HOW TO GROW VALUE

IN THE DIGITAL ECONOMY

ORGANISING FOR DIGITAL TRANSFORMATION
Digital is the new
economy
THREE DECADES OF DIGITAL EVOLUTION

2000s
1990s Access to new
markets with
The internet becomes cloud computing
searchable enabling and mobile
ecommerce. technology came
with automation,
Personal computing allowing
makes communication enterprise to scale
and information as never before.
processing faster and Social media
more accessible. marketing
became a thing.

2010s
Digital becomes the new economy. It is not just the
digitisation of business processes and activities; it is the
digitisation of society itself.

page two
THE DIGITAL ECONOMY IS
no longer about applying technology to fix legacy processes and business practices. It is about
adapting to a world where the connectivity between people and things shapes how they conduct
every aspect of their lives..

3 billion people equating to half the

global population are connected to the
internet
 information 5.5 million new ‘things’ are connected

  every day

6.4 billion connected ‘things’ in use in

2016 and will more than triple to
21 billion by 2020
email

While the global trade in goods has

communication stagnated since the Global Financial Crisis,
50 percent – and growing – of the world’s
trade today is digitised

sources: Gartner, Inc.; McKinsey Global Institute, Boston

Consulting Group

page three
DIGITAL BUSINESS IS
adapting to meet people’s shifting expectations
in an ‘always on’ world.

When endless choice is only as far as the

nearest internet-connected screen, products
and services – from cars to your next romantic
date – have become commodities. Customers
no longer perceive value in the features and
benefits you offer.

Instead customers judge the value you offer

through their experience dealing with you at
each touchpoint across their customer journey.

Many companies have underestimated the magnitude of change needed …

and the speed required to catch up to dynamic customers and disruptive
competitors. Leaders will take on the hard work of shifting to a customer-
obsessed operating model; laggards will aimlessly push forward with flawed
digital priorities and disjointed operations.

The Top 10 Factors for Success in the Age of the Customer, Forrester, Research

page four

Users with advanced digital capabilities
are capturing disproportionate
benefits. The companies leading the
charge are winning the battle for
market share and profit growth; some
are reshaping entire industries to their
own advantage.
Digital America: A tale of the haves and have-mores, McKinsey &
Company, 2015
page five
DIGITAL CAPABILITY IS
how well an organisation is able to draw
on the resources within and outside the
enterprise to adapt, innovate and
collaborate in response to market
opportunities as they become increasingly
amorphous.
Whereas in the industrialised economy,
capital was concentrated for mass
production, giving market power to the
few; in the digital economy, the accessibility
of technology disperses market power to
millions of people through their internet-
enabled ‘things’.
Organisations can no longer depend on the
resources within its direct control to keep
up with evolving expectations of customers.
Nor will they be able to keep up with the
leaps in innovation made by competitors
with the potential not just to service the
market better, but change it altogether.
ENTERPRISE VALUE IS
created when an intangible resource is applied to a physical one. Every time an intangible resource
– such as know-how, systems and designs – is applied, more value is created.

The value lies dormant until activated by a

transaction or interaction. 17%
32%
Digital technology’s ability to facilitate
68%
limitless micro interactions (such as social 80%
87%
media ‘followers’ and ‘likes’) through to
complex transactions, at virtually no cost, 83%
68%
has opened endless opportunities for new
value creation. 32%
20%
13%
An enterprise can use its digital capabilities
1975 1985 1995 2005 2015
to turn its intangible assets – that would
otherwise have remained unrealised – into Tangible Assets Intangible Assets

value that builds greater customer loyalty, a

way to differentiate its brand from others, COMPONENTS MARKET VALUE ON THE S&P 500

and even new sources of revenue.

Ocean Tomo LLC

page six
Digital provides new
ways to create value
DIGITAL MEANS THINKING DIFFERENETLY
Disintermediated supply chains and globalisation brought about by digitisation has placed enormous
pressure on enterprises and their profit margins. To remain competitive, many opt to migrate up the
value chain hoping to justify higher prices and differentiate their brand. But as more head in the same
direction, the market becomes over-serviced and the goods and services fall back into commodity
status.

Typically, enterprises see the problem as a marketing one, and will focus on ways to promote the
superiority or uniqueness of their offering. This traditional thinking which they may been successful in
the past, has gone from once being the solution, to now part of the problem.

TRADITIONAL THINKING DIGITAL THINKING

Customers Users and customers

Incremental improvements Innovative leaps

Features and benefits User/customer experience

Price Value

Resource constraints Collaborative opportunities

Command and control/closed organisations Open system organisations

Industry standards/norms Disruption

DIGITAL TRANSFORMATION IS
the challenge to shift the organisation from its reliance on the approaches that worked so well in
the old industrial economy. It is developing a culture of innovation to ensure the enterprise will
remain relevant and competitive and reap the benefits of a new economic environment in which
everyone and everything is able to be connected.

Research by MIT Sloan shows those that are making the digital transition
are 26% more profitable than their industry peers.

page nine
TARGET USERS TO CURATE VALUE
either innovating within an existing business model or developing a different model altogether,
turning users into new business opportunities.

Utilising existing organisational assets not only tends to offer better returns, inter-related offerings
become a system of solutions that consolidate your customers’ relationship with your brand.

VALUE INNOVATION ENTERPRISE INNOVATION

NEW
VALUE PROPOSITION

Find ways to offer new value to Use existing assets in new ways to
existing users. create value for a new user base.

SERVICE INNOVATION USER INNOVATION

SAME

Find ways to improve the value Find ways to make your value
experience for existing users. proposition relevant to new users.

SAME NEW

USER FOCUS

page ten
A MULTI-USER BUSINESS MODEL
is a business model that re-packages and repurposes value you offer your customers to reach new
users.

Focusing on customers without users makes you transactional, and transactional relationships are
easy to disrupt and replace. Because the nature of user relationships is value experience, they are
more deeply rooted and inter-connected, thus harder to dislodge.

Focus on the user

Apple users create and
download content onto their
Apple devices, each driving the
value experienced – and sales –
of the other.
and all else will
follow.
Number one on Google’s list of “Ten
things we know to be true” that
defines who they are as a company.

page eleven
Digital transformation
needs an organisation
optimised for trust
David Whiteing, Commonwealth Bank ’s chief information officer, was one of the hundreds of senior
Australian executives looking to California for inspiration. CBA sent its entire board to Silicon Valley
in September, meeting heavyweights and potential competitors like PayPal, Facebook, LinkedIn and
Microsoft.

“For me and the executive committee it was the realisation it was not about the technology per
se, but about the capability you have in your team, and the values and culture you are going to
promote.“

Many of the executives, venture capitalists and consultants interviewed for this article agree the
answer [to digital disruption] lies somewhere in the field of culture and having the right staff in place
rather than the technology itself.

“I think the single most important thing for any organisation is to instil a culture that encourages
and reinforces the need to innovate and take some risks, and tolerate the experiments that fail.
Innovation and risk taking go hand in hand," Google Australia’s head engineer, Peter Noble says.

“I’ve been a technologist all my life, but I’ve just learnt that people and culture are ultimately what
drives innovation."

excerpt from Disruption or destruction? Surviving the innovation age, Australian Financial Review, January 2015

page eighteen
DESIGN FOR TRUST
Because the new economy is about the digitisation of relationships, success depends on the
enterprise consistently demonstrating its commitment to creating trust.

When organisations prioritise

“behaviors and practices that
foster trust…they are more than
2½ times more likely than Trust
Laggards to be leaders in revenue
growth, significantly outperform
all other organizations in
achieving key business goals –
including customer loyalty and
retention, competitive market
position, ethical behavior and
actions, predictable business and
financial results, and profit
growth.”

Building workplace trust: trends and high

performance, Interaction Associates Inc. 2015

page fourteen
BE VALUES-DRIVEN
Vision, mission, purpose – what you call it doesn’t matter unless you take the values behind them
and make them an inviolable part of the way you do business.

Corporate social
Only one in four There has been a
responsibility is a key
general public widespread
factor for deciding
respondents trust condemnation of the
where to work (81%),
business leaders to excesses that led to
what to buy or where
correct issues and the [global financial]
to shop (87%) and
even fewer – one in crisis and … a
which products and
five – to tell the truth perceived deficit of
services to
and make ethical and values in the global
recommend to others
moral decisions. economy.
(85%).

Cone Communications/Echo
Edelman Trust Barometer, 2014 World Economic Forum, 2014
Global CSR Study, 2013

page fifteen
BUILD ADAPTIVENESS INTO THE CULTURE
Successful digital transformation is adaptive management not change management. Change
management drags people into keeping up. Adaptive change brings people together to work
towards a desired future.

Strong corporate
cultures that facilitate
Avg increase for firms Avg increase for firms
adaptation to a WITH performance- (over an 11 year WITHOUT performance-
changing world are enhancing cultures period) enhancing cultures
associated with strong Revenue
financial results. 682% Growth 166%
Employment
282% Growth 36%
John P. Kotter, Konosuke Matsushita
Professor of Leadership, Emeritus, Harvard
Stock Price
Business School, from the book co-written
with James L. Heskett, Corporate Culture and 901% Growth 74%
Performance.
Net Income
756% Growth 1%

page sixteen
MAKE SOCIAL CAPITAL
Social capital is the reciprocity, trust and cooperation central to transactions within networks, and
essential for people and organisations to benefit fully from digital connectivity.

Structures and Individuals network outside the

infrastructure enable organisation for resources
agility
Learning is
Collaboration happens continuous
at all levels

Diversity fuels Risk and failure are

performance seen as part of
making progress

Innovation is not
People hired for limited to a
attitude are department or level
flexible

Organizations with better connections … report higher patent outputs, a higher

probability of innovation, and higher earnings and chances of survival in rapidly
innovating industries. Social capital, within the firm and across the firm’s border to other
firms, seems to be a prerequisite for organizational learning, adaptability and agility.

Social capital: the key to success for the 21st century organisation, IHIRM Journal, 2008

page seventeen
BE DESIGN-LED
Design-led methods allow all the functions within an organisation to integrate their expertise and
perspectives. They solve for people’s needs not just for process and are more likely to find
sustainable solutions to sticky problems.

Results show that over the

last 10 years, design-led
companies have
maintained significant
stock market advantage,
outperforming the S&P by
an extraordinary 228%.

The DMI Design Value Index by Motiv, 2014

Design thinking fosters innovation because it requires teams to work from a common ground. The
common language of design allows a trust-based team culture to develop.

page eighteen
BUILD CONFIDENCE TO INNOVATE
Organisational confidence is the prerequisite to innovation.
Confidence comes from an organisation aligned around a
purpose and guided by a clear set of values.

Without confidence, people cannot:

~ Challenge norms and status quo
~ Take the risks that comes with developing new things
~ Work collaboratively with others
~ Do deep, rather than merely visible, work
~ See failure as progress
~ Be open to feedback and ideas from others

People need to feel trusted to innovate.

A brand must continue to develop

and innovate in order to be trusted.
The six drivers of trust, Mext Consulting, 2009

page nineteen
 PRIORITISE ENTERPRISE SKILLS
Enterprise skills, that is the combination of analytical,
leadership, social and creative skills, are vital as more
work and business is conducted across distributed
individuals and groups, using digital channels.

Businesses are more profitable and

productive when they act ethically, treat
their staff well and communicate better
with customers. The top 10 companies in
the Global Empathy Index 2015 increased
in value more than twice as much as the
bottom 10 and generated 50% more
earnings.
The Most (and Least) Empathetic Companies, Harvard Business Review,
2015

Investment in leadership development from executive level down is failing to produce the enterprise
– or soft – skills needed by enterprises, not due to lack of those leaders’ abilities, but because their
skills are not rooted in the context of today’s environment.

Enterprise skills may be ‘transferable’ but the assumption that this transfer happens automatically is
flawed, undermining the value leaders can contribute and hurting the enterprise’s potential.

page twenty
Only those organisations that
are certain they will not be
impacted by global issues in
the future can ignore digital
transformation.
There has never been a time in history where so much change has happened so quickly as it does
today. In their aim to avoid digital disruption. enterprises may be innovating rapidly, but without a
clear idea of what their innovations should achieve, they can fail to go much beyond the act of
innovation for innovation’s sake.

Harnessing technology is a start. However, this often is an outside-in approach where ‘what
everyone else is doing’ becomes the driver for change. This was useful in the first years of the
digital era but in the 21st century digital economy, transformation works from the inside out.

To operate in a connected world, you need an organisation specifically designed for it. The insular
models of the industrial era prioritised efficiency and shareholder return. Trust and performance
were often in conflict. And as case after case of corporate misbehaviour shows, trust would not
always prevail.

Markets are moving from mass standardisation. People are wearied by over-consumption,
materialistic lifestyles, unsustainable and environmentally irresponsible production practices, and
marketing promises that under-deliver. Increasingly consumers are seeking to spend their dollars
to meet their immediate needs and simultaneously make the world a better place. Ecommerce is
no longer just transacting online, it is checking whether the enterprise lives up to consumers’
social, ethical and environmental expectations.

As more social and economic activities are conducted digitally, new market opportunities
continue to open at the same pace as disruptors try to reinvent the market.

The stakes for an organisation to make a digital transformation are high.

metamanagement.net
+61 3 9016 3827
iwu@metamanagement.net