A recent report by management consultancy PwC offers some potential answers. . . 10 of them, in fact. . .
Senior executives recognise that disruption is causing major market shifts, but when it comes to actually doing something about it, the right strategy can be difficult to find. Luckily, they aren’t short of options. In a recently published report , PwC offers 10 detailed principles to aid businesses in planning for the new digital age. The report was written as a guide for businesses, offering the company’s perspective on how to successfully understand and respond to disruption. It begins by defining disruption as a shift in profitability from a prevailing business model to another. During this shift, dominant companies can lose their market share to startups. This type of disruption is driven by digital technology, and that’s what companies have to get to grips with. So how can they do it?
How do you solve a problem like disruption?
Firstly, businesses are advised to embrace new logic, which essentially means viewing each challenge from an upstart as a learning experience, working out how to offer better value. The second point is to start now, and move deliberately. This involves balancing overestimation with underestimation, and move fast when the time is right. The third suggestion made by the report is to focus on your right to win. In other words, don’t completely abandon a business model until there is a high likelihood that the new one will be successful. The fourth point explains the importance of creating your customer’s future. In the words of Steve Jobs, companies need to work out what their customers want before they do. The fifth suggestion reminds businesses to think carefully about costing, using price to drive demand. The next strategy advises the creation of profit from overlooked assets, like products, skills, spaces and computing power. Number seven on PwC’s list is to control your part of the platform… Know what your business is best at, but make use of others’ applications and services where necessary. This ties in to the eighth point – integrate, don’t isolate. Projects should be embedded to improve their chance of success. The penultimate piece of advice is to challenge the rules, stepping outside of the box to catalyse change in legislation. Last but not least, businesses should define a new way of working. This is difficult to achieve as it means combining skills that are traditionally separate, but can deliver useful insights and a fresh way of approaching problems.
The report gives a number of examples where businesses have been successful (or otherwise) in implementing these strategies. Amazon, of course, is an expert at moving deliberately. They persistently pursue disruptive innovation, staying ahead of competitors. PetSmart developed a greater right to win when they acquired pet supply site Chewy, combining digital sales to create a clearer identity. Numerous sharing economy businesses have developed a competitive model by utilising unused assets from expertise to physical objects. Tesla, of course, has constantly challenged the rules of the roads. Of course, navigating disruption can lead down some dangerous paths. Telecommunications giant Ericsson learnt this the hard way when they set up a spin-off digital highway called the AXE-N project that cost the company billions before it was shut down. Even with a prescribed list of potential strategies, risks need to be taken. It’s the prerogative of business leaders to decide which risks are worth taking.
The perfect 10?
PwC’s report demonstrates that there are various options available for bewildered businesses, but are some more important than others? According to Mathias Herzog, co-author of the report and leading practitioner in digital strategies for PwC’s strategy consulting business Strategy&, companies should combine and converge different principles to get the best results.
“It’s not possible to call out a subset of principles as the most important ones,” he explains. “This really depends on the industry and the particular situation of a company. Principles one to three are foundational, and principles four and five are critical as an organisation must focus on its distinctive capabilities. Also, if an organisation’s incumbent model is structurally disadvantaged, principles six to ten can make a difference as the organisation seeks to overcome that disadvantage.”
Businesses recognise that disruption is coming. They understand that it will impact their existing processes and infrastructure, but are still reluctant to change.
“There are a variety of reasons, in no particular order,” says Mathias. “First, a lack of clarity on what the appropriate response is and correspondingly, a digital investment strategy that is much too diversified and not fit for a company’s particular context. Secondly, competing priorities, thirdly, a lack of appreciation for the time it takes to build up digital, and fourth, ’tissue rejection’ by the rest of the incumbent organisation.”
In other words, whatever strategy or strategies that are chosen need to be relevant, cohesive and supported by the rest of the business. This, of course, is easier said than done. Mathias’ main piece of advice for a company struggling to navigate disruption is to start now, move deliberately, and create their customers’ future.
“In my opinion, the combination of principles two and four is critical. Principle number two because it’s critical to put forward a strategy much before the tipping point is reached, and principle number four because not everybody will be able to ‘be Amazon’ – organisations must focus on their way to play.”
Disruption is, by nature, unpredictable. Sometimes, even when dutifully applying an informed plan to stay ahead of the game, companies can make mistakes. However, by using the gift of hindsight and the advice given by consultancies, businesses can work out the most logical steps to take when handling digital transformation. But, as Mathias explains, it’s important to be highly selective about which of the numerous principles they pluck from the strategic melting pot.
Has your business applied any of the strategies outlined by PwC’s report? Are there any other points you could add? What examples are there of successful disruptors applying these principles? Comment below with your thoughts.