Digital threat: many bosses asleep at the wheel

The Australian, August 26, 2016:

Many chief executives are sleeping well because they aren’t aware of the threat the digital economy poses to their businesses says Marek Kowalkiewicz, digital economy professor at Queensland University of Technology.

“A lot of incumbent businesses are suffering from what we call ‘unconscious incompetence’,” says Kowalkiewicz, who advises incumbent businesses on how to compete with digital upstarts.

“They don’t know what they don’t know, and the CEOs of these organisations sleep through the night because they’re unaware of the potential disruption just waiting to attack the industry that they’re in.”

Kowalkiewicz says a big change wrought by digitisation is that disruption can come from anywhere, not just from competitors in the same industry.

The National Broadband Network, for instance, is disrupting computer game shops because instead of gamers having to go and buy a disc with the game they can download it via very fast internet.

“We should stop focusing on industries and instead focus on digital processes or what we do as individuals,” he says.

“It’s all about looking at the world through a different lens and thinking differently.”

Stephen Miles, chief technology officer Asia Pacific Japan at CA Technologies, draws the analogy of horses as traditional businesses and unicorns as digital start-ups. While they’re mostly the same shape, unicorns are a lot more agile.

He says digital disruption really got under way in about 2008 or 2009, with the second generation of iPhones and Apple’s app store. “This industry is six or seven years old in terms of the digital transformation era,” he says, “but already there’s an incredible digital divide between the horses and the unicorns.”

Many incumbents are just doing “digital makeovers” instead of trying to get digital into their DNA, Miles says. They are holding on to their inflexible “monolithic” IT systems instead of adopting the more nimble microservices architecture that allows for a lot more flexibility.

This is part of the reason Netflix is so business savvy.

“They took the decision to build that architecture three or four years ago and now no one can even get remotely close to touching them because they’ve built themselves an architecture, a platform for delivery, that scales, that is adaptable, composable, flexible, and nobody can compete with it,” Miles says. “That’s an example of doing something because you’ve got a digital DNA.”

Horses and unicorns often have a different mindset.

“I think that’s beginning to change, but the horses tend to think about delivering what we have well. The unicorns tend to think about delivering what customers want well. Subtle, perhaps, but seismic,” he says.

Christoph Breidbach, a lecturer in computing and information systems at the University of Melbourne’s school of engineering, says many incumbent businesses have the technological wherewithal to modernise their business models and systems but are held back by their leadership.

“This is the key factor in determining whether or not an individual company is willing to adopt new technologies,” he says.

Often junior employees are urging for new technology but meet resistance from senior management.

“It’s really a cultural shift in many organisations when it comes to utilising new technologies or adopting new technologies,” Breidbach says.

But it isn’t always so black and white at monolithic start-ups and agile start-ups.

For example, many large companies are driving innovation by acquiring start-ups.

“Large-scale companies often work with start-ups and use them as an extended workbench to foster their own innovation activities,” says Breidbach.

Banks, in particular, have adopted this model. For instance, Westpac has started its own venture capital firm, Reinventure, and is investing $50 million in new technology ventures.