- September 20, 2019
- Posted by: Ramkumar
- Category: Digital Transformation
In this blog, we shall look at how successful companies are able to withstand digital disruption by addressing two digital imperatives.One is in building new digital businesses and the second is digitizing legacy operations to improve efficiency and productivity.
Successful companies realize that they would not be able to withstand disruption from new age companies by making incremental changes to their business models.They need to make innovative changes by creating new digital business models but at the same time need to digitize their legacy core business holdings.
Duality in digital disruption
- Balancing the dual imperatives of digital can be challenging but can provide successful results.
- Successful companies that generate more than 25% of their revenues from digital by launching new digital businesses while also taking efforts to transforming their core are able to enjoy double digit growth in organic revenues.
- From clarity perspective, let us clearly demarcate what I mean when we refer Digital Natives and Traditional Incumbents.
Digital natives are companies whose revenues are more than 25% digital.Such companies are able to enter into new industry/sector through digital moves and their initiatives.Such companies command a higher market share in their respective industries when compared against their traditional incumbents.
Traditional Incumbents are businesses that still continue to operate in traditional ways.For convenience sake, more than 85% of their business are non-digital
How Winners create Digital Disruption
As we have observed before, companies that are able to achieve a double digital organic growth year on year for the past three years have been successful in creating digital businesses.
So what strategic bold moves have these companies been able to take to become economic performers?
Three moves that differentiate such companies from rest are:
Digital disruption success factor 1 – Allocating Digital Capital
- Successful companies are able to allocate capital equally in digitizing their core businesses and in developing new digital businesses.
- Traditional incumbents at the same time allocate more capital in digitizing legacy operations.
Digital disruption success factor 1 – Investing on M&A
- Successful companies are able to invest in M&A more on digital opportunities than non-digital ventures.
- These firms focus on tuck-in acquisitions to differentiate themselves and filling gaps in their existing offerings by acquiring companies focused on Cybersecurity and AI.
Some of the recent acquisitions where companies paid high multiples to acquire companies in order to future proof their businesses from digital disruption are:
- IBM acquisition of Redhat to renew life into their dying cloud offerings.
- SAP acquisitions of Qualtrics after it filed for IPO.
- Salesforce acquisition of Tableau and Click software in order to be an one stop shop for businesses.
Digital disruption success factor 1 – Emphasis on Innovation
- Successful companies focus on innovation when developing digital product portfolios.
- Digital offerings constitute more than 50% of their new offerings for these companies.
Hence, from financial standpoint, putting more money in innovation, M&A and in new digital businesses makes sense as studies show that these businesses have been able to give double the returns when compared to investments in legacy businesses.
How successful companies digitize their core business?
- Digitizing the core business is equally important as developing new digital businesses.Digitizing core business means transforming processes as well as technology.
- Inspite of enjoying modest financial returns, companies cannot shy away from digitizing their core businesses.
- Companies that are able to digitize their legacy businesses have strong IT capabilities.These strong IT capabilities help these companies in becoming fully digital and in mastering key digital activities.
- Digital natives employ basic and advanced technologies across the enterprise.These firms embed advanced technologies like AI into their basic functions and are able to derive significant returns from such investments.
Success factors for Digital disruption
- The biggest success factor for deriving Digital benefits should be to integrate digital technologies in their regular business operations.
- Some companies mandate usage of digital tools as a new organisational norm to accelerate the transformation. Such practices bring sustained improvements in their business.
Final thoughts on digital disruption
- The pace and degree of digital disruption can vary from one company to another and even among businesses in a company’s portfolio.
- In order to successfully navigate from these disruptions, successful companies have a well calibrated strategy of creating new digital businesses and at the same time digitizing their legacy core businesses.