20 October, 2015

“Consumers Now Have All The Power And They’re Not Giving It Back!”

By B&T Magazine

In this opinion piece Malcolm Alder from Sydney-based digital strategy firm Orchestrate argues that consumers are now in charge and that will have huge ramifications for brands and marketers…

“The single most frequent failure in the history of forecasting has been grossly under-estimating the impact of technologies,” according to Peter Schwartz. He was speaking in 1991. Everything has changed, and nothing has changed.

Schwartz is a futurist who was a pioneer of scenario planning at Royal Dutch Shell in the 1980s. If his observation was true 24 years ago, it is even more so today. Think back on your own life just 10 years’ ago. It was well after the Sydney Olympics and 9/11 but before smartphones, iPads, pervasive online shopping, GPS in cars, Fitbits, drones and Netflix.

Google, Facebook, eBay and Amazon were early growth stocks and Twitter, Instagram, Snapchat et al were not yet conceived. Against that backdrop and in the light of Schwartz’s observation, now try to project forward another 10 years.

The mind boggles. The developments listed above are deliberately consumer-centric. Consumer technology and adaptation to it, in the great majority of cases, now moves far more quickly than do companies – or the public sector. It certainly moves faster than legislation and regulatory protection.

Power shift

Economic power has shifted in to the hands of the people and it’s not moving back.

Today’s consumers expect to be able to interact anytime, anywhere through any device not just with their favourite entertainment and consumer brands but also with Government, utility providers, public transport etc. Nor is this confined just to individuals. Small traders expect real-time digital access to their suppliers.

Large companies expect to place standard orders through efficient, reliable e-commerce platforms. Staff expect to share knowledge and interact with their colleagues regardless of location and with no time delay. When these sorts of expectations are made reality, organisations become genuinely customer-centric, more efficient and have highly engaged employees. It’s a compelling mandate for change. Of course, there are plenty of negative reasons to change.

Oft-quoted examples such as Kodak, Nokia, Blockbuster Video and Borders Books, are all cases where company leadership failed to transition their business model sufficiently quickly in the face of impending changes in the competitive environment caused by digital technology.

Today, many industry sectors can be seen morphing in front of us eg. taxis, newspapers, retail and increasingly, elements of financial services. Indeed, there is no part of the economy that is immune to change driven by ever greater and more effective use of technology. However, if you’re not fully convinced that your industry sector is subject to the same trends and drivers of change as the demonstrably disrupted parts of the economy, consider the diagram on the next page.

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Professor Michael Porter’s famous analytical model has stood the test of time with strategists for more than 35 years. The minor variant shown above does no more than give a personal view of the extent to which digital technology now potentially changes the historic drivers of competitive equilibrium in markets.

For example, considering the upper left quadrant alone in relation to new entrants, all five of the highlighted bullets shown have changed to such an extent that they have enabled Uber and AirBnB to disrupt taxis and accommodation respectively (there, I’ve mentioned them!)

Arguably, the force that has changed the most over the last two decades taken across all industries, is the extent to which “Buyer has full information” (shown at the top right of Figure 1) has been totally changed by digital technology.

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If you’re not already on a digital change journey, take some time out to study your industry and then secondly, your business relative to your competitors, using Porter’s framework. You need to be harshly critical. If you’re not good at challenging the status quo, bring in someone totally independent with no vested interest in any outcome to skim a few pebbles across your organisation’s pond of historic assumptions.

From a positive perspective, there’s an increasing body of research to show that those organisations across all sectors that have embraced a digital journey, are showing demonstrably improved performance relative to their peers.

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The graph above shows extensive global research across multiple industries sectors published by Capgemini Consulting. It shows that those companies identified as “digital masters” demonstrate significant profitability outperformance. Perhaps even more interestingly, those businesses defined as “conservatives” also clearly outperform “fashionistas”.

The former, whilst relatively immature digitally, take a holistic approach with good governance practice and clear strategic oversight, whereas the latter may be very strong on micro activity eg. social media and digital marketing, but it is typically unstructured, sporadic and operates solely within business silos.

As a very recent example of strong profit performance built on digital investment, Air New Zealand provides a powerful reference case.

“Reporting a record annual result for 2015…chief executive Christopher Luxon said the airline had spent 18 months focusing on digital transformation.” As a result, operating revenue increased by 5.9 per cent, net profit before tax was up 32 per cent and the full year ordinary dividend up 60 per cent. Looking ahead, the airline said, “it had set itself the objective to ‘unleash digital transformation’ for customers, sales channels and operations.”

As part of this direction, the CIO has been replaced by a chief digital officer. Competitors and many large organisations in other industries will no doubt track Air New Zealand’s progress with great interest. We certainly will.

This article originally appeared on B&T’s sister site www.which-50.com

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