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Moving from analogue to digital, or how to balance old with new

Moving from analogue to digital, or how to balance old with new

The top challenge? You simply can’t walk away from existing clients, existing services that they buy and the cash flow that they produce, while simultaneously repositioning yourself for the digital world

We should seek to become more nimble like startups, more dynamic and (dare I say it) more agile, but not at the expense of our strengths as a successful incumbent

Owen McCall

A note from the author: This is part of a series of blogs investigating the issues that traditional organisations face in their journey to becoming digital organisations (in this context, a traditional organisation is an organisation that was born and matured before digital was ‘a thing’)

One of the major issues that leaders of traditional businesses face is the need to operate their dominant legacy traditional business alongside their emerging digital business. It's not an exact parallel but, I am a track and field fan so when I think of this challenge of being great at two things simultaneously I think of two of the great track and field stars, Jesse Owens and Carl Lewis.

Both are immortal and what sets them apart from other great track and field stars is that they excelled in two disciplines, sprinting and long jump at the same time. Very few truly great athletes ever managed to do this. Usain Bolt didn't. Michael Jordan was an all time great at basketball but didn't manage to become a great baseball player.  

It is a significant challenge, which few have historically succeeded at, yet this is exactly the type of challenge facing most traditional organisations who are seeking to become digital.

You need to continue to successfully operate your traditional business, you simply can’t walk away from existing clients, existing services that they buy and the cash flow that they produce, while simultaneously repositioning yourself for the digital world.

A group of enthusiastic IT leaders discussed this challenge a couple of weeks back and while there is no one right answer on how to balance the old and the new there are several viable options that you could pursue.

But first, as a successful incumbent in your industry it is important that you play to your strengths.

Business models are notoriously hard to change, so much so that innovation guru Clayton Christensen says it is near impossible

Owen McCall

It has become very popular for incumbents to want to act like startups. We are jealous of their nimbleness and the freedom that they seem to have. They seem to be able to turn on a dime.

We on the other hand are slow to change and it seems to take forever to get things done. We wish for the freedom of the startup and yes, we should seek to become more nimble, more dynamic and (dare I say it) more agile but, we should not seek these things at the expense of our strengths as a successful incumbent. Indeed to we should actively seek to leverage these strengths to our advantage.

What are these strengths? There are many and they will vary from organisation to organisation, however a few common strengths of incumbents are:

Access to money: As a successful incumbent business you will most likely have significant financial resources as your core business is profitable and cash flow positive. If you are serious about going digital you can use a proportion of this cash to fund your transition.

Access to people: Successful incumbents have teams of people and if you have recruited well you will have access to your share of talented people. These people are already committed to your organisation and it's success and you are merely a decision away from investing in these people and freeing them to begin to create your new future. Yes you may need to supplement them with outside support and mentoring but you will be surprised at what they can create given the right mandate and conditions.

Strong existing relationships with customers and stakeholders: Yes, you can allow these relationships to bind you into a certain way of thinking but they also give you great access to intelligence and new ideas. Leverage these relationships in ways that have potential to add value to both you and your customers / ecosystem partners. There are many new and interesting techniques that can help you with this such as job to be done or service design thinking to name just two.

Talented seasoned leaders: You don't just have access to a team, you have access to seasoned experienced leaders. As with the team if you have recruited well and invested in your leaders you will be surprised by what they can achieve for you given the right conditions and mandate.

As an aside, if you are a leader of an incumbent and look at this list of strengths and think to yourself "yeah but that really doesn't apply to us," then maybe your biggest organisational challenge isn't going digital. Maybe it's that the top leaders in your organisation are not as high performing and successful as you'd like to think they (you) are!

So whatever approach you take to managing your traditional business, while developing a new digital business, always seek to do it in a way that leverages your strengths rather than minimising them.

What approaches are there? There are many different approaches that you could take but broadly these approaches fall into one of two categories:

  • Start something new (and separate) while continuing to run the old.
  • Focus your efforts on transitioning your existing traditional business to a more digital delivery model.

With these two categories in mind here are some approaches that we discussed as a group and agreed had value (would love to hear about others from you).

Start a new digital business/create an incubator

One of the biggest challenges presented by the rapid advance of technology is not the technology itself but the new value propositions and business models that technology enables. (I have written about this in more detail here if you are interested). This is a problem because business models are notoriously hard to change, so much so that innovation guru Clayton Christensen says it is near impossible (see his article The Hard Truth About Business Model Innovation). One response to this is not to try to change your business model, instead work your existing business for all it is worth and set up / fund a separate digital business along side it that offers a separate value proposition and operates through a digitally enabled business model. Use the cash flow from the existing business to build the digital competitor and expect that if you are successful that at some point the new business may overtake the old.

Invest in digital startups

Rather than creating your own start up you can simply invest in other people's high potential startups. Buy the expertise and a piece of the upside from new digital ways of working. There are many examples of this across the world. Locally one example of this strategy is Z Energy's recent purchase of 70 per cent of Flick Electric. It's a well worn strategy but you will need to be prepared to pay the price, as many tech startups sell for multiples of revenue rather than multiples of earnings.

Use digital to target new markets or customer segments or to launch new products

When it comes to digital one of the issues that incumbent leaders worry about is that a new digital business will cannibalise their existing business reducing the total incremental return to the organisation (others argue it's better to cannibalise yourself than let your competition do it). One way to avoid cannibalisation is to use digital to open up new markets or new customer segments that you either don't currently serve or have struggled to serve. Have a successful New Zealand business and wish to expand to Australia? Consider entering Australia with an asset light digital offer. Doing great business with large corporates? Consider launching a digital offer to give you access to SMEs or even individuals.

Perhaps the most famous example of this is Netflix. Established in 1997 it's hard to argue that Netflix ever was a traditional company but that said they got their start renting DVDs via mail order and that's what it did for 10 years. Yes they were digital even then, their business was well supported by websites and web sales but the Netflix we know today didn't get its start until 2007 with the launch of the video streaming service we all know and love today. At the time video streaming was a new product which Netflix sought to sell to existing customers. As we know this new product became the company.

Transition traditional products into digitally-enabled services

Rolls Royce makes and sells jet engines or at least it used to. Today you can still buy a jet engine from Rolls Royce if you want (at least I think you can, it's been a long time since I have been in the market for a jet engine!) but increasingly Rolls Royce don't sell jet engines. Instead, they sell flying hours at a fixed cost per hour. They have taken an expensive capital product and turned it into an operational pay for use service. It's what Amazon have done to servers and compute power and what rental car companies have done for generations. The difference between modern services and traditional rental and lease arrangements is that in today's world a significant part of the value is delivered through digital services, most likely large scale sensor deployments (the internet of things / IoT) and data analytics that provides insights into changes in state and performance and underpin lower cost to operate and improved service levels.

Moving away from Roll Royce another example of what is possible can be found in this AT&T case study where AT&T is supporting city authorities to save water through an IoT implementation that monitors water pipes for leakage and allows for the quick and cost effective removal of those leaks (most cities lose 20+ per cent of their water through leaking pipes). If you are a company that currently sells water pipes could you transition to not just selling pipes but to selling this management service to your clients instead or as well as your existing products?

Develop and integrate many channels to provide customer choice

Digital provides new options and choices. New options for businesses in the way that they provide services to customers and rising expectations from customers that they will get to choose how and when they do business with you. One of the impacts of this has been the rise of multi channel as a means of meeting customer desires to engage in new ways. These channels may be traditional: in person, with a catalogue or advertising brochure, over the phone, or digital: online through a website, on the move via an app or a marketplace, through a chat-bot. All are valid and the customer will decide which channel or which combination of channels they will engage with and when.

As customers and businesses have become more sophisticated in multi channel the bar has moved and multi channel has become omnichannel. The difference? Omnichannel focuses on making the customer experience the same no matter which channel they access and ensuring that an interaction in one channel is appropriately captured and passed to other channels so the customer is always known.

Many companies have started this journey and some are well down the path to creating an omni channel experience. In my old industry of retail this is often expressed in "click and collect" offers. At Air New Zealand, for example, it is the relatively seamless crossover between the app, the website, check in and boarding your flight and the call centre. What is it for you?

These are some of the ways that traditional incumbent organisations can and have begun to stage the transition to digital. Which have you done or are you doing? What other options are there?

I'd love to get your feedback on what else is possible and to read of your experiences in using these methods in the real world.

Owen McCall (@OwenMcCall) is an experienced management consultant and CIO, and a member of the editorial advisory board of CIO New Zealand. He is the author of the book High Performance IT: Insights into IT leadership and delivering on the promise of technology.

Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

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