By John Barrington
Last week’s blogs discussed the disintermediation occurring at a quickening pace due to the influence of the Internet. To take it a step further, one could describe this as ‘Digital Destruction’. To paraphrase economist Joseph Schumpeter:
Today, every piece of business strategy acquires its true significance only against the background of digital destruction and within the situation created by it. Strategy must now be seen in its role in the perennial gale of that creative destruction; it cannot be understood irrespective of it or, in fact, on the hypothesis that there is a perennial lull.
Those of us old enough will have already seen what the digital camera did to the photographic innovation that was the Polaroid instant camera; what MP3 players did to CDs, which replaced cassette tape, which in turn had earlier replaced 8-track cartridges. But even these examples cite competitor versus competitor in the same industry. They were new technologies in each case, certainly, but within the same industry. Now consider this: some 5 years ago new e-reader devices were becoming popular and, as with the debate about video cassette recording formats, there was some conjecture as to which would be the most popular. The hardware manufacturers had entered the space but who would have thought back in 2007 that two book sellers, neither of whom had device expertise, would become the market leaders? Amazon, with the Kindle, and Barnes & Noble with the Nook had something in common: distribution channels.
In marketing’s 4Ps (Product, Price, Promotion & Place), that last one, otherwise known as distribution plays a greater role today than ever before. Importantly, it is segueing to a 5th P of marketing: Pixels. The original Kindle was great (I still own one and for fiction prefer reading off the Kindle than a hard copy book) but it wasn’t as much about the Product as it was about the ability to shop for one online and have it delivered within days before we left on a 3-week holiday. Extending the Place to Pixels transformation a step further, our experience with Amazon’s 3G reach throughout regional France surpassed that of any of the local telecoms while we travelled. In places where our mobile phones could not get coverage we were able to download novels and city guides within 30 seconds. And that was two years ago! Place is global and today it’s enabled via Pixels more than ever before.
But while we have known about these capabilities for some time now, a McKinsey survey(1) in April 2012 of 1,469 C-level executives across industries found that nearly half of respondents said their companies’ investments in digital initiatives are too small to deliver on their goals. More than half (52%) said their most significant challenge in meeting digital business priorities was structural: their organisations are not designed to take advantage of priorities. The other big challenge (according to 51% of respondents) is the lack of technology infrastructure and IT systems.
$ signs will roll through executives’ eyes when they read these findings and memories of disastrous IT projects will doubtless be recalled. But the broader strategic perspective is about how to think through the fundamentally different operating models that will be required to enable the new approaches to strategy, structure, marketing and implementation. Speed, flexibility, external collaboration and non-siloed corporate structures will be some of the attributes required in the future.
Given the investments required, strategic IT involvement at board and executive level will be an imperative if companies are to achieve advantage through digital leadership.
This of course will not be an easy road and the great irony in the quote above, paraphrased but true, is that companies which try to harvest the gain of creative destruction without the pain will simply end up enduring pain with no gain.
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