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June 13, 2017

DIGITAL CHANGE: HOW IT’S SHAPING CORPORATE STRATEGY

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Change is a constant and consistent element that characterises the world in which corporations operate. And its pace has increased significantly over the past decade. What is the effect of this phenomenon on corporate strategy?

It’s truly disruptive as the assumptions that were “true” before are no longer valid. In fact, companies have to devise and implement a flexible strategy that allows the organisation to be more agile and to respond to market’s pressures.

 

 

In her book  “The End Of Competitive AdvantageRita Gunther McGrath, Professor at the Columbia Business School, states that we are witnessing “a change in the purpose of strategy from trying to secure sustainable competitive advantage to exploiting a series of transient competitive advantages that in themselves combine for a long-term advantage“.

McGrath designed a framework for a more agile company that shows how digital change impacts on the organisation’s strategy:

  • Continuous reconfiguration: shift to a “continuous morphing” precess that is characterised by the stability of some elements like corporate vision and flexibility of others like operations and execution;
  • Resources allocation that suppor agility: thanks to the continuous reconfiguration resources are allocated according to the actual requirements and not in defined roles;
  • Innovation proficiency: continuous and systematic innovation, with high levels of experimentation. Developing a culture where failure isn’t seen as a capital sin;
  • Leadership: talent is encouraged to seize the opportunities, looking for “fast right rather than perfection”.

 

This framework requires a considerable shift of culture, meaning how things are done in the organisation. Companies, also established ones, need to think and act more like a start up. Nowadays market share is no longer a predictor of success. Adaptability and flexibility are key elements in order to achieve and retain competitive advantage.

In 2006 the most valuable corporations by market capitalisation were Exxon Mobile, General Electric, Microsoft, Citigroup, BP and Shell. Fast forward 10 years and in 2016 only Exxon and Microsoft are part of the top six. The other spots are taken by tech companies such as Apple, Alphabet, Amazon and Facebook. These are all tech companies.

 

Nowadays it is also more difficult to predict where the competition is going to come from. New entrants are more common due to lower barrier to entry. We also have existing companies that are able to scale in other industries. For example, Financial Services were traditionally dominated by players such as Citigroup, Royal Bank of Scotland, Barclays, Goldman Sachs, HSBC. Thanks to technology that has led to the unbundling of products and services an to their digitalisation we are witnessing the phenomenon of Fintech and players such as Apple, Facebook and Google entering an industry that only 10 years ago has significant barrier to entry and was almost impenetrable.

 

 

 

 

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