Companies are transforming as digital technology takes over and millennials rise.
Anders Bärlund, a partner at global consulting firm McKinsey & Company, says ‘latency culture’ is now a widely-used concept.
“We see double-digit growth in things like Internet usage, social media usage and so forth even in this region where we do have challenges with digital readiness. They are changing so fast, that a lot of companies just quickly transform,” Bärlund says.
According to World Economic Forum’s published ranking, as presented by Bärlund at the Anvil Business Summit 2016: Giants Level Up!, the Philippines stands at 107th place in terms of affordability for connectivity.
“The first ones to bring it up are the innovative startup companies. At some point, this becomes such a threat or such an interesting opportunity that the first big companies start to pick it up. That is also where new category of this service, whatever it is, takes off and it starts to really grow,” Bärlund says.
“And there comes a point where some industries are already past in some countries, which is the tipping point where the incumbents who managed to transform themselves, they will go bust and disappear. And the ones who are left are either the ones who manage to go through this transformation, or some of the startup companies that actually manage to turn themselves into mature, profitable, proper businesses,” Bärlund says.
He says big companies are the ones who “naturally have the prerequisites for success as industries digitize” and yet, “it’s proven really, really difficult for many of them to compete.”
“The expectations are often very, very high. Many companies expect a really big share of their revenue growth and cost deficiencies to come from digital transformation. They end up being disappointed,” Bärlund says.
One of the reasons he says is that “digital is an experiment.”
“That’s one part of how digital strategies are being built, how they’re different from the world we used to know. But they’re experimenting without commitment. There’s still 99.5 percent that is our traditional business. So what happens with the 0.5 percent, that is our new digital signature form business. Therefore, we call it the adjacency, or we should be saying this is about redefining the core to digitize the company,” says Bärlund.
McKinsey uses four pillars to assess digital readiness. These are culture, strategy, capabilities and organization.
“We’ve built an index based on these things. This is something that we’ve used now for a while to start to quantify and compare companies, and see how ready [companies] are for new digital growth. The companies who score high on this, the companies who manage to grow four pillars really well, they outperform both in terms of revenue growth and in terms of returns,” Bärlund says.
According to Bärlund, these companies, though successful with the transformation, hasn’t done everything at once, and also struggle with common themes that are the next generation of challenges in digital transformation.
“There are few challenges which are still out there. Very few have cracked the program of big data, and with big data, you don’t mean gathering data or running the basic analytics,” Bärlund says.
He says “there are a few very fundamental cultural shifts or cultural elements that distinguish the players who are really at the forefront of this.”
“If we look at this, there are certain companies who are good at most of these elements but there are also what we call the digital source. The technical capabilities may not necessarily always be there or even be one of the key prerequisites for success. If the culture, the try and fail, start over, take big risks, all those important elements of a digital culture are there, these companies can still manage to outperform,” Bärlund says.
Other ways for smaller or weaker companies to achieve success at digital transformation involve “setting the right strategy, building the right organization,” he says.
“The companies who are digitally strong are two times as likely not to be killed by [non-invented peer traditional] culture, four times as likely to take big and bold risks, and eight times as likely to run a strategy which is based on experimentation rather than just analysis,” Bärlund says.
He says partnerships are important in moving fast, as with digital technology.
In these four pillars, Bärlund suggests that in “culture, don’t be afraid to think big and don’t be afraid to move fast.”
“Strategy is not so much about how do I create a digital strategy. It’s about how do I fundamentally transform the core of the business because eventually, it’s about digitizing the entire company or organization execution. In capabilities, very few have the capabilities it takes. We need to start moving. We will build capabilities over time and the ones that we need now, we can impart to partnerships,” Bärlund says.
“We live in a world where the success criteria for our business are different because our cultures are different. The way we do business is different and so the way we perform and manage our business should also be different,” Bärlund says.
