Businesses must embrace the digital world to compete, or be left behind

Author

Simon Freakly

December 1, 2015

Research shows investment in technology and leadership yields better results

Just as the industrial revolution changed the world and brought about substantial increases in production, recent advances in technology have altered the way business is conducted and redefined how companies operate.

Properly used, digital technology has radically improved performance at many businesses. When ignored or treated as an afterthought, the reverse is true and the longer this continues the greater the likelihood of business failure.

The speed of these technological advancements – and their subsequent disruptive effects – is creating a growing divide both in society and business. At a personal level as the father of two young children who think every screen is a touch-screen, I’m acutely aware of the differences between growing up in a digital world as opposed to an analogue one.

This gap is now increasingly driving activity in the employment market. There are numerous pieces of research offering clear contrasts between individuals educated and versed in the latest technological skills and those who lack them, with the latter increasingly facing the prospect of their livelihoods being replaced by technology.

The same thing is happening at a corporate level. Companies properly embracing digital technology by replacing and augmenting business processes to drive competitive advantage, are winning. Those trying to win through a steadfast reliance on traditional business methods are losing. More importantly, the longer they leave it the harder it becomes to remain relevant – take for example the decline of Nokia as a consumer electronics brand, a business which at one stage was a virtual synonym for the mobile connected device.

Charting progress toward digital transformation is relatively straightforward. A recent study by the Massachusetts Institute of Technology’s Center for Digital Business contends that there are two key factors which together drive the process: an investment in technology and an investment in leadership.

The study divides companies among four quadrants, reflecting the success of their levels of digital transformation. Companies that successfully embraced digital transformation invested well in both technology-enabled initiatives and the leadership capabilities required. In return they grew revenues by 9pc and are, on average, 26pc more profitable than their industry competitors.

Companies that invested well in technology-enabled initiatives, but not in leadership capabilities that fully embrace these changes, saw revenues increase, albeit not to the same levels, but profits fell.

Companies that established the leadership capabilities required but failed to make adequate technology investments improved profits, but had double-digit declines in revenue.

Companies that did neither are being left behind. Be in no doubt that the gap will continue to widen.

We have seen similar outcomes in our own work with companies. Overall, when managed correctly, information technology spending can generate strong returns for a business and result in a significant competitive advantage.

To further assess the extent of these advantages, AlixPartners interviewed and surveyed hundreds of senior business leaders in Europe and the US. In a nutshell we found that business people have been frustrated with the black-box nature of information technology. Many still view IT as an expensive cost centre that fails to promptly and effectively deliver everything the business needs.

Our research confirmed this is especially true when IT spend and effective implementation are not clearly driven by the most senior and influential figures in an organisation.

This black-box view in many ways encapsulates the issue. In the new world of business it’s simply not appropriate to view the digital challenge as being encapsulated by the IT department, an e-commerce platform, a data warehouse or any other single technological manifestation. Neither should businesses fall into the trap of thinking that digital is not for them because of the function they fulfil or the market in which they operate.

Of course it is relatively easy to see why certain sectors lend themselves more obviously to digital transformation than others – retail, financial services, information provision are three obvious examples – but even in these now heavily digitalised areas we have seen high-profile examples of poor, slow and overly tentative adoption. Ultimately these have directly impacted business performance and shareholder value.

Such is the pace and impact of technological change business leaders must see beyond historical frustrations and pre-conceived ideas and instead embrace technology to compete.

Digital transformation is a challenge and hence an opportunity for every business regardless of sector, geography or market. It’s also a process which building on the key sources of financial performance such as sales, profitability, cash and risk needs to encompass the organisation as a whole.

The digitally driven advances of the last several decades not only define businesses but they have also redefined the scope of corporate leadership. The difference between the leaders of yesterday and of tomorrow is almost binary. Yesterday’s management teams discussed results generated after the end of the month. A CEO at the head of today’s most digitally transformed companies operates with real-time information and instant global communications, understands what is happening as it occurs, and acts accordingly.

This transition is not easy, and current business leaders approach it with varying degrees of speed and success. The one certainty is that those who have not already done so are in grave danger of being left behind.

Digital transformation has to be considered a part of every business’s strategy. Your survival may well depend upon it.

Simon Freakly is co-chief executive officer of AlixPartners

This article was written by Simon Freakly from The Daily Telegraph and was legally licensed through the NewsCred publisher network.


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