How can analog incumbents survive digital disruption? That’s one of the major questions that the World Economic Forum is seeking to answer through its Digital Transformation of Industries (DTI) initiative, a multi-year project delving into the opportunities and challenges that digitization brings to society and business.
A recent DTI white paper on digital enterprise takes a close look at exactly how digitization is impacting large, successful companies that were established before the digital revolution. As hundreds of startups launch serious strikes on traditional markets, many incumbents today feel as if they are under attack. However, the white paper’s authors argue that it is not too late for these incumbents to kick their survival instinct into high gear and adapt to their changing circumstances. But in order to do so effectively, it is imperative that incumbents get the facts on three common—and harmful—myths about digital transformation that are currently preventing many incumbents from developing good digital strategies.
Myth 1: There is no hope for incumbents; digital disruption will bankrupt them.
It’s not surprising that current circumstances fill many incumbents with despair. If a company as well established and successful as Kodak can be brought down by digitization, many say, what hope is there for the rest of us? Faced with a perfect storm of massive disruption, empowered customers with very different expectations from even a decade ago, and a winner-takes-all economic framework, it’s easy to understand why many incumbents feel like their days might be numbered.
Another feature of this new landscape that threatens incumbents is the recent, rapid rise of “the unicorns”: businesses that have attained valuations of more than $1 billion. In 2015 alone, roughly 70 startups achieved unicorn status. In the past, Fortune 500 companies took upwards of 20 years to reach this valuation level; but startups like Uber and Snapchat took three years or less. Thanks to the plummeting cost of technology, easier access to funding, and a highly entrepreneurial corporate culture, these unicorns and their hundreds of smaller siblings are making impressive inroads into traditional markets.
But this is not to say that incumbents have no hope of surviving—or perhaps even thriving. Incumbents have a wealth of resources that many startups do not, such as hard assets, well-established brands, global distribution networks, long-term customer relationships, huge amounts of data, and decades of institutional knowledge. All of this can be harnessed and used to support an incumbent’s digital transformation if the incumbent is willing to tackle the challenge head-on. Incumbents can take heart: Kodak’s bankruptcy story is cited so often because it is the exception rather than the rule. Additionally, the combined valuations of the S&P 500’s top 10 companies still dwarf that of the top 100 startups.
Myth 2: Digitization is all about operational efficiency and should be handled as a back-office issue.
A recent report produced by MIT Sloan Management Review and Deloitte describes this key discrepancy between digitally mature and early-stage companies: while early-stage companies tend to concentrate on adopting individual technologies and using those technologies to achieve decidedly operational ends, digitally mature organizations treat digital technology not as an objective, but rather as an integral tool that can be used to reshape and transform their business overall. That’s exactly the kind of mindset that we can see at work in the persistent myth that digital transformation is a back-office, operational issue.
If today’s incumbents want to survive digital disruption, they must be ready to embrace the full scope of digital transformation. That doesn’t just mean offering products online as well as in a retail store; it means leveraging new technologies to overhaul and improve the way you do business. As long as incumbents remain focused on incorporating technologies piecemeal to solve operational problems, they will never be able to realize the full potential of digital transformation.
Myth 3: Hiring a chief digital officer and launching a digital business unit are all it takes to implement digital transformation successfully.
This myth makes the same mistaken assumption about digital transformation that the second myth described above does; that is, it is founded on the idea that “digital” is a distinct business component that is somehow separate from all other aspects and activities of a company. Launching a digital business unit and hiring a CDO to oversee it may have some short-term use, but it will do very little to make digitization a fundamental, fully integrated part of a company.
Instead, many experts argue, digital change must be led from the top down. CEOs and senior management must take ownership of digital strategy and promote digital literacy as a key part of company culture. Only companies that are ready to completely infuse their business with a digital mindset—rather than keeping digitization compartmentalized and marginal—will be able to implement a truly successful digital transformation.