THE DIGITAL TSUNAMI 3.0

Directors – is this your Kodak moment?

Let’s replay the key themes from my first two Digital Tsunami blogs, to set the scene for what comes next:

  • The first wave of disruption from 2000-2010 affected industries such as music, cameras, above-the-line media, travel and telcos.
  • Some companies think that because they survived the first wave, they are now to some extent be future-proof. Not so.
  • By 2020, half the planet will be connected to the web. Four billion people will own smartphones and one billion homes will have wi-fi. There will be 50 billion connected devices and 100 million connected cars.
  • The smartphone, the Internet of Things, the Sharing Economy, 3-D printing, the Cloud and Big Data will together create massive new industries – with 2020 revenues predicted to be double those of IBM, Apple, Microsoft, Samsung Electronics and Google today (I’m sure there’s some double counting in there but you get the point…)
  • As John Chambers from Cisco recently said, in the next decade the Internet of Things will be 5-10x more impactful than the entire Internet has been thus far. Ouch.
  • Profound changes will come, with blinding speed. You will share more and more assets rather than buying them, affecting consumption. Sooner or later, you’ll print things on location, disrupting manufacturing and logistics. Connected devices will provide your business with unprecedented levels of data that you’ll use to optimise your value chains and create unthought-of-efficiencies. Companies that don’t invest will become uncompetitive.
  • 80% of today’s 100 largest companies will be outside the top 100 within 30 years. Some household names will go out of business or shrink. A legion of new companies will emerge and will make vast amounts of money as others are displaced.
  • The world will be run by Gen X and Gen Y digital natives. 60% of their jobs haven’t even been invented yet. New skills will be required at all levels. Legions of people will need to retrain – like the blacksmith and the steam engineer before them, they will be ill-prepared for the future. There will be huge growth in knowledge industries. Education systems will need to change.
  • Some of the current wave of disruption we’re seeing is fueled by loose monetary policy, spawning a legion of start-ups which would not necessarily see the light of day in a more conventional environment. At some point the cycle will turn and the free flow of money will stop. But for now it’s fueling the flames of disruption.

Clearly a vast transformation is upon us. More and more Nokias and Kodaks, unable to change, will be left behind. There will be clear winners and losers. Your company will need to disrupt or it will risk being disrupted.

In order to play this game you cannot sit still – you need the goods to implement it: a strategy, the capital and above all the institutional will. However, I’m really concerned that our large companies just aren’t ready for this. Let me explain.

Situational awareness is the start 

Profound change in any organisation requires both leadership and grass roots buy-in.

Situational awareness is the starting point. Leadership needs to spend time in deep thought, observing and engaging with people who understand what the future holds. To do that you need to rise above the day to day noise and clutter in your business.

Above all, once you have a basic knowledge of the threat and the opportunity facing your business, you must engage with your Board of Directors to make sure they too have situational awareness and buy in to the need to act quickly.

If you don’t bring your board along, you either won’t get the budget you need to transform, or they’ll pull the rug from under your feet when you hit your first road bump. And believe me, these processes contain many road bumps.

Very few companies are even slightly prepared for the Digital Tsunami.

The trouble is, when you raise the subject of digital disruption, boards tend to look at you through glazed eyes. Your Directors were, by and large, born before Toffler’s third wave  was even conceived. They just aren’t that computer-savvy and they aren’t trained to deal with these issues. They may be people of great intellect, character and expertise – but that isn’t going to be enough.

To prove the point, my colleagues and I have been researching the governance of the largest companies in Hong Kong, Singapore, Australia and New Zealand. We’ve taken the top 20 companies in each market by capitalisation, we’ve categorised them by industry and we’ve reviewed their Directors’ bios to take a guess at whether they have the right skill sets to deal with digital disruption.

To do this we’ve reviewed their LinkedIn profiles – and where Directors don’t use LinkedIn (a surprising number!) – we’ve looked at their bios from annual reports. In all we looked at 80 companies and the CVs of 800 directors. And we asked around. Lots and lots of questions.

While our process is clearly subjective and therefore open to interpretation, the results provide a sobering wake-up call:

  • Only 10% of board members have any formal technology qualifications or, at face value, relevant business experience. I’d call very few of them digital natives.
  • If you strip out telco and tech companies (because they’ve stacked their boards with tech-savvy professionals), the percentage drops to <5%.
  • It gets worse. Around 2/3 of non tech and telco companies have no-one on the board with obvious tech expertise. Yes, you read correctly! Zero. Nada. Zilch.
  • Very few of the directors on mainstream boards have ever experienced digital disruption first hand – on ether side of the ledger. They won’t know what to look for, and they certainly won’t know what to do when the Digital Tsunami hits them.

This isn’t the time to be learning. To use a sports analogy, it’s the time to field your strongest team. Time to get onto the field of play quickly and with winning intent.

What to do about this? 

It’s the defining question for many companies today.

Each situation is clearly different. I suggest you start by raising the importance of disruption on your company’s strategic agenda. Speak to your management team. Speak to your Chairman. Recruit at least one digital native onto your board. Get a digital mentor for your management and Board. Identify what the precise implications could be for your industry. Look for early signs from other markets.

Whatever you do, get it on the Board agenda, and win over your Chairman. If you don’t, your future could well look more and more like Kodak or Nokia.

Disrupt, or be disrupted.

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