The cold reality is that first globalization and then digital transformation have swept across the world. They undermine the foundation on which large companies have thrived for years, these forces have not just neutralized the advantages incumbents had, but actively turned them into Achilles heals.
Employing people, owning assets, being big, taking responsibility, having a salesforce, have all become problematic. This shift has happened so fast it’s deeply unfair.
Why is Amazon allowed to make no profit, yet a department store is expected to deliver both sales and profit growth quarter on quarter and pay tax on it. How is OK that Facebook makes money from other’s content, that it supplies for free? Shouldn’t Airbnb be responsible for safety in the same way hotels are? It’s not fair, but nobody cares.
You can have both excuses and explanations for your inability to function like nimble businesses built today, but the stock market and customers won’t care for long, they just need action.
Facing this many companies, fearful of making changes that cost too much, take too long or are too politically challenging do as little as possible and make as much noise as they can. Is your company fundamentally unable to compete on cost delivering goods online? Why not try putting some iPads in store? Is your hotel chain one of fast crumbling infrastructure? Try an Apple Watch app. Is your airline is built on software from the 1950’s? Trying something with VR.
Modern businesses can be visualized as skyscrapers. They exist on foundations, built in the shape and in the the location that at the time was considered the best place to be. On this foundation, a huge steel or concrete frame is built that projects up into the air, forming the main structural elements, and outlining the shape and function of the building The steel or concrete framework of this building is a metaphor for the organizational form of companies. These are the organizational elements of business, the departmental structures, the rules, the core elements that make businesses the way they are, that create their physicality, what they make, how they make it, the operational and business model.
Built on top of this and fixed into place around the main structural elements are the service elements, the lifts, the fire escapes, the service corridors and the plumbing, electrical wiring, heating and air systems.
In this metaphor, they represent the culture and processes of business today. They are the way that the building or business operates, the pulse of the building or company, the lifeblood that makes it work.
Finally, on this vast foundation, fixed in place by the structural elements, serviced and contextualized by the service elements, are the more visible, more decorative elements. These include the interior design, the furniture, the reception area’s look and feel, the indoor plants, the choice of paint colour, and so on. In this metaphorical skyscraper, it is the funky chairs in the lobby, the artwork in the toilets, the corporate film that plays in reception and the small details that augment the visitor’s experience of the company.
Most “digital transformation” is the equivalent of redoing logos in reception areas. They are hoping the organizational equivalent of a new paint job or that better landscaping outside and new sofas in the waiting area will do. Everything done is fast, simple, relatively cheap and very obvious.
Most CEO’s hope to metaphorically distract with some big digital art in the elevator bank. They hope to pass the storm or manage the decline while looking busy, for long enough to both look competent and retire safely. The real-life behavior of most leaders in large old companies seem to suggest that being busy and appearing to do all you can, while things slowly go wrong is the optimal idea.
The barrier to innovation in most companies isn’t a flawed understanding of change or a lack of digital talent. It’s not that training programs are not preparing people or that the future isn’t understood well enough. It’s that those in control of large companies are, almost by definition, set in their ways. They have a career behind them not ahead of them. They hope to bury their heads deep and long enough to emerge on the other side with enough stock options.
The choice for an experienced CEO of whether they should undertake real change, at an underlying level isn’t a hard choice. What’s the best that can happen? Will they be around long enough to see the fruits of rebuilding the business in a new way? Will they likely be given praise 10 years later when a new CEO actually cuts the ribbon on what the company has then become? It’s for perfectly sensible, understandable but not admirable reasons that most companies treat new technology and the forces of change, less like a wonderful new toolkit to unleash, and more like a problem they hope to be able to ignore. Most businesses of any real size don’t excitedly undertake R&D programs, they don’t maximize potential gains, they swallow new technology begrudgingly. From IT system updates, to new software, to new thinking and processes, it’s typically reactive and late. It’s to minimize risk and not to invest in an abundant future.
Using the skyscraper analogy, we need to go deeper than just a new coat of paint. It’s far more likely we need to construct a brand new tower, one in the right place to compete today. So far innovation always nearly always exists in the quadrant that is most easy, but least effective, and virtually never in that which is absolutely vital and very hard.
You see, the sad truth is that many large, very successful companies that need to change, need to make alterations that are boring and won’t get press. They will take time, they will cost a fortune and nobody will see the hard work done. But it’s this which is most likely to allow businesses to thrive in the future.
What these companies need is to consider their path to the future, what their role is to be in the next few decades, take this seriously and rebuild. Its either that or a slow failure. So what would you rather do? Invest to grow or cut costs for the longest drawn out death?
This article is a altered extract from the Book Digital Darwinism by Tom Goodwin and Published by Kogan Page, it launched in 2023
Buy it here.