3 minute read 30 Nov 2018
Aircraft engineer examining engine

How to reimagine your business in the era of digital disruption

By

EY Americas

Multidisciplinary professional services organization

3 minute read 30 Nov 2018
Related topics Innovation Strategy Advisory

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As we all know, digital is the defining disruptor of our generation. But let’s put this in an economic perspective.

By the latest estimates from International Data Corporation, businesses will shell out US$1.1 trillion on digital transformation technology and services in 2018 – an increase of 16.8% over the $958 billion spent in 2017.1

Despite this eye-watering expenditure, few corporations are extracting full value from their digital transformation.

The first mistake that leaders often make is to think digital transformation is about doing the present better. In terms of how digital transformation budgets are spent, this isn't unusual. But the far greater opportunity that digital offers is to reimagine business models to make them more efficient, effective and, ultimately, profitable.

Harvard Business School has found that leading digital companies post healthier gross margins and higher earnings than those languishing in the bottom digital quartile.2

In this context, Disney’s recent $71.3 billion buyout of 21st Century Fox, as it shores up its assets against streaming services, makes sense. So, too, does Rolls-Royce’s large-scale rollout of digital twins to enhance aircraft testing. And so does logistic giant UPS’ decision to embrace advanced analytics and AI to enhance the customer experience. These companies understand that digital is no add-on. It’s an opportunity to rethink the way they do business.

While most organizations invest in digital programs – whether a system upgrade to “renovate the core” or enhance finance functions or a customer app that eliminates pain points – this is far from a digital transformation strategy. Rather, it’s simply a collection of digital initiatives.

Any effective digital strategy defines where a business sits today, where it is going in the future and how it will get there. But even more important than the “where” and the “how” is the “why ”: the reason a company exists amid all the disruption that is occurring around us.

Each business leader embarking on a digital transformation must start with a simple question: how am I using digital to reimagine the business model of the future?

Digital transformation demands a radical rethink of business models and where an organization exists within its industry. Tinkering with traditional methods won’t cut it. Where will you choose to play as industry lines blur, new market opportunities emerge and new competitors arise? How will you play to win as disruption plays out in the near-to-medium term? How will your digital transformation program add new value for your customers, streamline the supply chain or create new products?

A good example is the emergence of new business models in the health and life sciences sector. A systemic shift from using digital as an optimization play focused on reducing cost to a more personalized participatory health ecosystem is accelerating. Consumers are being empowered to make smarter choices, and new models of care are emerging as digital enables activities such as remote monitoring and data exchanges between clinicians and patients. In tandem with these new models of care, new economic models are being created as FinTechs, insurers, governments and health care providers innovate and build new revenue models centered on a more holistic concept of wellness rather than today’s system of remedial health care.

Before your company adds to that $1.1 trillion expenditure, make sure your vision is clear. Maintain one eye on your digital balance sheet. How much are you investing and what is your ROI?

The other eye should be firmly fixed on the horizon. Are you doing enough to define what business you’ll be in tomorrow? And are you investing in innovation and design thinking to shape that future? Are you building digital acumen in your leadership team, and do you have a vision for what your workforce of the future needs to look like?

In the digital age, every organization needs to think like a strategy house, innovate like a startup, design like a tech giant and scale like a venture capitalist. Only then will you shift from doing digital to being digital.

Summary

Investing in a collection of digital initiatives isn't a digital transformation strategy. An effective digital strategy includes a reimagining of the business model of the future. 

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By

EY Americas

Multidisciplinary professional services organization

Related topics Innovation Strategy Advisory