Organizations that pay attention to the principles for digital disruption will be best positioned for today’s complex digital reality, according Mathias Herzog, a partner at PwC’s Strategy&, and one of the authors of the strategy consulting group’s report, 10 Principles for Digital Disruption.
“Over time, disruption impacts market share and profitability of incumbent business models, and there is a gradual impact we’ve seen with most disruptions,” Herzog said in an interview with Chief Executive. “In most industries, organizations that have passed that tipping point – as defined by market share and beginning to lose money – have migrated to a new business model.”
These organizations have a heightened sense of urgency, whereas other organizations find themselves a little further from the tipping point, so they perhaps have more time, he says. As such, there’s a time sensitivity that varies based on the situation.
“Constantly reimagine your customers’ needs in ways you may not know is possible.”
In either case, PwC believes there are a number of things organizations should do in a structured manner to really understand the disruptive forces at play and how they might potentially impact them. Here are a summary of the 10 ideas.
1. “We advise our clients to build their ‘organizational muscle’ around assessing the environment,” Herzog says. “One data point to follow is the venture capital flow into technologies – look into the funding that is going into new types of business models within a given sector. This can offer indications of how rapidly disruption is approaching.”
2. Define your digital identity, looking freshly at the way you deliver value, in light of what digital technology can do for you.
3. Begin building new capabilities early and proceed strategically, rather than frantically and reactively, he says. That way, these capabilities will be ready when their industry finally reaches its tipping point.
4. Companies should also focus on their right to win, by building an identity grounded in their distinctive capabilities, and then aligning their value proposition around that.
5. Constantly reimagine your customers’ needs in ways you may not know is possible, and in return, you will likely gain privileged access to those customers, he notes. If your audience responds to price reduction, for example, work to increase customer adoption with lower prices to scale up new business models and “make it difficult for rivals to compete.”
6. Identify ways to create value from underused facilities, tech resources, staff time and information available for sharing across your enterprise.
7. Use platforms, Herzog says, to break free of the constraints of your sector or even of your department, and go wherever the capabilities system provides an advantage. By relying on technology and capabilities provided by others, companies can carve out a differentiated niche on the vast business-to-business systems emerging now.
8. Also, use your new business model to enable an enterprise-wide digital transformation, instead of experimenting on the side with “safe” but quarantined pilot efforts. “Companies should challenge the rules,” Herzog says, “orienting practices toward the intent rather than the letter of the law.”
9. Foster a culture rooted in strategy, customer experience and technology – by evolving digital insight and business strategy along the journey.
10. Use digital technology as a catalyst to change the way their business operates. They should assemble teams that integrate business strategy, customer experience and technological acumen.
Herzog doesn’t believe organizations have a choice to ignore these principles. With past disruptions, as incumbent business models shift in value, market share and customer knowledge also shift – customers become more savvy and then have an expectation that business will disrupt.
“At some point, the businesses that don’t move will find themselves in a situation beyond the tipping point, and then it becomes really hard,” he said. “They are then on the decline – on the defensive – and their ability to invest in things other than their old business model is going to get more limited.”
“It will be a death spiral – that’s definitely something we’ve seen with past disruptions,” Herzog said.