Competitive Threats Driving Digital Adaptation
While digital adaptation may evoke visions of continuous improvement and innovation-led initiatives, the real impetus behind digital adaptation is more basic – survival. 70% of B2B companies have digital adaptation projects underway in direct response to competitive threats, according to a recent poll of 300 leading business-to-business companies. Three main sources of competitive threats are looming: those from existing companies, emerging digitally native online competitors, and overseas suppliers offering lower price points. And of these three, the biggest threat is the emerging digitally native company – the totally new player that didn’t exist yesterday. They are the smaller, niche players that can turn on a dime, or venture-backed startup operations, or even students in dorm rooms, all armed with a passion for change and the latest technology. While some of these brand new competitors may be capital-challenged, they have a major competitive advantage over established players by avoiding the expense and upkeep of legacy systems. In fact, executives participating in the research mentioned above pointed to the manpower, expense and operational risk associated with legacy systems as the number one roadblock to their digital success. Internal resistance to change came in number two. It’s not just the shifting competitive landscape that trips up established companies aiming to digitally transform themselves. Competitive threats in the digital age are more complex and more difficult to defend against than traditional types of marketplace assault. Today, competitors can use a laser focus to take down a piece of business they find attractive, compromising profit and market share, one demographic or market slice at a time. For instance, the banking industry, which previously owned the relationship between the financial institution and the customer now sees a deluge of application-based companies shearing off its most lucrative transaction-based offerings. These competitors completely avoided the expensive real estate and extensive human resource requirements of building and maintaining a network of physical locations, which significantly lowered their operational costs. In addition, these digitally-oriented competitors can appear unexpectedly in an industry. Imagine the surprise to the auto industry when they found that consumers were willing to forgo visiting car dealerships to purchase a car online. Several companies emerged encouraging consumers to bypass the vehicle dealership all together. These digital-only companies allow consumers to configure, price and order a new vehicle completely online – from the comfort of their homes or offices – and have the new vehicles delivered to anywhere they choose. While each of these pure-play start-up competitors is disrupting a different sector of a different market, they share a common goal: to put the consumer back in control. B2C companies learned this lesson when, in the early days of digital, the Internet lowered the barriers to entry for new competitors. Retailers were slow to respond to consumers’ online shopping preferences and only took the threat seriously when new online-only players began to take market share from the leaders. This slow response left many market leaders reeling and caused a massive amount of physical stores to close and companies to declare bankruptcy. It’s no longer enough for executives in any market, industry or geography to keep tabs on known sources of competition. On the digital landscape, competition can come from anywhere, which means executives need to be especially vigilant about protecting their market share. To remain successful, companies must digitally adapt to build and maintain an edge over their competitors – the traditional ones they watch regularly, as well as the emerging and digitally native startups, and, even those students in dorm rooms. To learn more about how digital adaptation is changing more than just the way businesses compete, read our white paper, “An Introduction to Digital Adaptation.”
3 Key Ways to Manage Speed to Market
Today’s age of digital adaptation mandates innovation and quality – at great speed. Way back in 2000, Jack Welch, in GE’s Annual Report, warned us, “If the rate of change inside an institution is less than the rate of change outside, the end is in sight.” For some companies, delivering innovation and quality simultaneously is exhilarating, while, for others, it’s a fast path to disaster. Consider these pivotal questions: Why is it that some companies can marry methods, such as Agile and DevOps, to continuously deliver successfully, while others struggle? What puts some software companies at the forefront of market demand, while others strain to keep pace with the pack? Success, it seems, often comes down to the ability to unleash technology’s inherent productivity. "Leading technology companies have been early adopters of these capabilities and have reaped the benefits. Amazon for instance can release code every ten seconds or so, update 10,000 servers at a time, and rollback website changes with a single system command," as Satty Bhens, Ling Lau and Shar Markovitch of McKinsey point out. While most software companies' leaders would love to bask in the reflected glory of these technology icons, the reality is most of us are not Amazon or Google. But, we can all learn from these market innovators that speed is an important factor in their success. They are constantly adapting and striving to be first to market. To meet the speed-to-market demands digital adaptation presents, software executives should consider: Building collaborative development organizations to expand market capabilities. Empowering a cross-functional mindset that bridges internal and external resources. Creating partnerships that flex and reflect the need for speed. Collaboration is one of the keys to delivering software at speed and getting it right the first time. For example, traditional brick and mortar financial institutions, under siege from digital-only startups, tapped internal development resources to create their own digital products and services – often carving out a competitive advantage for themselves in the process. Marcus, an online lending platform from Goldman Sachs is an example of how digital disruption re-energized collaborative internal development to expand the firm’s footprint in an underserved market segment. Originally begun as a way for retail clients to refinance credit card debt, Marcus leverages Goldman Sachs’ technology expertise to appeal to its smaller segment of retail clients. Smaller banks have little incentive to help retail clients refinance debt, which was the driving factor behind Goldman Sachs effort to build the Marcus platform specifically for that purpose in 2016. Having a cross-functional mindset helped Goldman Sachs identify an untapped market opportunity and quickly develop a solution to meet that need. Today, Marcus has expanded from a one-product platform to a multi-product business, which has created a competitive advantage for Goldman Sachs. Finally, consider combining internal skills with partner capabilities. With the precipitous growth of niche skills, the expense of hiring and retaining these resources on staff may not be feasible for the long term. Looking to partners for these skills allows you to flex your staffing as you grow and keep pace with market demands. In addition, supplementing internal resources with assistance from a partner can enable you to deliver to the marketplace a high-quality product quickly -- likely ahead of your competition. Today’s rate of marketplace change requires innovation and speed to market – a tough order for most companies to fulfill. However, taking a collaborative approach that unites internal and external resources behind shared goals can build the sustainable competitive advantage needed to prevail.
Balancing Cost with Speed and Quality is Key to Digital Adaptation and Transformation
In our last blog post, we broke digital adaptation down into four key areas: Evolving Needs, Workforce Change, The Consumerization of IT and Competitive Threats. This post, which focuses on Evolving Needs, will explain why balancing cost, speed and quality is vital as companies apply technology to solve business problems in the digital age. By definition, digital adaptation is at once disruptive and unpredictable. This fast-moving phenomenon forces companies to adjust on the fly to meet the demands of ever-changing markets, making digital transformation one of the most important movements to affect business in decades. Experts point out that today we operate in the era of “Digital Darwinism." Characterized by rapidly evolving technology and society needs that outpace business’ ability to keep up, companies that plan to survive, and even thrive, will need flexible leaders who take an “evolve or die” approach and can pivot quickly, according to Brian Solis of Altimeter Group. Clearly, there are economic rewards for companies that leverage digital adaptation to remake themselves and their processes from the inside out. Companies deemed to be digitally remade produce more revenue from their physical assets, generate more profit and command higher market evaluations according to CapGemini. However desirable these financial results are, the road to digital transformation is fraught with twists and turns. As technologies advance and capabilities expand, businesses have more options from which to choose and decide where to invest becomes more difficult. With more choices comes more risk, and the time lost to chasing a “wrong” choice can be devastating from a competitive standpoint. When it comes to acquiring the talent needed to succeed in this fluidity, the “multiple guess” influence is clearly seen. Effectively prospering and competing in this era of digital transformation means companies need to wage the war for talent using three distinct and inter-related strategies: Sourcing a wider range of skills and talent. Being able to navigate the nuances of agile. Using innovation to balance cost against speed and quality. Accurately forecasting the portfolio and corresponding volumes of skills and talent combinations needed to develop and deploy software makes up the first challenge companies need to address. While that is a tall order, the current environment of rapid change adds complexity to this mission. For example, the application development teams you have in place will see demand for their talents wane over time ─with some skills fading more rapidly than others and others enjoying heightened demand over time. What can you do today to predict the coming shakeup with confidence and actually plan for it? Once you’ve aligned that cube of possibilities, you’ll notice that the spectrum of skills you require is expanding exponentially. This expansion will most likely outpace your ability to find the talents you need at a reasonable price. This scenario is particularly relevant to companies that discover their needs have grown to encompass data scientists as well as mobile app developers. There is simply not enough money in corporate staffing budgets to afford the wide range of talent that is needed, especially in a hyper-competitive marketplace. Secondly, we know that it's no longer good enough for an organization to be able to leverage “standard” agile. You must "customize" it to fit your needs ─even as they evolve in real-time. To do that, you need to accumulate enough agile expertise to be able to spot the unintended consequences of clumsily applying this proven mindset. For example, the benefits of using a common language, sharing a time-zone, and commanding a familiarity with U.S. business culture are hugely important, particularly when projects move quickly. Sharing common ground eliminates the need to translate idioms, accommodate varying time zones and explain unfamiliar behavior. A shared perspective can enable a faster, more sustainable transition to a customized, thriving agile environment. Third, in this era when customers’ behaviors and expectations are shifting quickly, you need your development and deployment teams closer to your operation ─not geographically dispersed. The current prevalence of distributed workforces complicates the execution of a pivot, even as environmental factors call for acceleration. Creativity and innovation share two negative influences: distance and isolation. These barriers cause particular angst when speed and creativity are at a premium as they are today. Consider following the examples of noted remote work advocates IBM and Yahoo. Both companies have recently required workers to return to physical offices in an effort to regain the interaction and collaboration that accommodates change and fuels innovation. Despite this remote worker homecoming, budget constraints continue to prevent most companies from recruiting every professional they want to a staff position. Evolving needs demand that you apply a balanced model to hiring that balances three key influences at play in the talent landscape: quality, cost, and speed. However daunting this new environment may seem to be, it’s not as if business has been stagnant in the past. Companies have always adjusted their output and operations to evolving needs. Today’s challenges center on the unpredictable pace and unknown direction of those evolving needs. Those two characteristics add a new layer of complexity that makes it difficult for companies to go it alone and reduces the appeal of previously revered software development models. Offshoring development has proven to complicate the process with its “follow the sun” approach that, in the end, often delivered more complexity than the round-the-clock advantage. While it is likely that in-house teams, offshore resources, and staff augmentation will continue to fulfill specific skill needs, these options are not the answer to every phase of software development, especially those affected by the unpredictable disruption common to digital adaptation. Just as digital transformed the marketplace, it has altered the hiring environment as well. Digital adaptation requires flexibility. In these volatile times, companies that want to assure continued success will need to listen carefully to the whistling winds of change and adjust on the fly. To learn more about how to succeed as a Digirati in charge, watch for the next blog and download our digital adaptation white paper.
The Four Components of Digital Adaptation
As digital forces business to shift how they view themselves in a new world, it drives the need for new and adaptive approaches. It’s now about rethinking the concept of digital transformation as more of a continual adaptation to a constantly changing environment. In order to embrace this adaptation idea it is helpful to bucket the areas into the following four areas: managing the constantly evolving needs of customers, partners and employees; the willingness to consider original combinations of workforce models; meeting higher expectations of customers, prospects and employees; and the ability to leverage incumbent (legacy) assets into new revenue streams and competitive advantage. 1. Evolving Needs Today, success and survival results from being able to thrive among volatility and uncertainty, meaning that it's difficult to predict what your future needs will be other than that they will evolve... quickly. One challenge in digital adaptation is how to balance the cost of technical expertise with the standard of its output. Another is to possess and manage the variety of workforce models that enable you to match the best-suited development team, with the needs of the business providing speed, contextual understanding, innovation, and communication. 2. Workforce Change As technologies evolve, companies are uncertain what exact skills they'll need and frankly, it changes daily requiring them to have an open mind to original workforce ideas beyond offshoring or staff augmentation. It’s a confusing time. Many companies are now declaring that they want to bring people back in-house, or at least closer to the business. Companies must appreciate that they have been sending mixed signals when it comes to talent management. In this era of technology skills shortages, they will have to be flexible and innovative. The people, and the models used to manage those people, are as important as the technology itself. To maximize the value of the technology being provisioned for the business, companies must simultaneously adapt their workforce thinking. 3. The Experience The consumerization of IT means that customers compare their digital experience with you against all their other digital experiences, not just those of your competitors. These expectations cross the borders that used to separate our work and private lives. These boundaries have melted away raising the expectations of customers. While it is essential, high-quality experiences should not be reserved exclusively for customers. Companies must enable their staff to deliver these great digital experiences. To succeed you should be putting your workforce in the best position to achieve this by providing progressive technologies, as well as, agile and DevOps methodologies which ultimately will enable them to deliver great experiences for your customers. 4. Competitive Threat Traditional barriers to market entry are extinct. Companies can no longer rely on the advantages they used to enjoy from being the industry dominant elephant because competitors are springing up overnight threatening the core of established organizations. And while these incumbent companies have assets at their disposal such as a proven business revenue streams, customer relationships and brand presence, they are not enough. The competition is coming from unlikely sources as vertical markets boundaries become blurred. For example, online retailers morph into insurance carriers and health care providers, as retailers and insurance companies merge to fight unforeseen rivals. All enabled by cheap, fast technology, vast processing powers, petabytes of data and AI’s relentless pursuit of pattern recognition. Digital has and continues to change the rules of business, and life. There’s no going back. Companies are seeing their foundations shaken by digital, artificial intelligence, virtual reality, etc. A series of company “re-orgs” won’t solve the problem, it’s a constant re-org. Consistent adaptation. Learn more in our next blog or download our digital adaptation white paper.
An Introduction to Digital Adaptation
The quest to embrace digital or "transform" has progressed from being an abstract concept to becoming a mandatory strategy. Some companies are moving quicker and more successfully than others. New businesses that are born "digital" may not have the luxury of an existing revenue stream, but they also do not suffer from commercial, cultural, and technical baggage. Established companies on the other hand are having to adapt existing processes and practices to defend or advance their existing revenue streams. According to Gartner, “two-thirds of all business leaders believe that their companies must pick up the pace of digitalization to remain competitive.” Essentially these lagging companies must move beyond the concept of digital transformation to the practice of continuous adaptation. Legacy businesses have legacy practices and systems that present different challenges than those faced by start-ups companies. It is with these businesses where adaptation is critical. Customers are more demanding, their experiences both good and bad are broadcast to the world, and competition appears from unexpected places. Entire industries are living in a constant state of change and the skilled resources to help sherpa companies through the process are scarce, meaning adaptation must become a way of life and that innovative behavior is now table stakes. So what exactly is digital adaptation? We define it as the ability to predict, or perceive, quickly evolving business needs, and adjust through new combinations of technology, process and workforce management. As digital reconfigures the business, it drives the need for new and adaptive approaches. It requires the use of new technologies; a willingness to adopt less familiar methods and the utilization of innovative workforce models. The goal is to create faster, more flexible solutions that simultaneously exceed user and consumer expectations while keeping competitors on their heels. So, how does the technology leadership achieve the speed required in software development to satisfy the evolving needs of the business? How do you adapt to the new dynamics of the labor market, appreciating the value of talent, while balancing “keeping the lights on” and innovation budgets? And, how do you couple the traditional style of workforce management with innovative labor engagements that reflect the desires of the new labor force and the dynamics of the digital world? These questions must be addressed with an open and adaptive mindset and an understanding of the four components that make up digital adaptation. Learn more in our next blog or download our digital adaptation white paper.