There’s plenty of hype around digital. A few basic figures are enough to show that it’s not overblown.
3.4 billion people are on the same, global network. Internet is the world’s biggest communication platform, information hub and data generating machine — ever.
It’s also the world’s largest market, and it’s growing rapidly, at 10% year-on-year.
We’re used to looking to the future to find the hockey stick moment, where suddenly growth becomes exponential. We don’t need to look any further. It’s already happened.
A new generation of companies have used Internet to increase their reach, or to target niches that previously wouldn’t have had the scale to be profitable. 40% of the world’s top 20 companies by market capitalisation are tech companies.
A new global market has allowed firms to quickly scale up, and accelerated network effects have forced firms to speed up everything they do.
That’s released a new wave of competitive pressures. Alibaba and Amazon aren’t bound by geography. They’re willing to compete anywhere with a network connection. Right now, that means just about anywhere.
The world’s most nimble, fastest-moving companies are hunting slow-moving lunch: companies that are too complacent to protect themselves from digital competition.
As Jeff Bezos says, “your margin is my opportunity”. Digital entrants are coming into industries we never would have expected.
It started in industries that were easily digitised: think of music (Napster and Spotify), media (Buzzfeed and Breitbart) and classifieds (Seek and LinkedIn).
It’s moving into industries that we used to think were too strictly regulated to accommodate a radically new business model: like hospitality (Airbnb and Deliveroo) and financial services (Monzo and WePay).
Every company is becoming a digital company. If your customers are used to watching movies on Netflix, managing calendars on Google and booking transport on Uber, they’ll grow frustrated when their insurer or retailer can’t keep pace.
Customers aren’t comparing one bank to another. Their expectations are being set by the world’s most digitally-sophisticated players.
And companies the world over are starting to realise.
Australian firms have been slow to change. Even now, too many Australian companies think of themselves as having a digital channel, and refuse to be compared with the world’s best digital firms.
Take the saga of Harvey Norman and Amazon. In June, Gerry Harvey said Amazon was aeons away from an expansion into Australia: gaining approval for, planning and building warehouses would take years. When Amazon went ahead and bought an existing warehouse in Dandenong, Harvey doubled down, saying Amazon would get a few customers in urban centres like Melbourne, but couldn’t match Harvey Norman’s national reach.
That’s the same thing Macy’s CEO was saying, before his company was forced to shut 100 stores recently, in part because of fierce competition from Amazon.
The new era of digital means Amazon can go from bookstore to leading private label supplier of baby wipes and batteries, from Washington to Melbourne, from garage retailer to global behemoth with over 310 million customers. Consider that it took Walmart 54 years to reach a customer base of 260 million shoppers per week.
Australian businesses have had 26 years of sustained growth. They have not needed to innovate, to upgrade their business models or their management and leadership skills. How will they compete with global digital companies?
This is a challenge like we’ve never seen before.
It’s also a lesson about the success of companies meeting the digital imperative head-on. To compete and succeed as digital companies, Australian firms need to act on three fronts.
First, corporate governance needs to be ready for modern, digital ways of working. We’re used to the era when digital and IT projects involved large capital expenditure, heavy governance and lengthy procurement processes. Now, you can use your credit card to go onto AWS and rapidly experiment with a product.
These days, the best way to reduce risk isn’t to write a lengthy requirements document — it’s building a product quickly, releasing it to users for feedback, seeing what they really want and getting it to market fast. Established companies need to learn that lesson from the agile, innovative start-ups trying to disrupt them.
Second, it means insourcing digital business, and ensuring internal digital teams have the capability and aptitude to build and operate great digital products themselves.
Too many companies are in the habit of outsourcing their IT to large vendors. This stops them from rapidly experimenting and improving their products in-house.
Google updates its servers thousands of times a day; you can’t do that if every update involves a call to your vendor negotiating a change in scope.
Digital companies don’t outsource the development of their digital products because that would be outsourcing their competitive advantage. That’s why there is a war for talent.
Third, it means strong leadership to generate the political will to transform the company. Digital transformation involves telling people there is a better way to get things done.
That can be painful, but it’s necessary. Transforming business models, organisation structures and relationships between suppliers, staff and communities is confronting. Shedding wrong people or retaining the wrong skills will stall the competitiveness and threaten the very existence of a company. Transitioning a large workforce out of an industry requires courage and the cooperation of the government and the unions.
If Australia doesn’t equip workers with modern digital skills, and actively encourage the development of a competitive economy, we will see a significant fall in living standards. Not all workers have the means , time or energy to devote themselves to retraining. Part of that responsibility needs to be borne by government, and the companies who will benefit from their digital workforce.
This isn’t a question of ‘Evolution, not Revolution’ anymore — if Australian companies don’t start to make the switch, their competitors overseas will be happy to do it for them.
Paul Shetler is a technologist and entrepreneur with over two decades’ experience working on large scale IT and organisational change projects – spanning the public and private sectors. He has co-founded two start-ups, worked in two others and also been in leadership roles at large suppliers like Oracle, Microsoft, and the global payments network, SWIFT.
More recently, Paul was responsible for transforming the way government delivers public services. He was appointed CEO of Australia’s Digital Transformation Office in July 2015 by Malcolm Turnbull and served in that role and later as Australia’s Chief Digital Officer until November 2016, delivering 6 exemplar services, a digital marketplace, a government cloud platform, a services dashboard, an alpha of a whole-of-government website – GOV.AU – and an alpha government identity platform. Paul also signed an MOU with the British government that strengthened the relationship between the two countries’ digital teams and made it easier for them to work together.
While working at the UK’s Government Digital Service, he helped develop a suite of practical lessons from its work to transform 25 exemplar services. Before that, he was Chief Digital Officer at the UK Ministry of Justice (where his team delivered four of those 25 exemplar services).
Paul has lived and worked in New York City, Rome, Milan, Paris, Amsterdam, Brussels and London and done the weekly commute to work from the East Coast of the US to San Jose. Currently,
Since 2015 he’s called Sydney home where he works as Expert in Residence for Stone & Chalk.