‘It’s not necessary to change, because survival isn’t mandatory’, said W. Edwards Deming in his book ‘Out of the Crisis’. This soundbite, from the noted Professor of Statistics, and esteemed advisor to both private and public sector leaders, may herald from the 1980s, but it rings as true today as it did back then.
Why? Simply because it speaks directly, and forcefully, to the new, ever-changing, highly complex ‘business as usual’ that CEOs the world over are wrestling with. Undertaking the tightrope walk needed to balance investments for growth and innovation with driving efficiency and agility, whilst mitigating competitive risk, and exercising good corporate responsibility – all of which is itself set against a background of vacillating macroeconomic and geo-political trends.
It’s a tough gig, and the stakes are high, of that there’s no doubt. However, for those that get it right, the rewards will be eye-wateringly huge. Let’s start with some data to help quantify the upside potential:
>60% of GDP will be digitized by 2022
$30Tn growth of new middle class spending by 2030
16Tn AI contribution to global economy by 2030
IDC, in their 2019 Top 10 predictions, state >60% of global GDP will be digitized in the next 3 years (with an accompanying $7Tn technology related spend over the same timeframe). This is just for starters, consider how this might be further amplified by the growing middle class who are forecast to add an incremental $30Tn worth of spend over the next 11 years (equating to about 1/3 of Global GDP), according to the Brookings Institute. To put that into context, this would move middle class spend from roughly $34Tn today, to $64Tn by 2030. And, of course, we can’t have a conversation on change without mentioning the shiniest of shiny new objects, Artificial Intelligence, which the CEO of Sberbank estimates will make a $16Tn contribution to the global economy by 2030.
When looked at from the perspective of growth potential, many would feel the stars have aligned, and a land of boundless possibilities awaits, right? The answer is a qualified yes. Given this abundance of opportunity, we’re often asked by leaders how they can tell if they’re successfully transforming their business. Clearly, revenue growth, albeit a rear-view mirror, is still a reliable an indicator as ever. A good litmus test, put forward by IDC, is that by next year companies that are digitally transforming will generate over 50% of their revenues from new business models.
Let’s be clear, that’s revenue from new business models, for example, sharing, co-creation, experience, lifestyle, circular, platform, etc., and not revenue from the existing business that’s simply been ‘front-ended’ with an App - an approach to digital we’ve see all too often, and something we refer to as ‘digital washing’. These are business models that’ll likely take you into new markets, with new customer segments, and innovative new ways to engage.
Hand-in-hand, new business models also means accepting new risks, new partnerships, new competition, new regulation, new success metrics, new investment models and so on, and so on. Lots of new. Hence, we quite deliberately said it’s a ‘qualified yes’ to the opportunity. Grabbing your fair share of the pie (TAM and SOM) is not going to be free and easy.
These radical new approaches also highlight a further challenge for the CEO – acquisition of new skills and capabilities required to ‘go digital’. Skills which companies need to build, bind, borrow, buy and somehow assimilate to avoid suffocating the innovation strategy that, when done properly, will likely have taken many months to develop and sign off. Which leads us on to some interesting points regarding the workforce:
You need the right strategy AND the right people
75% of the workforce will be millennials by 2025 (change in value set)
52% of MBA grads chose not to work for big blue chip companies
According to Brookings, 75% of the workforce will be millennials by 2025 (and Gen Z will be hot on their heels). That’s three quarters of the workforce, just 6 years from now. This is the generation that came of age with the internet, and they have different expectations of work – what it is, and what it isn’t. Grey, ‘battery farm’, office cubes won’t cut it, and salary isn’t the draw it once was. The best people want more - they want greater flexibility, mobility, to be valued for being more than just a ‘human resource’, and for their employer to amplify their own values - socially, ethically and environmentally.
To somewhat underscore this, over half of the MBA graduating class from one prestigious business school in 2017 turned down large starting salaries from blue chip companies to join startups, or set-up their own businesses. In other words, more than half of a group of some really smart people chose not to work for big companies. That’s a problem - if you can’t attract the right skills the rest doesn’t matter, as while the technology is important, on its own it won’t get you there. This is a challenge for leadership at the highest level, to ‘re-humanize’ the workplace, and not something to be offloaded to the organization formerly known as HR.
Leaders must also take note, the rinse repeat of ‘do something good for society, check the box, wait 12 months, repeat’ will not be seen as progressive by the millennial work force. At best it’ll be seen as a disingenuous means to grab some headlines. Corporate Responsibility must now become woven into the DNA of the business, and practiced (not preached) from the top down.
However, we believe, in time, a genuinely responsible approach will also become a competitive differentiator. With that said, let’s look at why we think this is so important:
40% of jobs automated by 2032 – have’s and have nots, potential for social turmoil
85% of jobs that will exist in 2030 haven’t been invented yet - how do we help people re-skill?
5.5Bn middle class by 2030 - Increased middle class = greater consumption = greater carbon footprint & pressure on finite resources
We talked earlier about the economic promise of AI (the additive $16Tn). However, noted technologist and venture capitalist, Kai Fu Lee, foresees AI led automation could replace 40% of jobs in the next 12 years – a scenario which gives many a real cause for concern. Any job performed today, that has some form of repetition, is a candidate for automation – both blue and white collar occupations, the technology doesn’t discriminate! A scenario which understandably ‘freaks people out’, and which Hollywood has been cashing in on with dystopian fantasies from Terminator, to Robocop, to The Matrix – movies that are now part of our collective consciousness.
Nevertheless, many will counter this with numerous studies that posit that as ‘old jobs’ go away, a raft of ‘new jobs’ will be created – equal or greater in number. But what stirs the pot of uncertainty, is that no one can yet really define what these new jobs will be. Indeed, the Institute For The Future believes 85% of jobs that will exist in 2030 haven’t been invented yet.
This creates a Catch 22 for leaders who may already be feeling a little overwhelmed. Namely, how do you help your existing employees re-skill and retrain as you look at the future of the business? Will your future ‘employee’ base now consist of people, robots and cognitive systems? And, how will you blend this together to form a hyper agile, cooperative and harmonious workforce?
The importance of re-skilling and retraining efforts also takes on a central role in societal revitalization, lifting people out of poverty, and sustaining the growth of the global middle class – estimated, again by Brookings, to reach 5.5bn over the next decade, (we’re at roughly 3.5Bn today).
For business, this means a growing captive market, and more consumers with disposable income and aspirations for a better life. But, it also means greater consumption, greater carbon footprint and even greater pressure on finite resources - energy, food, water, materials. Leaders must understand actions have consequences. Responsibility to manage the ‘rough with the smooth’ rests on all of our collective shoulders.
From our own perspective, as business/technology leaders, we find ourselves compelled to do ‘our bit’ to champion Corporate Digital Responsibility (something we’ll be writing more extensively about) – doing what we can to ensure transformation through digital creates both GROWTH and GOOD, values that aren’t mutually exclusive.
To draw towards our conclusion: the future is rich with promise, however, the journey to get there is one fraught with peril, on many levels. And, whilst it may be true that fortune favours the bold, the bold need more than strong heart and spirit – they need a plan.
Now, you may have heard of the ‘Red Queen Effect’, a term derived from Lewis Carrol’s ‘Through The Looking Glass’. In it the Red Queen states, ‘It takes all the running you can do to stay in the same place’. In business that’s a metaphor for saying that doing more, and more, of the same won’t move you forward.
And this brings us to the crux of the piece (or ‘biscuit’ for any Frank Zappa fans out there). Over the last number of years we’ve heard any number of industry commentators and analysts tell CEOs they need a ‘sense of urgency’ to transform. Well, we think leaders have got the message, loud and clear, as evidenced by IDC when they reported back in 2017 that 70% of CEO’s are centring their corporate strategies on Digital Transformation.
In our own interactions we absolutely see, first-hand, a genuine sense of urgency. So evidently, that is not where the problem lies. Rather we see the real challenge facing many companies is The Red Queen Effect – i.e. they’re running faster and faster (the sense of urgency), yet somehow staying still. We believe this points the finger at something we continue to see all too often, namely a transformation plan that bears an alarmingly similar resemblance to the practices of yesteryear.
This can be characterized by the executive ‘two day offsite’ brainstorm:- ideas scribbled down on a whiteboard, prettied up with some ‘digital lipstick’, coupled together with a bunch of cost cutting initiatives, steady, predictable growth is forecast, and ‘Victory!’ is declared!
To put it bluntly, this is not a transformation strategy – it’s at best digital pantomime, and at worst an exit strategy. Transformation isn’t about trying to do the same things better, it’s about doing better things. And, that means making some profound changes.
Which brings us back to our opening quote, ‘It’s not necessary to change, because survival isn’t mandatory’. QED.
Oh, and don’t be fooled into thinking that perhaps slow and steady might not be so bad after all, as IDC also estimate a 70% reduction in TAM risk for companies that don’t digitally transform by 2022!
So, you may ask yourself, ‘Where do I start?’. We’d suggest you can begin by asking yourself the ‘8 Questions’ we set forth in our article Pain Is The Touchstone Of All Growth – Masochistic Or Realistic?.
Secondly, as leaders you need to get spun up and educated on what’s really going on - not just in your own market sector, but across industry, globally. We can provide help here through our Executive Leadership Education Programs, starting with The 4th Industrial Paradox – Promises and Perils of the Digital Revolution.
Finally, learn from leaders, from those with demonstrable success, to understand the changes they made and bets they placed.
Let us know what you think, feel free to comment and ask questions, and let us know of other topics you’d like us to discuss.
Andrew and Jim
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