The January/February 2022 issue Harvard Business Review (HBR) contained four articles that argued “many people” were wrong to believe that “old economy companies” are “doomed for slow demise.” However, the articles pointed out that most of these “old-economy businesses” have found ways “in some form or another” to survive digital disruption. The challenge lies ahead for many firms if you look at the larger picture of what it takes to succeed and not just stay. I have summarized the four HBR articles in part 1. Here is Part 2 of my framework for digital disruption.
Definition of “Digital Disruption”
To begin, let’s define “digital disruption.” Digital disruption does not affect “old-economy businesses.”
“Digital disruption” is nothing more than a sign that a new economic age has begun. This transition will be similar to that between the industrial and agricultural ages. The new era results from the combination of exponentially new technologies and innovative management principles that lead to a massive new value. Failure to capitalize on this opportunity can be called “digital disruption.” See Figure 1.
Digital Age Technologies
At least 18 major technologies are considered “digital technologies”. They have the potential for almost every aspect of life to be redesigned. Figure 2 shows this. Anything slow, inconvenient or difficult, costly, unpleasant, impersonal, or expensive can be transformed by digital technologies into something cheaper, simpler, faster, easier, quicker, more appropriate to the user’s needs.
Companies that master the new technologies and apply the superior management principles have already changed many aspects of our lives. These include how we work, shop, communicate, play, read, entertain, and in general, how our lives are lived. We have spoken through our actions as consumers. The money is more profitable for firms, as many have proven. There is no way back. This is the way of the future.
The Management Principles Of The Digital Age
The potential of new technology is still unknown to most firms. It’s partly because technology is often not well-known to top executives, especially at the top, and partly because many organizations have not successfully transitioned to new management methods.
The management concepts of the prior (the industrial era) involved mass production and mass distribution, mass consumption, mass education, mass media, Mass recreation, and Mass entertainment. These elements were combined with standardization. Centralization. concentration. And synchronization. This is what we call bureaucracy. Although bureaucracy has brought many incredible benefits to humanity over centuries, it’s not agile enough to exploit new digital technologies. Additionally, by treating humans as machines, bureaucracy has dehumanized the workforce.
Figure 3 below shows the management principles of the digital age. Instead of starting from what the business can produce to sell to customers, enterprises look backward at customers’ needs before figuring out how to make them sustainable. Leadership, which is found at the top of the company and a passion for creating new value for customers, is fostered throughout the organization. Staff across the organization create value with their short cycles of creativity and use of their capabilities, rather than being controlled by bosses. Rigid hierarchies of authority should not restrict firms. Instead, they need to function in interconnected networks of competence where ideas can come from any source, even outside the company. These are fundamental changes for most firms.
Firms that master the new management principles can be more efficient, more effective, more understandable, more productive, use more resources, attract and use more talent more effectively, win more customers and enjoy higher market capitalizations than those that were run according to industrial-era methods.
These are not individual companies being toppled. Something more profound: The core management tenets that characterized the industrial era are being renounced. This is a new era of individual creativity, innovation, and ingenuity.
The transition from the industrial era to the digital age of management is happening at different speeds in different sectors. Like any exponential transition, changes tend to occur gradually and then suddenly. Stasis may conceal impending shocks.
However, if one or more principles are not fully adopted or are ignored, even advanced digital-age firms may return to industrial-era levels. Both technology and management are necessary: digitalization without different control usually makes little to no difference.
A Better name for the Digital Age
The most commonly used label for the new era of technology is “the Digital Age.” However, it can be misinterpreted to mean that the digital age is not about new technology. Figure 4 lists 13 alternative labels.
Each label covers a specific aspect of the digital age. The “digital age offers three key benefits.” The new age impacts everyone. Second, it’s already the most widely used label. Third: Most firms want it: They are trying to implement digital transformations.
The Digital Economy
However, not all aspects of the new age are positive. Like any fundamental change, the new era can cause harm to those who don’t want or are unable to embrace it. Some large corporations have abused their market power and made other errors.
Society still struggles to see the cost-benefit ratio. It is vital to have a framework that provides a consistent picture to make a balanced assessment. New regulations for the digital age are needed. This framework should also include clear rules for digital commerce and redressing any missteps. Regulators shouldn’t be afraid to criticize the digital winners. If the digital winners are smart they will take steps for self-regulation.
A Digital-Age Framework
If firms refuse to embrace the principles of digital innovation in an age of rapid change, another firm will eventually take them out of business. It is becoming a more common occurrence for old industrial behemoths to go bust. They are surviving, but they aren’t thriving.
Large firms will need to undergo significant change. This will take some time. It requires renouncing established systems, methods, practices, values, attitudes, and approaches that were successful in the industrial era. It involves senior executives learning, internalizing, communicating, and communicating new ways of operating. It requires adapting technology and management to the specific context of each company. Copy-and-paste directives don’t work. Although consultants are helpful, it is not enough for the top leaders to live and breathe the new operating style.
Firms must learn new capabilities if they want to survive and thrive. There is no reason they should fail if they fully understand the requirements. It is not the pain they feel when they are making the transition. It is a pain that comes with being born.