In his latest guest post for B&T, CEO of Digital Asset Ventures and co-author of Chasing Digital: A Playbook for the New Economy, Anthony Stevens (pictured below), says if your business struggles with digital transformation, then you are far from alone…

Organisations require a dramatic change in strategy to respond to new market-shaping forces.  You need to pivot your business model, while at the same time making the most of your well-known brand and client relationships.

Unfortunately, you’re up against some very well-funded start-ups. According to Crunchbase, as of the third quarter of 2017, both deal and dollar volume are at record highs since the dotcom bubble. With the number of venture funding rounds projected at 6,146, and US$60.17 billion invested in that quarter, year-on-year this represented an increase of roughly 50 per cent. 

With this explosion in capital financing of start-ups, a compounding set of issues arise for larger businesses. The amount of money spent by a pre-digital incumbent to transform its current business model into a digital business model – one reliant on data, software and platforms – is a mere fraction of what start-ups invest in technology.

Start-ups get the funds and the talent

Due to the wealth-creation opportunities and innovation culture, top talent is attracted to the start-up. Glassdoor.com, where employees can review and rate employers, has found for 2018 that all of the top-ranked small- to mid-sized companies in the US and Europe were founded since 2002.

The bankrolled new models and cultural allure of start-ups are just the beginning of the many challenges you have to contend with. As we’ve seen with big tech, companies that invest in data, platforms and systems of intelligence will become more dominant. It follows, then, that those companies that own these capabilities are likely to be more successful. But what about those companies that don’t? Will they survive?

Contending with the forces at play

Over the last decade, platforms of all different shapes and sizes have started to change the nature of many industries. Whether you are in retail, manufacturing, business services, health or resources, you will have noticed platforms play an increasing role in customers’ buying habits and expectations.

For example, with accountants, there was traditionally a separation between the tool (the accounting system), its configuration, and the professional advice or accounting work itself. However, over the last 10 years, accounting systems have moved online, making them easier and cheaper for customers to use, as well as giving the software provider access to a vast amount of customer data.

The forces of digital disruption are impacting the professional service industries, as well as the majority of other industries. So, what can you do about it?

The castle and the moat

In order to move forward, there are two key concepts you need to understand. In his 1996 letter to shareholders of Berkshire Hathaway, professional investor and multibillionaire Warren Buffett said: ‘In business, I look for economic castles protected by unbreachable moats.’

This quote highlights two concepts that are as pertinent to your new strategy in the digital age as they were when Berkshire Hathaway’s stock was riding the mid-1990s economic boom:

Your castle: Your castle refers to the drivers of growth in your business. In short, how you make money.

Your moat: Your moat reflects what is unique about your business and how this helps you take a sustaining and dominating – or, dare we say, monopolistic – position in the market. Your moat is essentially your competitive advantage.

Three horizons of growth

Along with a focus on your castle and moat, a successful strategy should be mapped into three horizons of growth – each running in parallel and focused on a different term of the investment. For example, Mehrdad Baghai and Steve Coley’s book, The Alchemy of Growth, provides a tool with three contemporaneous phases, allowing companies to manage for future growth without killing their core products or services in the short term.

Each horizon represents a time period over which you expect returns or a material impact on the financials of your business, with the idea of investing in new products or services without impacting current performance.

The benefit of adopting a multi-horizon framework is in helping you to steer the change process within your company by breaking down execution into manageable chunks. This allows you to plan and manage the investments related to your strategy as it develops.