Digital Economy is expected to contribute a massive $4.2 trillion dollars (or 5.5%) to the GDP of the G20 economies by 2016. Already we are experiencing the impact of the digital economy on many companies and the way customers expectations are changing. For example mobile banking has become an expected service and not a nice to have. Customer expectations and behaviours are changing. Retailers like Myer, David Jones and Harvey Norman are suffering from not having suitable on-line offerings.
The world is changing fast. What can the CIOs and the CEOs do to prepare for this disruptive change. Here is an agenda to get your organisation ready for the digital economy.
A recent Boston Consulting Group (BCG) study estimated that by 2016 the digital economy will contribute 5.5% or $4.2 trillion dollars to the economies of the G20 countries (from $2.3 trillion in 2010). The digital economy contributed $A44b (3.3% of GDP) to the overall Australian economy in 2010 and is expected to grow to $A67b by 2016.
The growth of the digital economy is not just confined to developed countries. Internet take-up in emerging or less developed countries is accelerating. By 2016, China will have 800 million internet users. No business can afford to ignore this shift. The scale and speed of this change is altering industry structures and the way business is conducted. One does not have to look a lot further than the current predicament of retail giants, such as Myer, David Jones, and Harvey Norman to see how this shift is affecting traditional businesses.
The internet too has changed
The internet has become more interactive and participatory. With the growing use of smartphones and tablets, the internet is now ‘everywhere’ and always available. More and more devices are being connected to the internet. This is changing the way companies service their customers and also run their supply chains.
The internet has become local. The internet experience has become part of everyday life in many countries and reflects the social, economic, and cultural influences within countries. A generation of young people have grown up with the internet and have different expectations of the internet as citizens, employees, and consumers.
Implications for companies
Don Grover, former CEO of Dymocks, says “It is the customer expectations that are driving businesses to adapt to the digital age”. Many companies are just not ready for the digital economy. Companies will increasingly need to assess their systems portfolio and determine if they have systems that can adapt to the newly digital and interconnected world. Their technology, business processes, and people would need to be transformed to be able to leverage the digital economy.
Learning from others
Many small companies have learned to adapt to internet and as a result, their businesses are thriving. Small companies have created an online brand and presence. These companies understand their customers’ buying behaviour, and have expanded beyond traditional geographic boundaries.
Businesses have tailored their services to their customers’ needs, demographics, and preferences. Many businesses have revamped their online presence to enable shoppers’ pre-purchase research with extensive product information and reviews. Others have improved the online buying experience by making it seamless.
CEO / CIO AGENDA FOR DIGITAL ECONOMY
Here is a five step approach for improving a company’s readiness for the digital economy.
- Understand customers, suppliers, and competitors,
- Create a digital strategy,
- Create a technology roadmap,
- Change business processes and
- Encourage experimentation / innovation
Let’s explore each of these steps further.
Understand customers, suppliers, and competitors
Many companies know little about their customers or their customers’ changing expectations. Where companies have customer information, it is fragmented across a range of silos. Understanding customers’ needs, purchase history, and behaviour would help companies create refined value propositions for their customers. Digital delivery also creates more options for ‘customising’ products and services. Therefore, gathering customer data and analysing it should become a key priority.
In addition to trying to understand their customers, companies should analyse their competitors and suppliers. Companies wish to determine what capabilities the suppliers can bring to the table, where the suppliers are investing, and what efficiencies can be achieved by linking the company to the suppliers’ systems. This data is useful for determining the strategy.
Create a digital strategy
A digital strategy needs to fit with a company’s overall business, sales, and distribution strategies. When the strategies of a company are not aligned, problems and channel conflicts are sure to emerge. A digital strategy needs to explain how to attract the customer to the site, and how to deliver a consistent and high quality end-to-end (shopping to delivery) experience to the customer across all channels.
The digital strategy should be driven by the analysis of the customer information. The strategy should define the role of digital channels in sales and service delivery. In order to do this, companies need to determine whether the channel provides product information or is a simple e-commerce purchasing service, what role social media will play, and whether the digital strategy will be used for customer engagement or also for service delivery/ problem resolution.
Develop a technology roadmap
Every company in the digital age is a mini media company. Each company creates, gathers and publishes content. A key technology decision will involve choosing the appropriate web content management. Companies must also choose the tools or platform that will facilitate a consistent look and feel, enable both the management of the web-site and the user generated content, and support personalisation. Companies also need to decide whether the web content can be leveraged across multiple business channels.
Mobiles and smartphones have already exceeded PC sales and install base in many countries. As people do pretty much everything on their mobiles, companies need to decide how they will support mobile phone use, that is, whether the company will have a generic interface or invest in mobile apps. Although apps allow greater functionality and ease of use, they also are more complex.
Furthermore, digital delivery typically requires the real time integration of business information. However, integration tends to be complex and must be carefully planned. Companies need to determine whether they desire business to business integration with supplier’s business systems (ERP, CRM, procurement and payments). As data and business processes get exposed through integration, security becomes critical in maintaining trust and integrity.
Companies also need to determine whether internal IT has the capability to create a technology roadmap or whether external help is needed. Companies also need to consider whether existing systems are capable of being changed or whether a new platform is necessary.
Change business processes
Customers, who have experienced good online services from some companies, may come to expect the same content rich and rapid response from all companies. Therefore companies will need to change their business processes in order to adapt to the digital economy. For example, companies may have to change their processes so that order confirmation takes minutes, rather than days. Achieving consistency of processing across channels will require companies to make changes. Where processes are automated, companies need to put in place process management tools need to adjust workflows and establish feedback loops.
Digital businesses that cross multiple silos blur the lines of responsibility. Therefore, in order to ensure digital offerings will be a success, companies need to ensure they have delegated specific roles and decision rights for those people working on the website.
The speed of change in the internet universe is staggering. New business models, products, services, and devices are coming into the market rapidly. As a result, customer expectations are rapidly rising. For example, mobile banking was a novelty two years ago, but now customers expect that they will be able to use mobile banking everywhere. By encouraging experimentation in the digital space through social media, user generated content, or new service offerings, companies will be able to find what works, and what does not work, quickly and inexpensively. Companies can innovate without taking large bets, by refining what works and getting rid of what does not. This will also improve agility, which is the key to success in businesses today.
A final word
We are at the beginning of an exciting and challenging digital era. Embracing and adapting to the change is the key to survival. CIOs have a key role to play in forging a path forward.