It is important for companies to move beyond digital

I am a digital immigrant. A digital immigrant is a person who was born into a world where there was limited access to technology. We didn’t have access to the internet (which was only invested in 1993), computers, smart phones, or even mobile phones. During this time, there were very specific guidelines when it came to running a business and market forces were driven by very specific dynamics.

This has changed over the years as technology has become cheaper and more accessible. But it this the be all and end off of companies and their survival? I read an interesting article by PwC which discusses this in greater detail.

No competitive edge

In the years following the rise of technology, many companies invested heavily into becoming tech focused. However, the PwC article points out that, despite having put so much energy and investment into digitizing, most companies have not gained a competitive edge. In fact, digitizing may have even made things worse as companies dedicated more and more of their cash, time, and energy into simply playing catch-up with their rivals.

No matter how many digital initiatives you implement, you can’t expect to build real, long-term competitive advantage by being the same as your competitors or doing what you’ve always done—even if you’re now doing it a bit faster and more efficiently than before.

Instead, companies need to move beyond digital.

Reimagine your place in the world

The article adds that, to succeed in this new environment, you must look beyond your current portfolio of businesses and products and determine what value you will create and for whom. You will need to be much more ambitious than you might have imagined just five to ten years ago, thanks in part to the evolution of powerful digital platforms and ecosystems you can now participate in. Whatever your new value proposition is, make sure you have identified a meaningful position that is unique to you and powered by your capabilities.

Fundamentally reconceiving how you create value combines art and science. Looking at data trends and asking customers what they want isn’t enough. You need to develop your own one-of-a-kind point of view on how value will be assessed and created in the future and what capabilities you will need in order to fulfill that value proposition. Be clear about how technology decisions support your capabilities rather than playing the game of investing in every technology solution.

The article points out that 10 years ago, the Amsterdam-headquartered multinational Philips had a sprawling portfolio of businesses that included audio and video consumer electronics, lighting, and medical equipment. Yet it was underperforming market expectations. Under new CEO Frans van Houten, Philips decided to completely reimagine itself. The company reinvented itself as a health-technology company, bringing together Philips’s vast consumer insights and capabilities, its depth in medical-device technologies, and the power of data and artificial intelligence (AI). As Van Houten explains, “I recognized that the chances that we would transform lighting and healthcare simultaneously were not so high. And, so, we made a choice.”

Philips’s beyond digital mission guided the company through a series of major changes that revolutionized its portfolio, business model, and culture. These changes included an exit from businesses that had long been a part of the company’s identity—TV, audio, and video operations; the lighting division; and domestic appliances. Today, Philips’s focus as a health-technology player has resulted in remarkable gains in profitability and shareholder value, the stock price having risen 82% in the five years ending in 2020.

Leadership is key when it comes to digital transformation.

Embrace and create value via ecosystems

The PwC article adds that many of today’s problems are so massive that no single entity can solve them on its own. These problems can be tackled only by networks of companies and institutions that work together toward a common purpose. For example, think about people’s need for mobility—which requires dealing with public, shared, and privately owned methods of transportation; infrastructure; public 5G networks; energy supply; financing; regulation; and many more factors.

The only way for companies to thrive in this disruptive age is to work with ecosystems and harness the capabilities that others have built in order to deliver their own value propositions—and do so at speed, at scale, and flexibly.

The article points out that, when a labor shortage loomed in Japan’s construction industry in 2013, Komatsu tried to address the problem by introducing ICT (information and communications technology) construction machinery that used GPS, digital mapping, sensors, and internet-of-things connections to enhance efficiency. But leaders quickly saw that the new machines were not resulting in the expected increase in productivity. The reason? Bottlenecks in processes at the construction site. At one highway construction site, for example, Komatsu’s ICT machine could remove and dump 50% more dirt than a conventional machine, but construction companies were unable to schedule and account for the required number of dump trucks to remove the dirt from the site. Moreover, construction companies were unable to accurately forecast the volume of dirt they would be removing. So in 2015, Komatsu created a division to focus on broad solutions, drawing on specific capabilities from an array of other companies and providing a way to connect all the people and companies involved in the construction and production tasks digitally. With so much now visible, companies across the ecosystem could collaborate to increase efficiency and productivity. Beginning in 2017, Komatsu launched an open platform, Landlog, that both suppliers and construction companies could plug into to make sites smarter and safer. As a result, to cite just one example, drones can complete a survey of a typical construction site in four to six hours, down from two weeks, and Landlog can then integrate the data gathered by the drones to program automated bulldozers. Customers report being able to complete the construction job twice as quickly as they would using traditional approaches, saving money and reducing pressure on overstretched construction workers.

By the end of 2020, Komatsu had introduced its ecosystem-driven platform to more than 10,000 construction worksites in Japan, and it has now expanded the proposition to other countries, including the United States, the United Kingdom, Germany, France, and Denmark.

Make your organization outcome-oriented

The article points out that creating value by scaling up a few differentiating capabilities requires a new model of working and teaming, given the gigantic lift some of these capabilities will require as you deliver a bolder value proposition. You can’t get away with plucking people out of their functional roles and asking them to work together 10 to 20% of their time, or for six weeks or six months (in the famous, but typically frustrating, cross-functional team). Instead, you will have to build more durable, outcome-oriented teams that bring together the needed expertise, knowledge, technology, data, processes, and behaviors from across the organization.

This sort of thinking will let you shift from the old functional and fixed organization to a model of outcome-oriented teams that work across organizational boundaries to deliver your capabilities. These teams will coexist with the corporate offices, business units, functions, and shared services, but will increasingly become more prominent elements of the organization.

The article adds that Honeywell’s aerospace division initiated its vision of outcome-oriented teams back in the late 1990s, when leaders started to think about how advances in digitization, communications, and connectivity might create opportunities. Its aviation businesses made products such as engines, brakes, navigation gear, and avionics. They also provided services such as airplane maintenance and flight information software. It took a decade for the underlying technologies to catch up to Honeywell’s vision, but by 2010 Honeywell Aerospace was mapping out how products and services could be brought together as a “connected aircraft” business. The business would add significantly more customer value than the sum of its parts—by offering improved power and fuel usage, predictive maintenance, more precise flight planning, and real-time, crowdsourced weather information.

Honeywell realized that a major reorganization of its aviation products and services business would be needed to bring the right people, skills, and capabilities together. The company had long built planes in a methodical fashion, with functions that were segregated, but now had to build solutions that crossed boundaries between engines and avionics and electronics.

A radical organizational change brought IT, data analytics, and engineering people from their home functions into one team and granted authority for extensive hiring of those with needed new skills. As the transformation got underway, new teams were tasked with rethinking how legacy offerings that had existed as stand-alone products could be reimagined to operate in a broader, networked environment.

The PwC article points out that, today, Honeywell Connected Aircraft is an $800 million business and is considered by many analysts to be the market leader in the connected aircraft space. The Honeywell Forge flight efficiency platform was adopted by 128 airlines and more than 10,000 aircraft globally in its first year on the market.

Disrupt your own leadership approach

Despite the uniqueness of each journey, we have observed a common set of characteristics among the leaders who transformed their company, both in our work with leaders around the world and in our research for this book. These characteristics also align well with the six paradoxes of leadership described in our PwC colleague Blair Sheppard’s recent book, Ten Years to Midnight.

The article points out that, modern leaders need to be both strategists and executors, both tech-savvy and deeply human, adept at both forming coalitions and making compromises while being guided by their integrity. Digital technologies will play a major role in this. At the same time, they need to be humble and understanding of their limitations. They also need to constantly push for innovation while being grounded in what they are as a company. And they must be globally minded as well as deeply rooted in their local communities.

Phahlani Mkhombo is the MD of Genesis Corporate Solutions and is a Senior Business Rescue Practitioner.