For the past decade, managers of established businesses have enviously eyed the growth of new technology companies. They’ve seen disruption as the driver. But for all their resources, why have industry Goliaths missed ideas and markets that more nimble organizations have so successfully exploited?
It’s easy to blame a lack of technology expertise within C-suites and boards. Sure, Fox’s (FOXA) Rupert Murdoch and Virgin’s Richard Branson needed “digital mentors.” But real change doesn’t come from chief executive officers using Twitter; it comes from adopting a new outlook—from the top down.
Efficient and effective organizational structures and cultures power growth. Certainly the way that new companies embrace digital culture—even those outside tech industries—offers lessons.
High on our list of the 11 components of a digital culture we believe businesses must adopt are agility, collaboration, empowerment, and an intense focus on the customer. Amazon’s famous ‘two-pizza’ teams embodied these values, and they paid off for the Web’s biggest retailer during a time of intense competition. (Founder Jeff Bezos believed that any team that couldn’t be fed with two pizza pies was too large.)
The inherent advantages of a digital culture are also apparent in contrast. Big businesses can lose sight of commercial and customer imperatives within silos. Their work environments and hierarchies may inhibit collaboration. Staff may be discouraged from making rapid deployments to test and learn new concepts. Often the HiPPO effect (Highest Paid Person’s Opinion) wins support over data-driven decisions.
According to Yale’s Dr Richard Foster, the long and robust life of business is endangered. “The average lifespan of an S&P 500 company has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today,” Foster has found. “By 2020, more than three-quarters of the S&P 500 will be companies that we have not heard of yet.”
Management should worry: Organizations with a digital culture are far more adept at disrupting industries and business models. They respond to change faster and a relentless focus on data and their customers keeps them in front.
A shift to digital culture has revved up results for Procter and Gamble (PG). Having spent $5.6 billion on becoming more agile, P&G now boasts better tech integration, its executive management has better business data, and the organization is more democratic. Culture shift has prompted cuts at the top to reduce micro-management while driving decision-making further into the business. P&G’s 2013 annual report (PDF) shows “a manufacturing cost reduction over $1.2 billion and increased productivity of 7%, both ahead of target.”
Still, you don’t have to look far for organizations that failed to transform in the face of disruption. Kodak, Blockbuster, and Borders—poof! More are certain to follow.
Companies must learn that they cannot gain advantage by sitting on cash cows. They should adopt up-and-comers’ collaborative strategies, agility, and customer focus. When digital technology catalyzes such rapid changes in costs, customer behavior, and revenue, no company can afford to stay still.
Across all sectors, businesses that welcome and empower the creative, digital native perspective at every level—especially within the ranks of senior managers and the board—will see digital not as a hurdle, but as the the fast track to remaining on top.