In 2011, GE Corporation made its foray into the digital sphere, making its products and services available online for the first time. The move was so successful that it altered GE’s trajectory, reshaping it as a digital industrial company. It built sensors into many of its products to promote connectivity and developed a new online software platform. It also focused efforts on improving the quality of co-dependent industry relationships, encouraging closer collaboration between teams in sales and supply chain, for example.
By placing more impetus on its enterprise digital strategy, the company began a positive, innovative transformation journey and was praised by press for its approach. GE’s investors failed to recognise the importance of these efforts and changes, however. The company's share price weakened over several years, which resulted in many of the firm’s executives jumping ship. One of them, CEO Jeff Immelt – a key supporter of the company's digital ambitions – recently quit GE under pressure from its active investors. Taking up the helm after his departure is John Flannery, bringing with him a shift in strategy toward cost-cutting, over innovative transformation.
What’s surprising is that GE isn’t the only company to suspend its digital transition. Lego recently announced its Digital Designer would no longer be updated and supported, sending shock waves through the LEGO community. And this echoes a growing trend, with more big players opting to follow the same path toward a de-digitalisation of sorts.
It’s not the first time this has happened. There are numerous historical examples of market leaders choosing to halt certain digital initiatives. In 2014, Nike halved the size of its digital device initiative, suspending tracking of Nike + Fuelband activity and other investments. Self-declared super luxury British fashion brand, Burberry, followed suit. It had instigated its own reinvention through digital media – live-streaming its runway shows and redesigning its flagship stores with cutting-edge tech – before seeing its efforts flail. After an initial lift driven, most likely, by the novelty factor, performance began to dip. Household automotive brand Ford poured investment into its enterprise digital strategy, only to see its stock price lag as a knock-on effect of pricing and quality problems in other parts of its operation.
These companies each spent millions on reshaping their brand for digital and introducing new innovative products – receiving massive media and investor attention for doing so. Then, despite their efforts, performance was blighted and shareholders found themselves up in arms. Procter & Gamble’s once-CEO, Bob MacDonald, was asked to resign, as was Ford's CEO Mark Fields. And the leaders championing the enterprise digital strategy at Lego and Burberry have ended up taking on smaller roles within their organisations. So, where did they go wrong?
The aforementioned examples teach us three key lessons and, in doing so, tell us how to avoid the same pitfalls. Keeping the following in mind could mean the difference between success and failure in your next digital endeavor.
There are so many factors at play within a business that can impact its success, to at least the same extent as its digital capabilities. For example, the profitability or desirability of its products. Thus, no business leader should consider digital technology – or any other major technological innovation – as the key to salvation. No matter how high-tech your organisation, if customers don’t want or need your services or products, you’ll struggle to keep your place in the market.
A common mistake is thinking that you can just adopt digital technologies and connect a ready-made system to your organisation that will instantly make it more efficient and profitable. In reality, digital transformations are multifaceted and dispersed – and not purely related to technologies.
Digital transformation is the gradual process of changing the way you do business. It requires a constant investment in skills, projects, infrastructure and, often, in cleansing existing IT systems. It takes a combination of people, machines and business processes, and you should constantly monitor the situation and be ready to intervene if there’s an issue.
It’s crucial to be able to customise your digital investments depending on the readiness of your industry, the needs of your customers and what your competitors are doing. A good example of this is P&G. When it made its digital push in 2012 and 2013, it was already way ahead of most other companies on that front. Then, when MacDonald left, it seems their digital initiative slowed.
P&G now knows that it's able to gain even more ground over its competitors if it drives investment into digital technologies. Today, there are only two instances whereby its digital initiative isn’t implemented; if it doesn’t fit into the overall business strategy, or if it’s difficult to evaluate. This sort of digital management is a savvy strategy when it comes to seeing off another corporate attacker.
Regardless of your company’s position as it stands, the challenge of a new business model can become a powerful impetus for developing and restoring an organisation. The problem many business leaders face in trying to kick-start their brands is that, often, they focus purely on new initiatives. In doing so, they neglect legacy systems and processes which, with some fine-tuning, could reinvigorate operations and drive efficiency and profits.
The success or failure of an enterprise digital strategy really comes down to context and focus. Fallen retail giant Sears' investment in analytics was a sound idea, but the company's facilities and services needed an overhaul. As such, it succumbed. By comparison, although the Nike exec team was ridiculed for shrinking its digital division in 2014, the move allowed them to focus their ongoing digital investments on other, more valuable, initiatives.
There is something about technological change that makes senior executives at large, established firms act out of character. Whereas, with more typical strategic changes, business leaders (generally) know what they want to achieve and what it’s going to take to get there. They have an easier time visualising the roadmap, perhaps. Then, when they see that their company is off course, they know which actions to take to redirect efforts. Maybe it comes down to comfort level in the end – a sense of unease at the “unknown” that digital still represents to some businesses.
To avoid the uncertainty associated with emerging technologies, here are three tips for ensuring the success of your next digital transformation.
Innovative, unproven technologies can cause business managers to lose their rational decision-making approach. Decisions can be influenced by media hype and overzealous sales patter, or consultants promoting ideas of “leadership thinking” etc. To add clarity, those leading their company’s digital change should fully understand what emerging technologies can offer, and analyse their impact on markets, products/services and distribution channels.
The excitement and uncertainty of the new technological era can blur the boundaries between investments that need to be made, to get ahead of the market, and investments that should be synchronised with market readiness.
As a CEO, it can be tempting to think of the early phases of radical technological change as an opportunity to dominate a new market, rather than learn about it. This is a big mistake, and it could cost you dearly.
Investing in ahead-of-the-curve technologies only makes sense if you know what that curve is. And with digital conversion, much more needs to be understood before the curve begins to take shape.
When digital investments are slow to pay off, managers might feel that the problem they are facing is a lack of sufficient profits, as opposed to the company (or market) not fully understanding what the final result looks like. They may view a decline in public engagement with a new initiative as a failure. They might then choose to double-down on that strategy in a bid to see results, instead of focusing on a more profitable approach – hoping to intimidate the market, rather than learn about it.
The “right” approach would be a comprehensive review and analysis of the entire playing field; activity, markets, employees etc.
Over time, markets will learn more about what they want, manufacturers will learn how to provide this and the way forward will be clearer. It is getting easier to make smart decisions about digital technology. But financing a “big digital” strategy while in this transitional period, where businesses/markets are still learning, may require more patience than investors have.
Of course, not all companies that rely on digital technology make bad decisions. Leading brands, even those that have made large, loss-making investments at the start of their transition, have been able to shift to more profitable e-commerce strategies. In the case of future waves like IoT and AI, and conversational commerce, managers should take a cautious approach to new technological innovations.
Any digital transformation strategy needs a dedicated and highly-skilled team. To make yours a success, ensure you have a senior person, or an executive team inhouse, to oversee and drive the initiative. Furthermore, make sure they’re equipped with all the necessary knowledge and authority to make decisions. If you find you have gaps in your organisation’s skills and experience, you could bring in an offshore technology partner who’ll take over the software development and integration. Even so, your internal executive staff need to be ready to support and drive the project from the inside.
An experienced technology partner can help you investigate the pros and cons of using certain technologies in your digital strategy, and assess their potential within your business environment before the project gets underway.
This feasibility study reduces technological uncertainty, starting with small steps and progressing gradually while eliminating potential risks. In doing so, by the time your new digital initiative kicks off, you – and your stakeholders – have full confidence in the investment.
ELEKS has three decades of experience in helping digital innovators breathe life into their business vision. Ready to see what we can do for you? Get in touch with one of our experts today.
By Sergii Bataiev, Head of Software Architecture Office at ELEKS
The breadth of knowledge and understanding that ELEKS has within its walls allows us to leverage that expertise to make superior deliverables for our customers. When you work with ELEKS, you are working with the top 1% of the aptitude and engineering excellence of the whole country.