Cultural change and digital transformation
The world is on the brink of a new era of digital transformation, yet so many organizations are not ready to compete, or even take part. Industry provocateur and innovation leader Tom Goodwin has seen first-hand how established companies, seemingly built on solid foundations, have been rocked by start-ups and disruptors bringing new ideas, new products and services, and bold ways to delight customers. He argues that unless companies get real about digital and embed it at the heart of everything they do, they will be left behind. In his new book, Digital Darwinism, he explains why new technology is almost always misunderstood initially, but that those who get to grips with it rapidly will develop a huge advantage. He spoke to FIN about what companies need to do to avoid being consigned to digital extinction.
You have clear ideas for companies on how to change the ways they think and operate in the digital era. What are the biggest changes most companies need to make?
The process of change is interesting. When something new comes along, it’s natural that we want to signal to others that we understand it, so we do something like creating a head of department. It's their job to evangelize this new thing and, because they've got a new job and a sexy title, they get some staff. Soon you have a ‘Head of Transformation’ with four staff, it grows again, so you create a department, open an office at the top of the building with funky sofas and a neon sign. Because they're separate to the rest of the company, it's quite easy to think that now you've got 10 people, it’s successful.
The real goal of these departments is to make themselves redundant as a separate entity, because in the same way that computerization should never have been a separate thing, neither should digital transformation. Creating a department is the most obvious, easy and understandable way to do it, but it's almost to misunderstand completely what it’s all about.
Some companies are adding a layer of digital activity to buy credibility, but is real digital change happening enough in conventional businesses?
Companies do this to justify it to people, but in retrospect, it’ll probably seem like the wrong way to have gone about it. If you're a retailer, you probably have one store that you describe as ‘the store for the future’ with kiosks, smoke and iBeacons. Your store in a small town is probably worse than it’s ever been before, but you can point the press to the new store and say "Look, we do get it". Similarly, if you’re an FMCG company, you might have one crowdsourced product that lets you say “Hey, we get it." In fact it’s much better to make this digital change more uniform and spread it across the company.
So for established companies, what are the key things they should be thinking and doing?
It sounds quite simplistic, but step one is to change our focal point to the future rather than the past. I'm amazed at how much in business is about looking backwards, whether it's annual planning based on last year's plans but tweaked slightly; whether it's case studies which are things you probably did seven years ago; whether it's looking at your competitors, which is probably stuff they were deciding to do 10 years ago… everything is backwards looking.
Map out the future to look at technologies and what’s going to change, what happens when those technologies come together, and understand what that will mean for customer expectations. What will it feel like to buy a mattress in seven years’ time, or what will it feel like to be on a train in eight years’ time? Companies need to imagine a future scenario.
The second stage, when you have strong ideas on the tools and expectations, is to map out a robust plan to get there. Does it mean actually not doing anything for five years and just waiting for this new technology to arrive, then doing something amazing in six years? Does it mean trying small projects here and there? Does it mean investing in companies that are better placed to deal with that future scenario?
I feel that most companies don't have a plan. The most aware companies are probably the most panicked and the most ignorant companies are probably the happiest. We should all get much better at getting stuck into what digital transformation means.
We often repeat the same examples of companies that didn’t see the digital threat coming: Kodak, Blockbuster etc, because they have become symbolic, but are there a lot more of these examples coming?
It's unfair to think there will be a moment when everything collapses. Rather than companies going bang, there’s probably going to be a gradual deflation, but when you look at the environment right now, there are sectors where you can see the headlines of the future.
I'm not saying that all car companies are in trouble, but it certainly doesn't seem crazy that in 10 years’ time, some of the current biggest car companies will not be around. There are various industries going through meaningful change. Take banking: it’s interesting to think what the role of banking will be people's lives in five years’ time. That’s not me saying HSBC is going to crumble, but you can imagine walking down the street and there not being the same proliferation of financial services companies.
We tend to use the same examples of Kodak, Blockbusters, Borders and Nokia here, but it's likely there will be more companies, albeit with slightly less dramatic struggles.
It's easy to be more unfair about these companies than we should be. I was working with Nokia when Apple launched the iPhone. The stories that you read in the press suggest that everyone in Nokia was sitting around drinking champagne all day, looking at their phones saying: “This is the best phone the world has ever seen, what can possibly go wrong?”
Actually, they were making better phones, they had the best hardware in the world. The problem was more that they were focused on solving brilliantly the existing problems, rather than focusing on people and what people's dreams were. That's what Apple did particularly well.
The way that Clayton Christensen described it was as complacency, but it wasn't complacency, it was more naivety. They became so successful in an existing paradigm that they were just unable to imagine a completely different way of doing things.
Will these established organizations and industries go far enough in changing? Automotive faces a disruptive pincer movement of Tesla on one side and Uber on the other, but can they change enough to deal with those threats?
This may be more negative than I'd like it to sound, but companies tend to do too little, too late, and for the wrong reasons. They do things because it's their annual shareholder meeting and they really need a picture of a sexy-looking car on the front page of the annual report. It's more because the CMO is trying to get a promotion and if they can just get a story in Ad Age about an innovative project, then it’s done.
It should be about culture, but often it's superficial and more of a reaction. These companies need to rethink their cultures and what their roles are in people's lives. That's a much more meaty and awkward conversation to have, but that's probably what's required for most companies to succeed.
But can these established companies go back to their core and fundamentally change culture and mentality in that way?
It depends on the category: in some, the expertise you have and the trust built into the brand provide a strong moat to stop other companies coming into the space and disrupting it. Automotive is a good example where I'd favour Daimler’s ability to navigate the future more than I would a consumer electronics company to suddenly start making cars. In fashion and clothing, there’s perhaps less expertise and defendability.
Whatever your situation, it still seems strange to me that most companies deal with the internet like it's a bad thing. If you were to give CEOs a truth serum, most of them probably wish the internet never happened; they wish smartphones never really happened; they wish that globalization never really happened. But tough: life is not fair and this is the reality we're dealing with. You are now working against Amazon and Alibaba, you are now dealing with Uber. You are now in an environment where people send money to each other via WeChat. It might feel unfair, but it's how life is.
Tom Goodwin is the Executive Vice President and Head of Innovation at Zenith Media. He is the #1 "Voice in Marketing" on LinkedIn, and has been named one of 30 people to follow on Twitter by Business Insider, and a "must follow" by Fast Company. An industry provocateur, keynote speaker, and commentator on the future of advertising, marketing and business.
His book, Digital Darwinism is out now, published by Kogan Page.