Will Digital Be the Death of the Household Name?

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New stripes can be the start of something big, says Forrester.
New stripes can be the start of something big, says Forrester.

There's a good chance that 10 years from now two thirds of companies currently on the Fortune 500 list will have been displaced if they don't get their digital acts together now. That's the dire assessment of Forrester Research analyst Nigel Fenwick who, along with colleague Martin Gill, coauthored the report “The Future of Business is Digital.” In the estimation of the nearly 1,600 executives surveyed for the study, it looks to be a future lined with potholes and obstacles.

While 74% of companies covered in the survey—co-conducted by Russell Reynolds Associates—reported that they have digital strategies in place, only 21% of those enterprises' executives were secure that the strategy was designed by qualified people. Furthermore, fewer than 20% said they have the right technology, processes, or skill sets needed to execute the strategy.

“Start-ups have digital built into their DNA, but digital strategies are much harder for traditional enterprises to establish,” Fenwick says. “These are companies that were built to scale processes. So they go to market with the mind-set that we'll control this ecosystem and control the customers. But now the power has shifted to the customers, and they don't have to take what these companies are pushing out.”

Established companies are well aware of the situation they find themselves in. Ninety-three percent of those surveyed said they expect digital issues to disrupt their businesses in the 12 months ahead. What stymies them, Fenwick says, is the daunting challenge of disassembling the efficiency systems they've erected over decades and rebuilding them to suit the buying patterns of today's customers. That means not only tearing down functional walls within their companies, but also finding ways to enmesh themselves in the ecosystems constructed by consumers via partnerships they might never have considered before.

“Not long ago, when a homeowner wanted to renovate a bathroom, she'd start by going to stores or asking friends for recommendations for contractors,” Fenwick says. “Today she's more likely to build an ecosystem of apps to find bathroom designs, calculate costs of materials, and check with retailers.”

The value system created by the denizens of the Fortune 500—a neat, linear progression from supplier to processor to retailer to consumer—has been scrambled and rearranged by end-users. Fenwick says traditional companies need to develop the agility to see where they fit in this new ecosystem and form partnerships with retailers, service providers, and competitive companies to deliver value to customers.

Unfortunately, according to Fenwick and Gill, most traditional companies currently rely on digital “bolt-ons” that address individual issues instead of digitally integrating their products and services into the new ecosystems. “It's like taking an old Buick and painting racing stripes on it and calling it a race car,” Fenwick says.

As examples of best practices, say the study's authors, companies could look to Fidelity Investments and Amazon. Fidelity hooked up with Yodlee to create a dynamic ecosystem that allows customers to track all their financial accounts, as well as such things as loyalty accounts, in one place. Amazon, meanwhile, presents a shining example of how to exist in customer-run ecosystem by digitally connecting multiple sellers to multiple buyers.

Chief marketers and their counterparts in IT will serve as key players in delivering their staid, old enterprises to a level of competence in a digital world. When asked which functions within their organizations would have the largest impact on digital transformation in the next 24 months, executives surveyed by Forrester placed three departments in a three-way tie: marketing, e-commerce, and IT.

“The CMO and the CIO are the two key people in this,” Fenwick says. “The CMO has the ability to drive customer-centric thinking, and the CIO can drive agility because he understands how to squeeze the most out of a technology budget.”

Established companies still own some great competitive advantages over start-ups, such as capital and honored brands, Fenwick says. What they need to do, he says, is start making tech investments that create positive outcomes for customers and build on those incremental improvements to begin to craft workable digital strategies. Bolt-ons are OK, Fenwick adds, if they're strategic bolt-ons.

“If the stripes painted on the car lead to an engine overhaul and improved aerodynamics, then you're heading in the right direction,” Fenwick says. “You can't do it all at once, but what you do first and how you build on it can have a big impact.”

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