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How incumbents can survive digital disruption

The digital revolution has completely shifted power in the marketplace from producer to the consumers in just 15 short years and as in all revolutions there have been winners and losers.

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There are many gravestone stories of companies that didn't respond quickly enough to digital disruption but it's not all doom and gloom for incumbents which must look for ways to survive and even thrive in the new world.

"There is no need to be afraid of disruption. Like the industrial revolution, we are in a time of immense creativity."
Claire Rogers, Head of Digital Strategy and Innovation at ANZ

Banking as we know it has already changed but non-banks and large digital companies could still make banks irrelevant. Then there are the start-ups – the community of innovators spending all day, every day thinking about how to break into industries in ways that make the incumbents look like something from the industrial age.

Even if incumbents can work out where the threats are coming from, they often don't have the luxury of starting again. Not only that, traditional, physical parts of the business protect their value creation. The old ways of doing things often persist beyond their usefulness. It is no small task to plan in the middle of these cyclonic forces.

But do established industries and players really have to be the losers? Are there ways to protect the organisation from this fate?

To respond to the digital age incumbents need to do at least the below six things very well. The future cannot be predicted but businesses can make themselves nimble enough to adapt as quickly as possible.

1. Relentless focus on removing customer friction

It is much harder for start-ups to take market share if incumbents already offer a great experience on top of other strengths such as scale.

Incumbents need to ruthlessly hunt down and remove friction in their customer experiences. We also need to understand the customer pathways customers see as valuable. Incumbents often research what customers like and not what annoys them. Start-ups come unencumbered by such history.

Taxi service Uber is an example of a start-up that looked at the experience of booking a taxi and solved a critical customer friction point – connecting people with the nearest cab as quickly as possible.

In removing this friction, they created value in other parts of the chain too, such as less downtime for drivers.

At ANZ, we've responded to the drive to mobile and seen an immediate response in sales results. Incumbents need to understand the pathways customers take (or try to take) to find value and make these their experiences the best they can be.

2. Reengineer the existing business model

The historical strengths of an incumbent's operating model have become weaknesses. While control, certainty and reliability continued to be important, the ways these are achieved must change.

This is a significant transformation and requires sponsorship and collaboration at the highest level of an organisation. The most important drivers of this transformation are:

  • moving to small-scope parcels reducing scale, risk and complexity of projects to get to market more quickly;
  • maturing to rapid decision making by devolving accountability and allowing those closest to customers to make the decisions (this one is hard because the corporate DNA of leaders is wired to feeling valuable when making decisions); and
  • cross-functional teams working with agility to design staged, comprehensive and timely delivery.

This is in contrast to the typical waterfall process that passes the work along the delivery path on long lead times which become further and further removed from market context.

3. Build great relationships with technology

Business and technology need to move and mature together. Technology in large organisations has traditionally been focused on lowering costs, control and standardisation to enterprise solutions – this is generally, but not always, in direct conflict with fast delivery of customer experiences.

Things that encourage faster delivery are co-location, visible digital agile planning and sharing business strategies with technology. Ultimately both agendas are of value and working out how to deliver on both can only be done collaboratively.

Accelerating our delivery has come from deeply engaging our technology partners over the challenges of speed to market and building sufficient trust in the relationship to have hard conversations.

Business and tech separately can get acceleration by adopting new ways of working but will never deliver change as quickly or effectively as a cross-team agile approach.

4. Learn from start-ups and build a garage

There is nothing that start-ups are doing that can't be replicated by an incumbent. To innovate, businesses must be prepared to fail. Many entrepreneurs go through several iterations of ideas before one takes root.

Incumbents must create environments where it's ok to fail. Set up small 'by invitation' customer areas to learn and let them decide. Don't spend ages guessing what the customer will want – get it to beta and they will tell you by their behaviour if they like it.

5. Be prepared to look for innovation outside the company

Start-ups can definitely help accelerate change, so incumbents need to scan and embrace the market. Many start-ups may have capability that has no current application in several industries.

Business can use start-ups to build out their customer experiences. Most incumbents have so much heavy lifting to do in the core experience there isn't always time to innovate at the edge.

6. Spend time disrupting

“Every company board, IT organization, and leadership team should assume that there are – or will be – new ways to more efficiently serve customers” Aaron Levie of cloud group Box says.

Yet, in the business of delivering critical priorities incumbents often don't spend enough time anticipating what these new ways might be.

Carve out time for leaders to think through their customer experiences and how they may be disrupted. This will create a deeper understanding across the whole business and make planning and responding to disruption everyone's responsibility.

RADICAL CHANGE REQUIRED

We are living through a revolution. Incumbents are being challenged. Organisations responding to this give their organisations the best chance for the future.

A radical industry shift might be required in some cases and spending time thinking about this is definitely critical. We can protect ourselves from disruption by building the skills and agility to move and adapt quickly, protecting the future in the short and long term.

There is no need to be afraid of disruption. Like the industrial revolution, we are in a time of immense creativity. Enjoy it but take it seriously because the stakes are high. Above all, make the ability to respond and adapt quickly your highest organisational priority.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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