Are you in the Digital Doldrums? -https://ift.tt/hvrjyYA –
COO to Consultant: “Help me! Our business is in the doldrums. What do we do?”
Consultant to COO: “Why sure, that’s easy. Transform your business and become digital!”
COO to Consultant: “We did that already. As we headed into Covid we completed the shift. Our business model is digital. Digital channels are used to understand the market and the customer. We transformed how we served our clients, and we invested in all the tools the last consultant told us to invest in. Revenue was up for a while, it was great. But now revenue is down again. Our digital antenna tells us demand is falling off. What did we do wrong?”
Consultant to COO: “Oh. Err. Well, let’s set up a consulting project and we will try to get to the bottom of it for you. I am sure we can rustle up an idea for you.”
Consultant to COO: “Hello? Are you there?”
Does Digital Matter?
Some readers might remember Nicholas Carr and his ‘Does IT Matter?’ query. That book was read by me three times in almost as many weeks and has page markers galore. It has sections underlined once, twice and even three times. In the end the conclusion was that it depends.
What Mr. Carr did at the time was conflate all of what falls under the banner, ‘IT’, as one thing. It is far from that. At its very basic level IT really means information and technology, and many researchers in the field actually write such things as information and technology or information and communications technology (ICT). Mr. Carr conflated I and T into one thing and projected that into the future. He focused on cloud computing or compute and said that, if elastic and easily accessible, it would become ubiquitous and even a commodity. As a result, how can IT really matter if everyone can get it quickly and easily?
But it was a trick. Yes, compute is a near commodity with cloud computing, but what you decide to compute is what drives competition and innovation, but the size of your compute. There are a few use cases were size matters, but for the most part its not about the number of cores and size of your memory – its the question you ask of the data around you that distinguishes you from your competitors. That is far from commodity and that is all about data, analytics, AI and digital.
As with every era or paradigm, there is always an innovation that dislocates an incumbent; and that innovation itself will likely be dislocated by the next. Many markets follow this pattern. Check out Geoffrey Moore and his wonderful work Crossing the Chasm and the related Gartner Hype Cycle research. When I&T is simplified and equated to cloud computing (Infrastructure as a Service – see How to Talk Cloud to Business Leaders, part 2), then yes, it is approximating to a commodity. But that is a gross oversimplification just to sell a book.
The Digital Paradigm
And so here we are with yet another paradigm that organizations are finding difficult to master. Digital business is a critical era for us all – see Executive Leadership: Digital Business Primer for 2022. Going digital helps organizations transform and jettison or transfigure investments, processes, technologies, and other assets, that were more appropriate for the analog era. Or at least try to work out how to work in the real world while developing a new business in the digital world.
It’s 2022. Covid and all its impacts are with us. Supply chain complexity has been exposed as a weakness in times of political stress, and global chains may be redrawn once things settle down. But digital is a constant goal; it remains a North Star for many business leaders. Yet as with any paradigm, even digital has not been a panacea. Many firms have paid the piper and spent the millions; they have transformed their business, or so they believe. But success has not materialized over the long haul, or perhaps it was fleeting.
For many, long term sustainable success remains accessible to a few. Take this example from the Wall Street Journal:
Carvana Pressed as Covid Gains Ebb and Carvana Under Pressure as Pandemic Surge Slows: Used-case dealer rode tailwinds of rising prices and low interest rates.
‘”The long-term sustainability of the business is still a question mark,” said David Binns, an analyst at S&P Global Ratings.”’
Carvana is running out of growth prospects and runway. Share prices has sunk and yields on its bonds have run up: it’s cost of capital is now limiting its options.
Here are some other digital darlings that are obviously struggling:
Netflix stock (NLFX) has gone from $586 to $360 in last 6 months (down 39%)
Peloton stock (PTON) has gone from $104 to $23 in last 6 months (down 78%)
Opendoor (OPEN) has gone from $17 to $7 in last 6 months (down 59%)
Nasdaq has gone from 15,043 to 13,436 in last 6 months (down 11%)
Stock price is not the only sign that digital is not a silver bullet. Even organizations that are doing well in the market still have challenges with digital products, channels and approaches. From an article (What happened to Starbucks? How a progressive company lost its way) exploring Starbucks use of digital technologies: “[Baristsa] say the push toward mobile ordering has actually made some things more difficult. Consumers no longer face the barista’s glare when ordering a 14-ingredient TikTok-famous drink; the Starbucks app judges them not. Starbucks has even fueled this behavior by unleashing increasingly elaborate seasonal drinks: Recall the deluge of color-changing Unicorn, Mermaid, Zombie, and Pegasus Frappuccinos.”
Defining Success with or without Digital
While “Covid-era favorites struggle” might also come to mind, these are all examples of firms that adopted digital strategies. And there are other firms that adopted digital strategies that have done really well. Adopting digital is not an automatic recipe for success. These examples prove something else in the digital hype. Gong digital is not a panacea for how to manage capital and assure success. Going digital is not a replacement for basic business practices.
Some digital businesses have struggled; not because digital markets have failed but because basic supply and demand and capital return mechanics cannot be refuted in how organizations invest – digital or not. What can be ignored are the decisions capital allocators make given the range of offerings in front of them. Every organization allocates capital and may seek a digital ambition; but this is not a quick fix or a replacement for business fundamentals.
Beyond the Digital Doldrums
The point of these examples is that no investment guarantees success. Perhaps you know this; yet why is success still so fleeting? Is digital not a reliable gateway investment to growth and sustainable business? Are there new measures of success? Are there new assumptions used to determine investment decisions? What is missing?
Like the consultant at the top of this blog says, let’s talk and maybe we can work out what went wrong. More importantly I would offer this thought. Any transformation from an old model to a new model does not obfuscate the basic principles of how markets operate. Investing in the latest list of vendors, acronyms and cool tools, does not bring with it the change in culture, skills and practices such a hoped-for transformation demands.
Do you realize that so many digital and data and analytics strategies result in almost the same list of vendor logos? It’s like the Pied Piper lives and shows up with every paradigm shift or era.
The last point I’ll make is this. Even if the digital transformation is completed with all the needed change management, digital vision, modernized execution systems, data literacy, data fabric or updated mesh, and modern governance practice, success is still not guaranteed. The fundamentals of business concerning demand and supply, investment and return, and differentiation and commoditization, are alive and well. Too many organizations ignore this at their peril. And worse, too many assume explicitly or not, that a digital journey temporarily suspends those fundamentals. It does not matter the era, or the name appended to the investment or strategy document. Unless we remain focused on what really matters, the rest does not matter much. Like Icarus, we will fly high and sprightly and beautifully, until we are drawn to the brightest light in the sky. And you know how that worked out.