How Digitalization can Backfire on Singapore Business ?
By Jeremy Han
Sears, a $55 billion revenue American retailer, with 350 000 staff is predicted to go bankrupt soon. Why? While there are always reasons for such a massive failure, one major factor highlighted by insiders is the CEO’s wrongful adaptation of digitalization due to poor strategic moves.
Impressed by the super valuations of tech giants like Apple, Amazon or Uber, the CEO wanted to turn this traditional retailer into a digital company; a massive online shopping mall, with a membership program to garner data of users, so that he could create additional revenue streams from the data.
He had a vision of scaling up the business with digitalization, with what he termed as ‘integrated retail capabilities’. And this CEO is not an inexperienced newbie; he is a billionaire investor from Wall Street after all.
It is not the strongest of the species that will survives, nor the most intelligent that survives. It is the most adaptable to change.
– Charles Darwin
Convicted that the market trends supported his decisions, he focused his resources on digitalization; with fewer resources invested into the upkeep of malls, against the advice of his management team. What could possibly go wrong since the retail trends supported his vision?
He failed to take into consideration the most important part of any business – his customers. The clients are mostly middle-aged and senior citizens who prefer to shop at malls and browse at departmental shops, and thus cherish the shopping experience.
These customers neither wanted to buy online nor wanted to join long queues to sign up for loyalty points via online shopping. With deteriorating shopping experience, customers left and shopped at the competition permanently. By 2014, just after 5 years, the online buying platform was no longer talked about.
All of your customers are partners in your mission.
– Shep Hyken
Digitalisation does not always lead to scaling up a business. In fact, it could backfire.
With the release of Budget 2017, the news is abuzz with the generous budgets set aside for SME digitalisation efforts. In various speeches by government agencies, the words ‘digitalisation’ and ‘scaling up’ were frequently used together, implying a connection between the two.
Indeed digitalisation can bring a lot of benefits to a business, but is it really the main reason for a business to scale? A cursory glance at disruptor industries like Amazon, Grab and Uber, with their sexy success stories do hint that digitalisation is key to scalability, yet was it technology or was it a clear, focused strategy that cleverly uses technology that led to their scaling up?
So with the focus on digitalisation without understanding how to scale a business, is it putting the cart before the horse? After all, this money can be used to fund the wrongful use of digitalisation, leading to poor results, or no change – a past phenomenon that made many question the PIC grant.
That digitalisation can fail to deliver results is not a far-fetch concern, because in 2016, Accenture released a report titled ‘Rotate to the New: High Performance through Digital Technologies’; it is about how companies have benefitted from digitalisation.
The results are dismal.
Out of more than 300 companies studied across 8 industries, only 6% registered high digital performance that led to high financial growth.
What happened to the rest?
“Only when we do something differently, will we get different results”
-Einstein
From the discourse on Budget 2017, digitalization is described as a means to scale productivity for those industries deemed as unproductive. Perhaps the full details are not out yet, but I suspect the thinking is still to see digitalization as a productivity tool, and not part of a comprehensive scaling up strategy.
And this is one of the hindrances Accenture identified. Because to see high financial growth through digitalization, the report outlines 4 areas that business leaders must take into account and integrate. These 4 areas include a strategy that embeds digitalization, developing new digital goods and services, selling through digital platforms and lastly, to develop a digital culture.
In short, businesses must consider how digitalization will be the new ‘new normal’, and not a mere side-show.
Does this sound like stating the obvious? It does, but yet it is not what business leaders do, as demonstrated in the cautionary tale above. It is far too easy to put the digital cart before the horse. So how do we make sure we do not make this mistake? How can we implement what Accenture advices?
At this point, I would like to share what Verne Harnish, the world famous business scaling up expert taught at a business master class for some of Asia’s largest businesses last February in Manila. I believe his lesson there can be very useful for us to formulate a response to the 4 questions raised in the Accenture report.
Harnish talked about the ‘Easier’ question that we must answer in every aspect of our business – how is our business making things ‘easier’ for our stakeholders? If we are not making things easier, then we lose relevance.
In the context of the Accenture report on digitalization, Harnish’s ‘easier’ question can apply this way:
1. How does digitalization make it easier for us to achieve our strategic goals?
2. How can digitalization help us make products or services that make our customers’ lives easier?
3. How does digitalization make it easier to buy our products, or easier to enjoy our services?
4. How does digitalization make it easier for us to do our work? Easier to serve our customers? Easier to do things better?
5. How does digitalization make it easier for customers to be ‘sticky’ with us?
Combining the findings of Accenture and the advice from Verne Harnish, with these 5 guiding questions, I believe businesses would have a better chance to make digitalization work for them in scaling up.
It is critical that amidst the hype on digitalization, we do not put the cart before
the horse. Digitalizing without a clear strategy, or a clear reason why, can lead to a wild goose chase.
As Singapore businesses study how Budget 2017 can help them digitalize and scale, let us work out how the ‘Easier’ question can be answered first.
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