There is a lot of talk about how all industries, indeed all companies, must transition to become digital, must engage in digital transformation. But the first step has to be to understand what this actually means.
Is it about the better utilisation of technology? A better way to engage more directly with clients and/or suppliers? Or is being digital about disruption, potentially completely overhauling your industry? None of the above are necessarily wrong, and thus digital can mean very different things to different people. However, the lack of alignment, as to what digital means for business, can lead to a slow or fragmented take up of digital initiatives with the large industry incumbents suffering against nimbler smaller enterprises; very often new start-ups.
We have already seen at least two phases of industry overhauls. Music, news, TV and film have been revolutionised by the likes of Apple, Google, Amazon and NetFlix. The media industry that was reliant on controlling the intangible resource of content was, in retrospect, relatively easy prey. Now we are in a second phase - one in which industries, that previously saw themselves as safeguarded by their dependence and utilisation of tangible infrastructure, are being challenged and in numerous cases given a bloodied nose.
We see new entrants, such as Uber completely changing the transport industry, especially the cab and taxi businesses, yet they own no vehicles directly. AirBnB is changing the accommodation industry without owning any property. Essentially, technology has enabled a new age for the brokerage business, bringing large numbers of small asset owners together with those wishing to purchase. These start-ups act as co-ordinators of an industry, without the constraints of the direct ownership of the resources it controls. As such, these start-ups are therefore able to enter new geographies with fewer dependencies on establishing assets within the target market. Only the finance behind them, their focus and in some cases legislation can slow them down.
But such disruption is not targeted solely at large enterprises. In its wake, it will impact all business – large, medium and small. It is the smaller incumbent businesses for whom digital transformation, while potentially offering big rewards, are also at greatest risk. Applied correctly, digital transformation can be a massive strategic tool for growth, but imperative to success is the correct strategic vision that very often needs to be backed up by substantial investment. This creates significant challenges for the small to medium enterprises (SMEs) - that of education, digital leadership and investment.
Large companies, while suffering the issues of co-ordinating their efforts, resources and sometimes divergent opinions, would at least be likely to have the talent in place to drive change. If the right leadership and direction can be applied, resources will pull in the same direction. Large companies, if required, can afford to find and recruit the right talent or educate their internal team.
At the other extreme, start-ups live and die by Darwinian principles. By definition, the start-ups that successfully disrupt a market and grow, have the right idea: they are the ones we notice. But it is also likely that, for every successful start-up, there have been a multitude of failed ideas and businesses. Indeed, the likelihood is that many successful start-up owners have gone through a number of failed ventures as part of their education. However, we can afford not to be too sentimental about companies that started in a garage and that count their age in months rather than years.
But what about the established SMEs? They have less resources than the large enterprises and are not as nimble as the built-for-purpose digital start-up. The above options are not always available to these SMEs, often family-owned businesses that have culture, tradition and a legacy of customers and suppliers to work with. Their workforce, by nature, is focused on their core business activity. The ability to recruit digital talent that can apply new technologies to an established business is constrained by finances and the potential inability to offer the ‘cool’ factor; established digital evangelists want to work in the start-ups, the new industries, such as gaming, finance and technology.
It is therefore imperative that the right support mechanisms are put in place to support the established SME eco system and both the public sector and private consulting have a substantial role to play here. In Malta, we have a number of initiatives and incubators for new and micro organisations to help them to become disruptors. However, have these initiatives and incubators been done at the expense of helping existing businesses understand, prepare and deliver digital transformation? We need to provide an environment where we can educate SMEs in the opportunities and the risks that digitisation can bring; create a social network of expertise and support that can work with companies to assess how these opportunities and risks may apply to them and from this define a strategy applicable to a digital world. Legislation also needs to be constantly monitored to ensure it provides a level playing field between the new entrant and the incumbent.
In Malta, we have already seen the retail sector impacted heavily without any key external player attacking the local market directly. The disruption has been customer driven; demanded. Malta is not so small that disruption will pass us by. Disruption will continue. Among the key insights of the Cisco report “Digital Vortex: How Digital Disruption Is Redefining Industries” (June 2015) it ranks industries that are most susceptible for disruption. Of these, Technology (#1), Retail (#3), Financial Services (#4), Hospitality and Travel (#7) are all key industries for Malta. With this impactful clarity and the unstoppable evolution that is digital transformation, we must adapt or die.
