Boards ignoring digital are guilty of negligence

The average life of a company is falling. Data from the US shows that in 1960 large businesses could expect to be around for an average of 60 years but by 2012 this had fallen to just 15 years.

Technology has played a large part in the falling life expectancy of organisations; it removes barriers to entry by enabling companies to create new ways of meeting customer needs without having to build large infrastructure or acquire significant assets. Disruption is not a new thing; for as long as there have been industries and businesses there has been disruption. But with each technological development the potential of disruption and the frequency at which it happens has increased and, as a result, the average life of a business has fallen.

And so, as the digital revolution gains momentum, we will see more businesses and whole industries being disrupted and hence the average life expectancy of organisations will continue to decline. Digital markets move quickly, they are more dynamic than traditional markets and they can be disrupted more easily. New technology-enabled business models can be developed and launched far more quickly than has previously been possible. And they can be scaled-up to meet a surge demand in a matter of days or even hours. The brand, scale and resources of an established company do not necessarily provide the protection they once used to when a disruptive new competitor or business model appears on the scene.

And it seems that business leaders are aware of this threat. A study carried out by the Global Centre for Digital Business Transformation found that on average business leaders expected four of the top ten players in their industries to be displaced as a result of digital disruption in the next five years. The figures vary by industry with media executives believing that on average 4.6 of the top companies will be displaced while in the oil and gas sector the figure was 2.5. It is worth noting, however, that in every industry executives are saying that disruption will happen and that some of the leading players will suffer as a result. The only difference between sectors is their view of how many incumbents will lose their place in their industry’s top 10.

And the disruption will happen soon. When asked how long it will take before digital disruption hits their industry the respondents across all industries gave an average timescale of three years. That is not long given the time it takes most organisations to implement changes to their business. And that figure is an average; for some industries executives believe disruption will happen much sooner.

So business leaders across every sector know that digital disruption is coming. They expect some of the leading players in their industry to be severely impacted by digital. And they believe that they have an average of three years before this happens.

So one would expect that most companies are either already transforming into a digital business or to at least have plans in place to make the necessary changes. Transforming into a digital business is not easy and nor is it something that can be done quickly. And it takes a lot more than investing in mobile and social. There are no shortcuts to becoming a digital business so any organisation that has not started the journey needs to start as soon as possible if they want to survive in the long-term.

And this is where the Global Centre for Digital Business Transformation’s research contains some surprising and worrying findings. Despite the awareness of both the likelihood and impact of digital disruption, it is not viewed as a board-level matter in 45% of companies. And, reflecting the lack of board attention to digital, when asked about their company’s attitude towards digital disruption 43% of executives said their business either did not recognise it as a priority or was not responding appropriately. And a further 32% were taking a “follower” approach. In other words, only 25% of companies are proactively responding to the threats and opportunities of digital. These companies are actively seeking to disrupt themselves in order to compete in the digital age.

Given all the evidence about the inevitably, impact and speed of digital any board that opts for a doing nothing approach is placing their business at significant risk of becoming a victim of disruption. Ignoring digital and refusing to even discuss it at board level is nothing short of negligence.

But taking a follower approach is also risky. It assumes that the business has the time and resources it needs to respond to a change in its markets before that change becomes a significant threat. Historically this has usually been a reasonable assumption. But digital has removed many of these protections. Being a digital business means moving quickly, taking risks and being prepared to fail along the way. Most large organisations just do not have the culture, policies, processes or systems in place to operate in this way. As a result, when faced with a potentially disruptive change in their markets most of the existing players will struggle to respond in time, while some may not be able to respond at all.

Any business that has decided to be a digital follower still needs to be building the necessary capabilities, skills, etc. required to operate as a digital business if they are to have any chance of surviving a potential disruption. Not building these capabilities is no different to doing nothing and will leave the organisation at significant risk of being a victim when their markets are disrupted.

Digital is inevitable; it will come to every industry and, when it does, it will have a significant impact on many of the established market leaders. Given how few companies are actively addressing digital, we could see a lot more than 40% of the leading companies in each industry being displaced over the next five years.

Doing nothing about digital is not an option while taking a wait-and-see approach is risky. To maximise the chances of surviving the inevitable disruption and succeeding in the digital world, boards need to make digital transformation a priority and be prepared to self-disrupt their organisation.

If your organisation wants to develop a vision and strategy for its digital transformation, or reinvent its business model for digital then please contact me or visit my website, axin.co.uk.

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