A brave new world: Are market leaders ready to win in the digital age?
Subramanian Kalpathi
Thursday November 01, 2018 , 12 min Read
If there’s one thing that global technology giants Facebook, Amazon, Netflix, and Google have in common, it’s that they got their digital strategy right early on. Enabled by billions of connected people and powered by exponential technologies such as AI, robotics, and IoT, the transformation stemming from this revolution is unlike any seen before. And yet, the disruptive impact of digital transformation is being felt by companies across different industries, not just in technology. Companies like Amazon are emulating the success of their digital disruption in one industry to expand to other spaces, building on their deep data-backed knowledge of consumer preferences to do so. For this reason, business leaders and companies have to develop and execute strategies that will enable them to win in today’s increasingly digital age. Rajiv Jayaraman, Founder and CEO of KNOLSKAPE, and Subramanian Kalpathi, Senior Director at KNOLSKAPE, spell out why a sound digital transformation strategy is key for companies, new and old, to thrive in today’s brave new digital world.
Imagine a world where you can walk into a store, grab what you want, and just go.
Hard to imagine?
Well, not so much, if you caught Amazon’s landmark promotional video that was made available on YouTube in December 2016.
The video opens with a young man, clad in a brown jacket, dark green cap, and a back-pack, walking at a brisk pace into a retail store. He scans his smartphone at the turnstile, walks towards shelves stocked with different items, tucks his phone into his jacket, grabs what appears to be a sandwich off the shelf, turns around and inspects it for a split second, and walks out – straight past the turnstile and right out of the store. All this happens in ten seconds flat.
That’s the Amazon Go shopping experience – one the company imagined into reality four years before the video was first launched in end-2016.
Source: Amazon
Indeed, with its cashier-less Amazon Go stores, Amazon may well be scripting the future of shopping.
The store is like any modern-day convenience store, but replete with cutting-edge technology that track the items shoppers pick off the shelves and automatically charges them for these items as they walk out of the store.
In other words, no long queues. Shoppers can “just walk out” – also the name of the technology powering the unique Amazon Go shopping experience. Amazon Go stores use advanced deep learning algorithms, computer vision, and sensor fusion technology, weaving these into the very fabric of a retail store – thereby, completely reimagining the shopping experience.
To reiterate, no lines, no check-outs, and no cash registers. Welcome to Amazon Go.
Given the ever-evolving competitive landscape in the digital era, incumbent organisations in the industry are more likely to immediately sit up and take notice of innovations like Amazon Go. How they react to it is another matter altogether.
Their reactions, to a large degree, would depend on how they view the situation. The cynics among them would wave off the innovation as a sleight of hand and label it a gimmick. The sceptics would want to know more, perhaps experiment and adopt a wait-and-watch approach. The optimists would likely go all in and invest, acknowledging this new reality and in the process, satiating their curiosity.
Reimagining industries with technology
Opened to Amazon employees in December 2016 and to the public in January 2018, there are now three Amazon Go stores in Seattle alone, with a host of such me-too concept stores popping up in rapid succession all over the world. In fact, Amazon, which launched the Amazon Go store in San Francisco last month, aims to launch at least 3,000 stores by 2021.
This futuristic store, which uses an app to track your shopping, is the first of its kind anywhere in the world. For example, the app can not only track the items as you pick up them off a shelf, it can also track the many instances you change your mind about an item and pick up something else instead.
To be clear, the Amazon Go store is a fine example of how path-breaking digital technologies can be swiftly and effectively utilised to re-imagine the shopping experience for the end consumer. In the process, Amazon is well on its way to disrupting an industry that has long been perceived as complex and difficult to reinvent: organised retail.
That said, technology by itself cannot help in driving innovation at scale.
Advanced digital technologies, coupled with thoughtful design, an appetite to experiment, and the leadership will to make big, bold moves are all essential for companies to not just succeed, but thrive in this brave new digital world.
Digital natives vs. digital immigrants
Today, companies, just like people, can be categorised into two main groups: digital natives and digital immigrants. Millennials rightly hold the distinction of being the first generation that came of age in the era of the internet, and hence are aptly referred to as digital natives. In other words, millennials are natives of this digital era, as opposed to other generations who are digital immigrants as they have migrated to this world. In the same vein, organisations today can also be easily divided into these two categories.
Amazon is perhaps the most well-known example of a digital native organisation that is in the process of redefining the retail industry. Its success was scripted as far back as 1994, when a 30-year-old executive working on Wall Street witnessed the transformative potential of the internet and understood what this could mean for businesses.
“The wakeup call was finding this startling statistic that web usage in the spring of 1994 was growing at 2,300 percent a year,” said the executive, who was none other than Amazon Founder Jeff Bezos.
“You know, things just don’t grow that fast. It’s highly unusual, and that started me thinking, ‘What kind of business plan might make sense in the context of that growth?’” Bezos subsequently made a list of top 20 products he could sell on the internet and zeroed in on books.
The rest, as we all know, is history.
The perks of being a digital native
Indeed, firms like Amazon that have been born in the digital age don’t hold any baggage from the industrial era and are free to work on complex problems with a blank slate. But where does that leave incumbent organisations?
In the not-so-distant-past, before the era of the internet, moats ran deep and wide, entry barriers were high, meaningful change took years to manifest, and new entrants took time to challenge the established names, let alone uproot them. That’s why, when Amazon conceives of something as complex as a fully automated retail store and brings it to market in just four years, you know that the rules of the game have changed.
To be clear, digital natives, like Amazon, are looking to expand and disrupt other industries that are beyond what many would currently view as their core business. In fact, retail is not the only industry that Amazon has its sights on.
In the same month that Amazon opened its Go store to the public earlier this year, it also announced a venture in partnership with financial heavyweights Berkshire Hathaway and JPMorgan Chase: an endeavour to help improve healthcare for U.S. employees and their families. Commenting on the partnership, Berkshire Hathaway Chairman and CEO Warren Buffet said, “The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”
Similarly, Amazon CEO Jeff Bezos, while echoing Buffett’s ‘blank-slate’ approach to solving the healthcare problems, said, “Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner’s mind, and a long-term orientation.” In July 2018, noted surgeon, writer and researcher Dr. Atul Gawande began his stint as the first CEO of the joint venture.
True, Amazon’s healthcare bet will likely take some years to take full shape. But that’s not the only other industry Amazon has set its sights on.
Starker, however, are Amazon’s investments in the financial services arena. The following image from a CB Insights reports gives a clear picture of the myriad ways in which Amazon is unbundling the retail bank.
A Fast Company article explains the rationale that drives Amazon’s banking ambitions: Amazon specialises in creating tech-based ecosystems that generate valuable customer data, like online retail, online video, and the connected home. Once such an ecosystem is established, the company is well positioned to layer on products and services that manage related payments, credit needs, or risk. That possibility has banks and other financial institutions nervously wondering how they might be able to compete with one of the most trusted brands in America.
The transformation dilemma for digital immigrants
Berkshire Hathaway and JP Morgan Chase are examples of incumbent organisations that are joining hands with a digital native firm to create a separate entity that will work to untangle the labyrinthian American healthcare problem. While some organisations have the will and resources to invest in bold new ventures with digital native firms, other incumbents across traditional industries have no choice but to respond to the threat posed by the new digital natives on the block.
And contrary to belief, such a response cannot succeed merely by appointing a senior digital expert: it calls for deep transformation from within.
To uncover the state of digital readiness of incumbent organisations, KNOLSKAPE, which provides end-to-end talent transformation solutions, posed pointed questions to senior HR and talent transformation leaders across India and the APAC region. The ongoing study, which currently has data for about 90 firms spanning over 40 industries, focuses on various aspects of digital transformation, including strategy, capabilities, leadership, and culture.
The findings of the India study show a clear disconnect between intent and execution, when it comes to organisations’ digital transformation strategy.
The study reveals that organisations are now well aware of the need to align their strategies to the new digital era, but more than half of them believe they do not have the required infrastructure to fully meet their transformation goals.
The KNOLSKAPE India study shows that the overwhelming majority of the organisations surveyed believe their mission, vision, and strategy are aligned with the digital world, with HR goals gradually catching up.
Additionally, an equally large number of organisations, or 62 percent of respondents, believe their organisational structures encourage collaboration among different functions even as they agree that a lot more can be done to generate more meaningful outcomes. Some large high-growth organisations may be optimised for agility and efficiency but not necessarily to enable collaboration, with this problem particularly acute for conglomerates.
To be clear, the challenges of keeping up with digital developments are many for immigrant companies. To counteract that, many organisations in traditional industries stick to a rigid rule, but such one-size-fits-all approach is not the best fit when it comes to digital adoption.
Interestingly, even digital-native organisations that rely overtly on traditional hierarchical structures are also likely to face similar challenges, and grapple with the issues of silo mentality and boxed thinking, as they mature over time.
Digital native organisations are also more likely to encourage a ‘fail fast and learn fast’ culture, when compared with digital immigrants. And yet, this level of risk taking at the top doesn’t necessarily percolate down to others in the organisation.
The writing on the wall: transform or go bust
The challenges notwithstanding, executing a sound and futuristic digital transformation strategy is imperative for organisations to thrive in this new era.
After all, the overwhelming majority of today's market leaders are companies who've mastered this early on. Be it Google-owned YouTube or Netflix for video streaming services. And Apple or Samsung for smartphones; or even OnePlus, depending on where your loyalties lie. And Amazon or Flipkart for the best e-tailer. And yet, for every digital native that made it in the last two decades, there was an immigrant who fell by the wayside.
In other words, for every Netflix, Apple and Amazon, there was a Blockbuster, RIM and a Borders that went bust for not adapting quickly and effectively enough to the digital age.
Still, it's important to remember that digital does not affect all industries in the same way. However, what is common is the pace of change: every industry seems to be undergoing swift transformation.
This means that HR and talent leaders need to align their priorities with the realigned business focus for digital and ask themselves how they can best enable their organisations to lead this transformation.
A good starting point for leaders is to put in place a digital strategy for the organisation. Next, leaders would do well to assess where they stand with respect to the digital capabilities at the leadership, organisation-wide and employee level.
Accordingly, one could choose to build crucial competencies that help leaders outperform in a digital-first environment through digital leadership. Additionally, leaders could enable their workforce to become aware of the latest digital trends and help unravel what it means for them through digital awareness. Finally, and perhaps most importantly, organisations should equip executives across the board with the right tools to execute in a digital-first manner or ensure digital execution.
As Pierre Nanterme, CEO of Accenture, rightly said, “Digital is the main reason just over half of the companies on the Fortune 500 have disappeared since the year 2000.”
Indeed, without a well-thought-out and executed digital transformation strategy, more organisations are likely to struggle to adapt to the pace of change. This, even as their innovative peers and rivals power ahead with futuristic solutions that leverage the technological power of this brave new era.
Not too different from what Amazon is doing with Amazon Go.