This blog is the first of a series of four blogs about disruption in the digital age.
Digital disruption is coming to every industry, in one form or another. It is coming to every line of business, while finance departments are increasingly expected to drive the digital transformation agenda – in their own department as well as across the overall organization. In that context, a report from the Center for the Edge’s Patterns of Disruption series, Deloitte University Press, brings interesting perspectives about approaching disruption that could be a good resource for finance leaders. As the report points out, if business leaders don’t move fast enough or aggressively enough, they can miss out on two levels.
First, they may miss opportunities and allow others to develop them; second, they can lose the freedom to choose their future as their revenues and markets are disrupted. Paradoxically, the report notes, successful companies that should have the most leeway to pursue new opportunities tend to lack the urgency required to take significant action.
But there is a real dilemma here. It is easy with hindsight to identify disruptions that have taken place and the changes that heralded them. It is much more difficult spotting the signs of an impending disruption in the first place. Perhaps senior leaders can be forgiven for not wanting to bet the business on a perceived disruption that doesn’t materialize and finding themselves in an untenable position.
Deloitte points out that this doesn’t have to be the case. Companies can adopt a strategy that allows them to pursue disruptive opportunities while taking targeted actions that strengthen and maintain the core business in the near term. By doing so they can buy the time and freedom needed to shape and understand the future business.
There is still the question of how companies go about this, how they identify the opportunities and the best way to pursue them to fruition. In the report, Deloitte outlines a pragmatic approach that encourages transformation while minimizing risk. It is based on the following four key steps.
1. Build awareness
Typically, company strategy tends to be based on extrapolating what will happen in the future from what is happening now. But disruption doesn’t work like that. Instead of looking from the present to the future, we need to look from the future to the present. We need to imagine what the market or industry will look like in 10 or 20 years’ time.
Deloitte has identified nine patterns of disruption that new entrants can use to displace market leaders in such a way that they cannot effectively respond. By using these patterns, incumbent companies can challenge existing assumptions, anticipate near-term pressures, and stimulate action.
2. Focus efforts
Having decided that transformation is necessary, the next step is deciding which of the three business types Deloitte has defined best suits the business.
Trusted advisers use an in-depth knowledge of preferences and behavior to build deep, trust-based relationships with customers. By making personal recommendations about products and services they generate value that customers are willing to pay for, using a subscription model, for example.
Infrastructure providers manage routine, high-volume operational tasks. Economies of scale enable them to offer customers lower prices, while scale and scope help them learn faster to continuously improve services and deliver more value.
Platforms connect businesses and consumers with a growing range of third parties. The key to success is motivating others to build products, services, or other offerings that use the platform and, as a result, offer significant value to customers. To do so, platform owners should think about how the platform can provide value to all of these participants.
3. Act for impact
Business leaders face a transformation dilemma. On the one hand, they have to move aggressively to embrace disruption. On the other, they are expected to keep delivering short-term results. And they have to avoid exciting the “organizational antibodies” that tend to attack large-scale change efforts.
From Deloitte’s perspective, this means engaging in three key activities – scaling the edge to take advantage of new opportunities, strengthening the core to improve near-term business performance, and systematically migrating resources to edge initiatives as they grow and the existing business declines.
4. Learn and refine
The fact is that transformation is not a one-off exercise; it is an ongoing iterative process. It’s vital, therefore, that companies create a learning culture that continuously reflects on their performance and vision in order to refine strategy and execution and take advantage of further disruptions in the market.
As Deloitte points out, responding to disruption requires us to embrace paradox and not try to force-fit new thinking into the models and approaches we are used to. Following the four steps outlined above can help organizations achieve that in their journey to digital transformation.
Find out more
Read the full report: Approaching Disruption: Charting a course for new growth and performance at the edge and beyond.