Responding To digital Disruption The Woolworths Way

Female store cell phone close-up

While disruption presents significant opportunities for Australian businesses, the biggest risk facing leaders and executives is not to take any action at all.

Lauren Kelleher
Posted by Lauren Kelleher

It’s now a fact: ignoring the wave of digital disruption will result in the loss of customers, and ultimately result in business failure of extinction.

Business leaders only have to look at the demise of big brands like Nokia, Video Ezy and Kodak who are on the brink of extinction due to a lack of innovation, to see the threats of disruption are very real.

According to Ryan Fahy, CTO at Woolworths there are a number of implications for large organisations if they don’t formulate a strategy about how to respond to digital disruption.

“The risk is there’s a competitor out there who we don’t know about, who has a good idea that will hurt our business.

“If we don’t respond to it, or we respond to it too slowly, they would have already made huge inroads into the sector and potentially have started taking customers away from us,” he said.

So what steps is the retail giant Woolworths taking to tackle the threats associated with digital disruption, as well as to take advantage of the opportunities it can provide?

Fahy said there are a number of elements of Woolworths’ digital strategy and a number of methods are required to overcome the challenges the business has faced on the road to digital transformation.

The challenge: innovating in a large organisation

Woolworths is a large and complex organisation, whose customers rely on being provided with high-quality products.

And as to be expected in a large organisation, there are a huge number of processes and people involved in delivering high quality service and products to customers Australia-wide.

Fahy said it has been these processes, and the fact that Woolworths is such a big organisation, which has been their biggest limitation in terms of innovating.

“Innovation requires a business to move and respond quickly. This is something that has been a big challenge for us.

“It’s forced change across the board, because moving quickly means that different parts of our organisation need to interact and talk to each other, when traditionally in the past they would not,” he said.

Fahy believes responding to digital disruption is about taking risks and accepting that failure may be involved.

This can be somewhat daunting for a large business like Woolworths, with numerous internal systems and processes.

“Taking risks is a big part of digital disruption, and if you’re going to fail, fail quickly. In our organisation there has been a reluctance to fail in some respects, so we’re trying to get people used to the idea it is ok to fail.

“If you look at the skill sets in large organisations such as ours, huge risk-taking mentalities is generally not part of our company’s DNA.

“It’s also again difficult to justify taking a risk when you are taking those risks with other people’s capital – such as our shareholders,” he says.

Despite this, Fahy said he has been pleasantly surprised with the reaction of Woolworths staff to digital transformation, and the idea of ‘risk taking’ in the wake of digital disruption.

“Even within large organisations like ours, there are enough people who have that risk taking mentality and can do it with a sense of stewardship over the stakeholders funds.

“We’re finding we do have people within our company that have the right spirit and mentality to facilitate innovation,” he said.

Creating a culture of innovation

According to Fahy, the idea of creating a holistic, detailed digital strategy is not always the right step for oragnisations to take when it comes to innovation.

Instead, Fahy believes a digital strategy comes down to putting the right capabilities in place and getting the right people in different parts of the organisation to communicate.

“For me, digital strategy is creating the right culture, the right relationships, the right dialogue and the right capabilities.

“This enables staff to have the right degrees of freedom to respond to external challenges, but also allows them to be agile and nimble enough to respond to the opportunities bought about by disruption,” he said.

One way Woolworths is facilitating a digital culture, is through the creation of a ‘chief customer and data officer’ in September 2014, who is at the heart of the organisation and drives innovation based on changing customer behaviour.

Fahy said data is being used in two ways in order to meet changing customer demands bought about by digital.

“On one hand we’re using data to see how we can better meet the needs of our customers. But we’re also using data and innovation in terms of how can we actually improve the movement of physical goods for our customers.

We are working on new and better ways of delivering those foods at the right place at the right time, to meet our customers’ needs,” he said.

One example of how Woolworths is responding to their changing customer needs, is through the creation of it’s first dedicated online store, which opened at Mascot in Sydney in August 2014.

And with Woolworths’ total online sales, including general merchandise, exceeding $1 billion for the first time in 2014 – growing 40 per cent in the December half – it was a smart move to make.

While it is too early to say if the company will open up more dedicated online stores across the country, it certainly shows how they are finding new ways to engage their customers, adapting and innovating in order to remain relevant in digital market.

Fahy believed another important aspect of any companies approach to digital, large or small, should be learning and partnering with other organisations.

“We’ve got a reasonable number of interactions where we are trying to expose our people to nimble and agile entrepreneurial organisations to see how we can work together.

“This could involve start-ups, or even smaller organisations with a very different perspective on the market. In some cases they might have a capability that could help us out, and in other cases we might have something that could help them out,” he said.