Digital adoption stymied by traditional business values: Deloitte

A digital strategy rarely looks good in a traditional business case, but companies must invest in it before it's too late, according to Deloitte.
Written by Spandas Lui, Contributor

Organisations need to stop obsessing over how much money they can make by going digital, and just do it before it's too late, according to Deloitte.

The professional services firm estimates that the internet will directly contribute AU$70 billion to Australia's GDP by 2016, up AU$20 billion from 2011. Having a digital presence is no longer something companies large and small can ignore.

But large incumbent companies across all fields seem to be stuck using old methods, such as validating every project with business cases and actually doing things through project-based processes, according to Deloitte. This doesn't work when it comes to adopting a digital strategy, Deloitte partner Steve Hallem said.

"A lot of the stuff in the digital world doesn't stack up in a business case — you actually have to start building some of these capabilities incrementally to be able to operate in a digital world," he said at the launch of the firm's Taking Leadership in a Digital Economy whitepaper, which was done in conjunction with Telstra. "It's better to start now and try to built that momentum, rather than waiting around for the perfect business case to come along."

Incumbents need to change the way they measure value. Rather than thinking about how digital offerings will effect balance sheets, they should be thinking about how these offerings can create value for customers, Hallam said.

"Many companies think they can package up the same offerings they have in an offline world, and push them into the online world — that hasn't worked and you can't do that," he said. "The hard part is often the new business model you get disrupted by or substituted by has a lower profit margin.”

"You need to weigh up today's higher margin business versus tomorrow's lower margin business model, and if you wait too long, you actually don't have the cash to inject into looking at those new models, then you're stuck."

With high smartphone and broadband penetration, as well as a penchant for gobbling up new tech gadgets, Australia has a strong base in terms of having a vibrant digital economy. Yet, in sectors like retail, overseas giants still dominate the local players in the online space.

The largest e-retail sites in Australia are eBay and Amazon. Local retailers have been slow to react to the climate of globalised competition, Hallam said. Last week, Australian retailers made a concerted effort through a Click Frenzy sales event as a way to combat the onslaught from overseas online competitors. After a massive online outage, the event organiser still claimed thatClick Frenzy was a success, but scepticism remains.

But companies, such as those in the retail space, shouldn't rush into building new digital capabilities when they haven't even made their core business more efficient, Hallam said.

An example of this is Telstra, which is tipped to save AU$100 million in operational expenditure this year through an internal digital initiative, according to Telstra Digital head Gerd Schenkel. The telco will then invest part of the savings into building new digital capabilities that will benefit customers.

Another way incumbent organisations should approach a digital strategy is through building continual momentum, that is, to scrap project-based deployment of digital offerings and instead make ongoing improvements, Hallam said. This method, he said, gives companies more agility when deploying digital goods and assists in faster business decision-making.

"Incumbents are better at incremental distributions, compared to start-ups," Deloitte technology partner Stuart Johnston said. He used Apple as an example of an incumbent company that continues to disrupt the technology market with new and incremental innovations.

"Incumbents can be disruptors. They just have to think very differently."

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