The Darwinian theory of natural selection holds that It Is not the strongest of the species that survives, or even the most intelligent, but the most adaptable.
It’s the same in business: the companies that will thrive in the digital economy are those that are best able to respond to its demands – in particular, the shift to a consumer driven marketplace.
As Bill McDermott, SAP’s chief executive, noted this week, “the digital economy is disrupting businesses, industries and entire value chains. The proof is everywhere, from how we use technology and data as consumers, to how cutting-edge businesses are reshaping the consumer marketplace."
“Anywhere we look – sports, healthcare, manufacturing, finance and government – digital transformation is a pervasive force. Our customers are increasingly facing a difficult choice today: they either adapt or they die.”
The evidence for this is all around. In just the last 15 years the media, publishing and advertising markets have been reshaped by online giants like Google, Yahoo and Amazon, the cable TV and video markets have been up-ended by streaming services including Netflix and the market for recorded music has been shaken to its core by upstarts like Spotify.
Hardly anyone buys physical maps anymore and sales of personal navigation devices and digital cameras have plunged as consumers tap into the astonishing capabilities of their smartphones. The smartphone market itself provides a textbook case study in the dangers of complacency and failure to adapt.
Less than 10 years ago Nokia, Blackberry and Motorola dominated the market for high end feature phones and smartphones. Today, Nokia is out of the market entirely, Motorola is owned by China’s Lenovo and BlackBerry is struggling to survive – a shadow of its former self.
Meanwhile new digital leaders are emerging to shake up traditional, staid markets like banking (PayPal), hotels (Airbnb) and even taxi service (Uber and Lyft). The automotive industry is being disrupted by Google, Tesla and Apple and software is replacing steel and other hardware in connected and self-driving cars.
Industry boundaries are blurring. Embedded software is changing everything. Smart executives know the world has changed, but aren’t sure how to respond. Research shows 90% of CEOs believe the digital economy will have a major impact on their industry. But only 25% have a plan in place and less than 15% are funding and executing a digital transformation plan.
This digital transformation is being driven by a set of technology mega trends including mobility, hyperconnectivity, super-computing and real-time big data analytics, cloud computing and social. The resulting pace of change is staggering. In the next 10 years it is estimated that 40% of the S&P 500 will no longer exist if they fail to keep up with these technology trends and recognize that the world has changed.
In the new digital economy, every company is a technology company and every company needs to embrace change before new digital competitors emerge – even if it means cannabalizing their existing operations . As Andy Grove, Intel’s former ceo, noted, "Business success contains the seeds of its own destruction…..Success breeds complacency. Complacency breeds failure.
Today consumers are in the driving seat and they expect a new type of experience: one that is frictionless, where commerce is seamless, and where technology is invisible. One that makes their lives easier.
Significantly research shows that companies who have embraced the digital world and execute on their digital strategy register real gains in shareholder and stakeholder value. Typically they boost revenues by 9% , increase profitability by 26% and gain 12% in market valuation.
But companies also need to address another key issue: complexity. “Complexity is the most intractable issue of our time,” says McDermott. He describes it as “an epidemic of wide-ranging proportions, affecting our lives, our work and even our health. “
Complexity also exerts negative pressure on the collective bottom line. The 200 biggest companies in the world lose over 10% of their annual profit because of complexity – over $237 billion. As a result, productivity growth in almost every advanced economy is slowing or declining.
Business technology companies, including SAP, have a unique role to play in helping their customers reduce this complexity, foster innovation and respond successfully to the special challenges of the digital economy. If he were around, Charles Darwin would approve.
SAP’s digital framework – outlined last week in an internal memo from Bill McDermott –underscores the importance of this task and represents the next step in SAP’s own transformation.Learning from the Dodo
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