The old ways of run­ning a com­pany won’t cut it in a dig­i­tal world, writes Ludo Van der Hey­den and Liri An­der­s­son

New Straits Times - - Business -

TEN years ago, when we would ask se­nior ex­ec­u­tives or com­pany di­rec­tors what “dig­i­tal” meant to them, their re­sponse would usu­ally be some­thing re­lated to so­cial me­dia.

To­day, it might be apps, Big Data, 3D print­ing, “the cloud” or an­other cur­rent ex­am­ple of dig­i­tal tech­nol­ogy.

All such an­swers are equally cor­rect — and equally in er­ror.

More im­por­tant than the spe­cific in­no­va­tions in­tro­duced by the dig­i­tal rev­o­lu­tion, is their earth-shak­ing cu­mu­la­tive im­pact on busi­ness and on or­gan­i­sa­tions.

There is no bor­der any­more be­tween the pre- and post-dig­i­tal worlds. Dig­i­tal is busi­ness and busi­ness is dig­i­tal.

Yet, top cor­po­rate lead­ers are not tak­ing charge of dig­i­tal­is­ing their or­gan­i­sa­tions, as was made clear to us by a sur­vey we con­ducted last year — to which 1,160 man­agers, ex­ec­u­tives and board di­rec­tors re­sponded — that de­vel­oped into a re­port avail­able for free on­line.

We dis­cov­ered that most board mem­bers lack the knowl­edge and aware­ness nec­es­sary to lead a dig­i­tal trans­for­ma­tion.

To help top man­age­ment catch up, we re­cently is­sued a fol­low-up re­port — “Di­rect­ing Dig­i­tal­i­sa­tion: Guide­lines for Boards and Ex­ec­u­tives”.

It presents 11 strate­gic im­pli­ca­tions and rec­om­men­da­tions (grouped into three cat­e­gories), sum­marised be­low.

These are based on the pre­vi­ous find­ings, our com­bined busi­ness and teach­ing ex­pe­ri­ences and pro­fes­sional col­lab­o­ra­tions with or­gan­i­sa­tions across mul­ti­ple re­gions and in­dus­tries.

1. Dig­i­tal­i­sa­tion re­quires an un­bi­ased un­der­stand­ing of the ex­ter­nal en­vi­ron­ment.

Ana­logue-era frame­works, such as Michael Porter’s “five forces”, will need to be re­vis­ited, now that the im­pact of dig­i­tal­i­sa­tion is rapidly re­plac­ing tra­di­tional phys­i­cal bar­ri­ers to en­try with in­tan­gi­ble bar­ri­ers (e.g. rel­e­vant pur­pose, res­o­nant mis­sion, au­then­tic­ity and trust) that no amount of in­dus­try promi­nence or cash can over­come.

2. Dig­i­tal­i­sa­tion may re­quire a re­for­mu­la­tion of the firm’s mis­sion.

The en­vi­ron­men­tal shift caused by dig­i­tal may chal­lenge the very ex­is­tence of in­di­vid­ual com­pa­nies, even en­tire in­dus­tries. Boards and ex­ec­u­tives will need to ques­tion all pre-ex­ist­ing as­sump­tions about the firm’s mis­sion and in­dus­trial po­si­tion­ing, as well as the sus­tain­abil­ity of its busi­ness mod­els and meth­ods.

3. The meaning and im­pact of dig­i­tal to the firm must be clearly stated.

Dig­i­tal ad­van­tage re­sides largely in the op­por­tu­nity to cus­tomise not only prod­ucts and ser­vices but also or­gan­i­sa­tional strat­egy and struc­ture.

Rather than search­ing for a blue­print to guide them through dig­i­tal­i­sa­tion, firms should de­fine their own dig­i­tal road map. Lead­ers can start by de­vel­op­ing an in-house dic­tio­nary, in­clud­ing en­tries for “dig­i­tal” and all re­lated key­words, terms and con­cepts. Like any other dic­tio­nary, it will need fre­quent up­dates.

4. Dig­i­tal un­der­stand­ing and ca­pa­bil­i­ties are re­quired across the firm.

Dig­i­tal­i­sa­tion may in­volve a great many ex­perts, but the ul­ti­mate re­spon­si­bil­ity for dig­i­tal trans­for­ma­tion be­longs to all func­tions within a firm.

Suc­cess­ful change also re­quires co­op­er­a­tion from ju­nior con­trib­u­tors all the way up to the board by link­ing dig­i­tal savvy mil­len­ni­als with the busi­ness ex­pe­ri­ence and wis­dom of se­nior ex­ec­u­tives and di­rec­tors.

5. Dig­i­tal­i­sa­tion must be sup­ported by the firm’s cor­po­rate cul­ture.

The dig­i­tal rev­o­lu­tion is cul­tural, not merely tech­no­log­i­cal. As with any large-scale cul­tural change, dig­i­tal­i­sa­tion will never take hold un­less it is driven by top ex­ec­u­tives, un­der the board’s lead­er­ship.

6. Dig­i­tal­i­sa­tion de­mands a greater level of col­lab­o­ra­tion.

Busi­ness suc­cess can be achieved only through con­tin­u­ous col­lab­o­ra­tion and on­go­ing con­ver­sa­tions be­tween share­hold­ers, boards, ex­ec­u­tives and “front­line” em­ploy­ees.

In ad­di­tion, dig­i­tal­i­sa­tion is blur­ring the lines be­tween dif­fer­ent in­dus­tries, height­en­ing the im­por­tance of cross-func­tional and ex­ter­nal col­lab­o­ra­tion.

7. Dig­i­tal­i­sa­tion re­quires greater en­gage­ment with the pub­lic.

In the past, cus­tomers were sub­dom­i­nant. We spoke at them; we mar­keted to them. With dig­i­tal, any­one can cre­ate and mon­e­tise value with size, scope and speed.

Just as eas­ily, con­sumers can de­stroy value by, for ex­am­ple, dis­man­tling a mas­sive com­pany one tweet at a time.

It has never been eas­ier or more es­sen­tial to co-cre­ate with cus­tomers and crowd­source ideas, and firms that po­si­tion them­selves as fa­cil­i­ta­tors of cus­tomers’ dreams will win in the fu­ture.

8. Busi­ness strat­egy in the dig­i­tal age be­comes a con­tin­u­ous process.

Gone are the days when com­pa­nies had the lux­ury to think in terms of five-year strate­gic plans. With ma­jor busi­ness trends shift­ing as con­stantly as they are to­day, strat­egy for­mu­la­tion and ex­e­cu­tion need to hap­pen si­mul­ta­ne­ously and ide­ally in a seam­less feed­back loop.

9. De­ci­sion-mak­ing in the dig­i­tal age is in­creas­ingly data-driven.

Com­pared with the plethora of ad­vanced pre­dic­tive and an­a­lyt­ics tools avail­able to busi­nesses to­day, the old-fash­ioned ex­ec­u­tive sum­mary lay­ing out bi­nary choices is a prim­i­tive in­stru­ment. In the ab­sence of Big Data, what used to be al­low­able as an “ed­u­cated guess” will be­come at best a stab in the dark. 10. Digi­ti­sa­tion re­quires firms to en­ter un­charted ter­ri­to­ries.

Plan­ning for dis­rup­tion en­tails ex­plor­ing new busi­ness mod­els and rev­enue streams. Or­gan­i­sa­tions will have to launch am­bi­tious ex­per­i­ments and quickly take learn­ings on board. For their part, boards and ex­ec­u­tives must raise their com­fort level as re­gards un­cer­tainty, am­bi­gu­ity and risk.

11. Dig­i­tal­i­sa­tion is about con­tin­u­ous man­age­ment of change.

In the pre-dig­i­tal world, a one­off change man­age­ment pro­gramme could pay div­i­dends for years if not decades. Not any­more.

Di­rec­tors and ex­ec­u­tives must en­sure that the will and abil­ity to con­tin­u­ously change are built into the very fab­ric of the or­gan­i­sa­tion.

Re­spond­ing to rev­o­lu­tion

The dig­i­tal rev­o­lu­tion, like every rev­o­lu­tion, can be viewed ei­ther as a catas­tro­phe or as a world of op­por­tu­nity — de­pend­ing on whether your al­le­giances lie with the old or­der or the new. Op­ti­mism is a pre­req­ui­site for sur­vival.

Dig­i­tal will un­doubt­edly force boards and ex­ec­u­tives to at­tain un­prece­dented lev­els of in­no­va­tion, com­pe­tence, ef­fec­tive­ness, lead­er­ship and re­spon­si­bil­ity – with fun­da­men­tally pos­i­tive re­sults for both firms and so­ci­ety.

It is un­likely that fa­mil­iar forms of or­gan­i­sa­tional lead­er­ship will sur­vive the dig­i­tal rev­o­lu­tion.

In or­der for boards and ex­ec­u­tives to ful­fil their roles ef­fec­tively in the fu­ture, a re­shap­ing, if not a dis­rup­tion, of these func­tions is nec­es­sary.

This ar­ti­cle is re­pub­lished cour­tesy of INSEAD Knowl­edge.

Ludo Van der Hey­den is the INSEAD Chaired Pro­fes­sor of Cor­po­rate Gover­nance and Pro­fes­sor of Tech­nol­ogy and Op­er­a­tions Man­age­ment. Liri An­der­s­son is the founder of this fluid world; a bou­tique busi­ness and mar­ket­ing con­sul­tancy.


A ro­botic arm serv­ing sushi at Ja­panese tech firm Hi­tachi’s stand at the Cebit tech­nol­ogy fair in Han­nover re­cently. New tech­nolo­gies have dis­rupted old modes of think­ing and old ways of do­ing busi­ness.

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