But what does digital mean for you, for your business and the challenges you face? In this series, consultants at Moorhouse discuss what digital means to us and why we think it’s the most disruptive change in recent times.
Setting the scene
As we move further into the digital age, more and more innovative start-ups are challenging the status quo of the incumbent players. Examples are widespread and varied, often with a theme of disintermediation – removing the middle-men between producers and consumers.
Fintechs like Transferwise, disintermediating the banks and brokers to provide cheaper currency exchange using peer-to-peer lending. Airbnb, disintermediating the travel agencies to connect holiday-goers directly with those with rooms to let. Crowdsourcing, instant messaging, payments solutions, logistics and retail banking…the list of industries facing digitally enabled challenger firms goes on.
What sets the new players apart from the established, predominately large, organisations which have dominated their respective industries for so long is that they have taken a totally new approach to their business model. In most cases this concentrates on the design of their information technology, specifically in two aspects; the ease with which they allow their customers to access information and the way in which that information is both monetised and leveraged to provide a better customer service.
Legacy systems within the established players struggle to compete, seen regularly by payments outages as a result of the creaking systems in Britain’s retail banks. One way companies can quickly adapt to better cope with this speed of change is by adopting a two-speed IT architecture, as suggested by McKinsey.
Complications from the pace of change
Digital companies are designing their business and operating models with the customer in mind, and we see this in the change initiatives being championed. Traditionally, change is driven by the back-end – technology is developed as a result of initiatives driven by the CTO. Now, much of the change within new organisations focussed on a digital operating model is driven by the front-end – consumers demand more and the front-end of the business believe their technology can, and should, deliver this. The change, even technology-related change, is being driven by the marketing and sales departments.
The greatest challenge facing the existing industry players, however, is not the revolutionary new operating models, or even the ability of the new firms to design their systems from the ground up to suit today’s needs. The real challenge is the speed and agility with which new entrants can have an idea, turn that idea into a credible business and create a viable challenger brand. And do all of that in a repeatable and consumer-centric way. Reduced costs and barriers to entry open the doors to new challengers – take Whatsapp, which has grown its customer base to over 600 million monthly users and a value of $22bn in 2014 – just 5 years after creation.
So what's the challenge?
There is change afoot. Barriers to entry are being eroded and markets are being opened up to younger, more agile competitors in the marketplace. But what does that mean for existing businesses – where is value really derived in a digital world and how does your operating model deliver that value? What does Big Data really mean? And how can regulators remain effective in such a fast-paced landscape?
Over the coming months we will be sharing our insights through a series of blogs exploring the impacts of these questions, the challenges they raise, and their effects across industry.