of traditionalists is not the answer. Imagine a company with 10,000 employees, one hundred of whom understand and are passionate about the transformative power of artificial intelligence (AI), machine learning, robotics and other advanced technologies, and 9,900 other employees completely content to do without those technologies, or worse, making key decisions about how the organisation should be embracing them.

Even if management has bought into the idea of digital transformation, recognises its importance, and may even have recruited a digital officer to lead a digital program, they still need to do the crucially important work of evangelising and socialising their vision up and down the layers of the organisation, training the workforce on digital concepts and actively recruiting other digital thinkers onto their team.

True digital transformation is therefore about addressing the organisational weaknesses that get in the way of competing with digitally born companies. You cannot expect to attract and retain the right talent if you do not foster an innovation culture, and if your leaders are not excited by the possibilities presented by next-gen solutions such as robotics, AI and machine learning. If you do not have the right people, you will not be able to compete.

I’d like to stress that digital transformation should be about enabling companies to lead or differentiate themselves, regardless of what that looks like from a technology perspective.  Amazon has brought disruptive innovation to every aspect of retail, whether this is in the way that it has created an online marketplace or the way it has completely reinvented warehouse management, logistics and distribution. Burberry, on the other hand, a leading global fashion brand, has embraced the digital mindset by bringing web design concepts into its flagship retail store. The company uses the latest technology to track movements and actions of customers in store. It is then able to learn from the data it collects and use this information to enhance the customer experience, as any digital leader would on their website.

Such innovation is more than a gimmick. Organisations that experiment in these ways, are demonstrating an innovation culture and a sophisticated understanding of the transformative potential of technology. They are able to perform lightning-fast data analysis on data drawn from multiple integrated systems. They do this not because it’s latest thing to do, but because they are adept at the technology, understand the various ways it can benefit them, and have a commitment to be digital at the core.

Another characteristic of digital leaders is their high level of automation, which allows them to run with a relatively low cost base. Such companies tend to be hyper-scalable, because they are less dependent on ramping up or ramping down the workforce to meet demand. This low dependence on people contributes significantly to the low cost base. In addition, these companies have strategic thinkers throughout their business who do not tolerate process inefficiency and expect that they will get and use the latest digital tools to extract the most value out of any data available.

The Quest for Talent

The quest for talent goes hand in hand with the quest for true digital transformation. (Inability to attract top talent clocked at #2 in our top risks survey, right after inability to compete with digital-born players.) Companies that are unable to demonstrate their digital vision or that cannot create an environment in which such a vision can be realised are ultimately going to have a very difficult time hiring the type of talent they need to compete going forward.

We are beginning to see this in the financial services industry, where companies accustomed to recruiting the talent they need simply by throwing more money at them are realising that this no longer works. Many of these organisations have not demonstrated their vision for the digital future, and as a result are seeing the talent they need choose companies that offer better opportunities.

Companies that want to appeal to those with coveted skill sets must understand who they are trying to woo. These workers are interested in a work environment where they believe their skills will be appreciated and where they can see a path for success. They are much more focused on an organisation’s ambition, people and culture than they are on its history or reputation. In many cases, they actually see history as baggage or a barrier to change. They might therefore be more inclined to join a smaller, younger, but more dynamic company where they believe they can have more impact than follow the money into an organisation steeped in tradition but headed into a digital dead end.

Where Is Your Company in Terms of Digital Maturity?

Protiviti’s free online digital assessment tool analyses 36 areas where we think organisations should excel to compete effectively with digitally born companies. I encourage companies to take the assessment to benchmark themselves and to see in which of five digital categories they fit.

The bottom line is that if an organisation has a digital mindset, it is going to embrace next-generation digital tools. Trying to force next-generation tools on an organisation that is not digital-ready will cause the organisation to limit or reject them. Thinking digital is more likely to result in acting digital, than vice versa, and leaders who understand that relationship will have a better chance of attracting the talent they need on their team and will get to their goals faster than those who “fake it, in the hope that they make it.”

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