INSIGHT

Digital: Transformative Impact

The digital age is overwhelming in the scope of change it is engendering. That change is silent, and it is fast. It has overtaken how we live, and it will transform how we work. This era coincides with transformative trends underway also in the geopolitical and regulatory domain. Collapsing business cycles are now a norm as digitally native firms challenge existing status quos, and as consumer-to-consumer interfaces accelerate. However, the hype around digital is often focused on a few companies – typically Uber, Airbnb, and Amazon – whose business models and digital platforms are disrupting and reshaping industries. Yet today, every enterprise is (or at least should be) concerned about digital disruption. Moreover, for nearly everyone, including established, successful, and high-tech organisations, ‘digital transformation’ is about much more than just operational issues. Instead, it goes deep into the realm where systems, people and ‘things’ connect digitally. This pervasive approach to digitisation, in turn, opens up new strategic options and opportunities, and demands a call to action internally to create USPs – of products and services and most of all, of organisational systems that are at their core, agile and innovative and yet, empathetic and human, and of leadership capabilities that work in these times of fast-paced change.

The Pace and Scope of Disruption...

Today, the pace of disruption has increased dramatically. It took 60 years for India’s GDP to reach one trillion dollars, but just seven more to reach the next trillion, and by 2021, India will be a USD 3 trillion economy. Technology is at the forefront of this disruption, evident from the fact that today, the biggest firms (by market cap) are all technology companies. This stands in stark contrast to the situation just 10 years ago when, barring Microsoft, the majority of top companies were ‘non-tech’. With new technologies emerging all the time, the average lifespan of a company is down to 15-25 years, while the average tenure of a CEO is just four years.

The list of ways technology is disrupting businesses is seemingly endless, and companies that can really master the digital age are the ones that consistently lead the pack in their respective markets. For instance, e-readers are massively disrupting the traditional book industry, with Amazon already selling 100,000 Kindles in India. Similarly, e-Cigarettes are the new rage, with 20 million electronic cartridges sold globally. Online cab aggregators in India – Ola and Uber – have built a collective capacity of 1.45 million cabs in just four years, while the traditional black-and-yellow cabs took 70 years to reach the 2.3 million mark. Globally, electric vehicles are expected to cross 6 million by 2020, with China – which in 2017 made about half of the one million electric vehicles produced globally – taking the lead. By 2030, there will be some 4.2 million driverless cars. Self-flying drones and helicopters are the next big digitisation wave for aerial mobility, and countries like UAE and Germany have already begun experimenting with air taxis. In the payments space, the total digital payment market in India is expected to grow to USD 1 trillion by 2023, led by the growth in mobile payments.

The global robotics market, currently valued at USD 22 billion, will, on account of declining costs, expand rapidly, driving massive deployment in manufacturing and services, producing efficiency gains and unlocking working capital. By 2030, a fourth of all the ‘cops’ in Dubai are likely to be robots. Leading companies are deploying robots to improve their processes, including PepsiCo, which transformed its claim settlement process from 21 days to 3 hours with the help of two robots from IBM. Digitalisation, and rapid innovation in cloud-based platforms, have given rise to the ‘gig’ economy, allowing individual workers to freelance their skills. Today, there are 20 million highly-specialised freelance workers globally. By 2022, it is estimated that 22% of India’s workforce will be freelancers. The primary driver for this is employees’ need for greater work-life balance, and being able to work on their own terms.

Technology, and the ubiquity of smartphones, has changed the paradigms of journalism. One of the most obvious consequences is the democratisation of information via so-called ‘citizen journalists’. Using mobile and social networks, anyone can now report a ‘news story’ within seconds of its occurrence. New-age review sites such as Glassdoor have disrupted traditional workplace review publications. Today, Glassdoor is the leading source of company reviews, with records of 77,000 companies across 200 countries. Similarly, LinkedIn, using sophisticated technology to find and seek passive candidates, has disrupted the corporate recruiting market, previously dominated by search consultants. In the matrimonial ‘match market’, Aadhar certification of profiles is driving credibility and trust in an otherwise unorganised market.

... And Its Impact on organisations

Digital has a profound impact on the way organisations are structured, conduct operations, handle employees, identify customers, deal with vendors, and manage relations with end consumers. Organisations that are able to assess the impact will be quick to engage in a deep shift in the way they do business.

  • Second-in-command: A redundant position. More and more organisations are cutting down on second-in-command positions across job levels. These roles were created as a contingency plan in the event a CXO was unavailable. However, a digitally connected workplace enables the first-in-line to be available anytime, anywhere, obviating the need for a backup resource.
  • A new set of leadership skills: Leaders have a critical role in paving the way for digital transformation. A vastly expanded span of control and geographically dispersed teams are the new realities for leadership in a digital workplace, requiring different sets of skills to manage and motivate people. It takes different types of skills to talk to people face-to-face, over the phone, or on a video call. For instance, taking regular pauses during a phone call can make a leader appear more sensitive, while opting for a video-call with a subordinate lends a sense of intimacy to the interaction.
  • Driving change through outsourcing: In today’s digital landscape, companies are increasingly exploring outsourcing, not just to reduce costs but also to generate much-needed agility and innovation. Leading companies have begun aggressively outsourcing non-core operations, driving innovation and value-creation in the process.
  • Increasing centralisation: Advancements in technology are swinging the pendulum towards greater centralisation. Having organisational assets in one place create advantages such as greater synergies, lower redundancy, less maintenance, and better control.
  • Generating insights from information – not enough: Organisations are collecting a vast amount of data, but often lack the talent to translate the data into quality insights. Moreover, decision-making cycles (whether monthly or quarterly) tend to lag the information-flow cycle (daily). This is key reason for poor decisions, and employee dissatisfaction.
  • Speeding up decision-making: Increasingly, companies are using public, online collaborative tools to quickly exchange information. WhatsApp, for instance, is commonly used to initiate group chat and enable decision-making in real time. While this brings in efficiency and cost benefits, the governance aspect remains a black box.
  • An increasing digital ratio of jobs: The pervasive nature of digital technologies is increasing the digital component of jobs across all bands. Consequently, educational degrees are rapidly losing significance as a primary factor in hiring. Going forward, companies will need to increase the digital ratio of each job, especially in front-end customer-facing roles.
  • A weakened middle management: Weak middle managers tend to reduce organisational success, underlining just how important this band really is. Typically, the role of a middle manager is to lead execution, coach juniors, and shape their mindsets. However, most middle managers get caught up in operational complexity, which ends up consuming most of their time. Today, a typical middle manager in a medium-sized company is mostly busy creating PowerPoint presentations, focusing more on the ‘story’ or the ‘look and feel’, and less on substance. Not only does this impact the quality of execution, but it also affects the morale of subordinates.
  • Treating employees as volunteers: To build a strong employer brand, companies need internal brand ambassadors – employees who are engaged and committed. They should think of their employees as ‘volunteers’ – someone who can say ‘No’, or walk away anytime. This encourages feedback, improves morale and trust, and increases discretionary effort. However, dealing with volunteers is different from dealing with employees, requiring different policies, frameworks, and culture. In that regard, every stakeholder in the ecosystem, including suppliers, partners, and distributors, are potential brand ambassadors.
  • Frequent recognition boosts motivation: Given falling average employee tenures – now down to under two years – recognising good work frequently, even if this done simply and at low cost, tends to boost motivation, and to reduce voluntary turnover.
  • Having talent on tap: With the rise of the gig economy, more and more companies are supplementing their workforce with freelance/on-demand workers. This enables them to access highly specialised talent that is otherwise difficult to hire. In the next five years, the on-roll to off-roll ratio is expected to dramatically shift in the favour of the latter.
  • Rising online presence of luxury brands: Luxury brands are becoming more accessible, with people now able to scan through their offerings on a website. Earlier, people would be scared to enter luxury stores, but that fear is now fading away. Moreover, luxury brands have started embracing online sales, even offering discounts and deals.
  • Consumer segmentation by pin code: Technology is enabling marketers to segment data down to the most granular level, even treating different pin codes as distinct units – something that was unheard-of until very recently. Companies are now able to drive targeted messaging even in areas where they would never have imagined selling.
  • Shortening gaps between advertising and purchase: Today, shopping and advertisements are being consumed at the same place, and at a given point in time. Executives thus need to constantly think of innovative ways to shorten the gap between the ad placement and purchase decision/action.
  • Rising consumer unionism: Consumers frequently take to social media to share a bad product or a service experience. In no time, this can turn ugly for the company, especially when people with similar experiences join hands to collectively demand action. Businesses thus come under tremendous pressure to act swiftly to contain reputational damage.
  • Falling prices of goods and services: Gone are the days when companies could pass on cost increases to consumers – in fact, there is now no correlation between inflation and pricing. Digitisation optimises inventory and the use of spare capacity, which reduces working capital and improves margins. In the US, online prices for most goods have dropped by an average of 300 bps in the last three years. As a result, offline prices have fallen by 100 bps. In India, the ‘real’ prices of most categories have come down.
  • Rising regulation: Digital technology allowed the bypassing of traditional barriers and regulation. However, going forward, several guidelines – both global and domestic – will regulate the transfer of data. India, for instance, is expected to come up with a set of digital rules that aim to create a balance between innovation, security and regulation.

Succeeding in a Disruptive Environment

To sustain long-term success in the current environment, disruption and innovation must be part of the organisation’s DNA. The key to success is changing the game internally, which is the result of several broad drivers.

Setting the tone at the top
One of the keys to success in a disruptive environment is a leadership mindset that is rooted in the right set of behaviours. A true, authentic leader guides people in a professional manner while keeping communication genuine, transparent, frequent, and focused on the results. Leaders who exert self-discipline by persisting in the face of difficulty tend to increase their influence on others. Such leaders are self-controlled – they are well-organised and demonstrate willpower and determination in everything they do. This is crucial to fostering trust within the team and building a cohesive and happy team.

Shaping the right culture
Leadership and culture are the crosshairs that enable competitive advantage. An engaged culture drives performance, and not the other way around. The culture should encourage employees to innovate, without fearing blame or repercussions if they fail. As with any major cultural shift, this has to flow from the top: leaders must take ownership for failures, and shift the team’s focus from ‘what already happened’ to ‘what is likely to happen’. Typically, management should spend at least a fourth of its time thinking about the future. More and more companies are employing focus techniques to add rigour to team discussions. One popular tactic is to make attendees read material prior to a meeting, which helps improve outcomes. Another is to get external experts to speak about changes taking place in a particular industry – thus providing a fresh, outside perspective to employees.

Creating adaptable organisations
To successfully navigate disruption, companies must adapt their processes, operating models and systems. Too often, transformation efforts fall flat due to the problems that arise when silos – a legacy of command-and-control structures – fail to come together with a sense of ‘mission’. The underpinning of a customer-centric organisation is internal centricity, which requires different functions and departments to work collaboratively. This is crucial to quickly responding to changes, but also to delivering a seamless experience to consumers.

Developing an agile mindset
Success at digital transformation requires fresh mindsets, and finding an entirely new way of thinking and working: one that is built around curiosity, a willingness to celebrate failure (quickly moving on), and the ability to ‘break things’ wherever needed.

Accelerating speed to market
Armed with smartphones, consumers can find what they want, whenever they want, at the best possible price. The ‘see now, buy now’ economy is the new reality. Leading companies are compressing the time to bring products to market through fast-cycle innovation, which requires a better understanding of consumer demands, and rethinking the entire value chain to weed out inefficiencies. PepsiCo used social listening to track key conversations happening on social media regarding its brands, products, and the broader industry. This helped it better align its offerings with consumer preferences.


D Shivkumar This article is based on discussions with D Shivakumar, Group Executive President - Strategy and Business Development, Aditya Birla Group at IMA India’s Annual CEO Strategy Roundtable in Udaipur in July 2018

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