Entrepreneurs that have been in business for a long time find it difficult to innovate regularly in order to compete effectively with emerging technology trends.
As a result, new businesses managed by young entrepreneurs often catch up with and surpass them by utilising technology.
A recent report by the World Economic Forum has identified cheaper and better technology that traditional businesses can utilise.
It says that there are eight billion devices connected to the Internet and that by 2030, it is expected that there will be one trillion.
According to the report titled, ‘Digital Transformation of Industries,’ the combined use of technologies, such as mobile, cloud, sensors, analytics and the Internet of Things, are accelerating progress exponentially.
It points out that there are misconceptions as regards the implementation of digital technology. It says most people think that digital disruption will lead established organisations into bankruptcy or that digital is just a back-office issue focused on achieving operational efficiencies.
The WEF report notes that a third misconception is the belief that companies can implement a successful digital transformation simply by launching a digital business unit and hiring a chief digital officer.
It says that before an effective strategy for digitalisation can be developed, all the myths have to be discarded, adding that incumbent firms will need to transform themselves into digital enterprises to thrive, and this transformation will need to be far more profound than merely investing in the latest digital technologies.
As result, companies will need to search for new business models, fundamentally rethink their operating models, revamp how they attract and foster digital talent, and consider afresh how they measure the success of their business, it explains.
Digital business models
The report says traditional businesses that are aspiring to become digital enterprises face two main challenges; first, the business model that served them well for decades has been disrupted by digital innovation and no longer works as desired and second, attempts to create new, viable business models for the digital age will flounder unless a company is willing to disrupt itself.
According to WEF, a lack of creativity to identify radically different business models, and insufficient decisiveness to commit resources to experiment with new models are other obstacles.
Digital operating models
In order to keep up with digital innovations, the report advises many traditional businesses not just have to change their business model but also deliver that business model by re-examining every aspect of their operations.
According to the report, leaders are already making these changes, with 90 per cent of organisations saying that they have significantly adjusted their operations or are planning to do so.
“Profits are increasingly shifting to asset-light, idea-intensive industries that revolve around intangibles such as brands and software, such that capital-intensive industries are witnessing a decline in margins. A recent study reveals that the profit share of asset-light companies in the West has increased from 17 per cent in 1999 to 31 per cent today, pointing to a migration in value toward more idea-intensive companies,” it adds.
Digital skills and talent
It observes that a skills crunch is making the challenge for enterprises of attracting and retaining the right talent more pressing than ever.
Critically, in the coming years, millennials will represent a major source of talent who has the skills that are needed. However, it will be a daunting challenge to attract and retain them, the WEF report states.
Citing a survey by Deloitte, it says that millennials feel that businesses are out of touch with their personal values, for example, by focusing more on profit than social good.
According to a WEF survey, there are three key things millennials are looking for from their employer: career advancement (48 per cent), company culture (38 per cent) and training/development opportunities (32 per cent).
It adds, “To make the challenge harder, organisations now have to recruit and operate with greater transparency. Peer-to-peer reviews allow more insights into the inner workings of an organisation. Employees, particularly millennials, do not want to work for organisations that are badly rated.
“A successful strategy for recruiting and retaining talent stands or falls on the support it receives from leadership. The impetus to set, develop and foster this digital culture has to come from the top. Yet relatively few companies make the radical changes to their boards and leadership that are needed.”
Digital traction metrics
The report notes that many companies have discovered that traditional financial key performance indicators are no longer effective at measuring the success of a digital business.
It suggests that enterprises unable to measure the success of their digital initiatives should be turning to digital traction metrics, which provide insights that go beyond the information on a company’s 10-K statements.
According to the report, high levels of digital traction can benefit a company’s performance in a number of ways. For instance, a high net promoter score would mean that the cost of marketing falls to zero and, in the case of a peer-to-peer business model, service costs could also approach zero.
It adds that digital traction can enable companies to increase their valuation because digital enterprises have more scalable, more highly engaged customers than traditional, analog companies.
