The role of the CEO is changing, as Digital Transformation becomes a key focus for companies competing in a world defined by Big Data and the Internet of Things (IoT). Smart CEOs are ‘going back to school’, learning about potentially disruptive technologies, like blockchain and machine learning. Reinventing the corporation is the new imperative.
The Fourth Industrial Revolution (4IR) is set to forever change the world of business, and South Africa can unlock the prosperity it brings — but only if leaders see this watershed event as an opportunity, not a threat, and gear themselves to liberate business potential by redefining their role. But before I go into this, let’s scope out what this new industrial revolution will look like.
One of the main drivers of 4IR, especially in data science, is the Internet of Things (IoT). Multiple connected devices, providing ongoing data streams that can be measured and analysed, provide value in many areas. In a survey carried out in 2017 by McKinsey, enterprises rated manufacturing and service industries as the departments with the most to gain from IoT.
In manufacturing, top use cases cited by respondents in the survey were resource and process optimisation, asset utilisation and quality management. In service industries, respondents said that enterprise IoT would produce the most value in three areas: diagnostics and prognostics, predictive maintenance, and monitoring and inspection.
Michael Porter, of the Harvard Business School, believes that the world of smart, connected devices represents a fundamental, and seismic, shift in how enterprises compete. IoT isn’t simply a matter of competitive advantage, says Porter, it’s critical to survival. John Chambers, of Cisco Systems, predicts that 70% of today’s businesses will attempt to transform themselves digitally, but only 30% will succeed. The result? 40 percent of today’s businesses will fail, Chambers predicts.
The trend to digital is reflected in the megatrend of the past two decades on the S&P 500. In 2000, the top four companies by market value were industry leaders General Electric, ExxonMobil, Pfizer, and Citigroup. Now, the top four are digital platform companies Apple, Alphabet/Google, Microsoft, and Amazon.
According to a new study of turnover in the S&P 500, conducted by the growth strategy consulting firm Innosight, the lifespan of large, successful companies has never been shorter. In 1965, the average tenure of companies on the S&P 500 was 33 years. By 1990, it was 20 years. It’s forecast to shrink to 14 years by 2026.
Having made the case for digital disruption, you may ask: ‘What do I do to ensure my company’s survival?’
If you’re concerned or confused, you are not alone. In a 2017 survey by Innosight that measured the strategic readiness of corporations, executives showed great awareness of the implications of these disruptive trends, with 80% of respondents indicating they believe their companies recognise the need to transform. But the survey also found that most leaders see future competition coming from existing players, rather than new competitors, and this is a patent error: one hallmark of transformation is that entering new markets requires you to serve new customers and go up against an entirely new set of rivals.
This is a reminder of an important general business principle: no enterprise can survive in the long term without constantly reinventing itself. Leaders need to be focused forward — looking for what the report calls ‘fault lines’: the weakening foundations in your business model, or the shifting needs of the customer base.
In retail, this has become alarmingly clear. This sector has seen the most casualties in terms of companies dropping off the S&P 500. US online sales now account for about 13% of the $3.56 trillion in total retail sales, according to Forrester Research. That is forecast to rise to 17% by 2022. And while many of these traditional retailers have responded by offering their own online retail channels, this is often not enough, as smaller, and more nimble online-only retailers can undercut and survive on smaller margins.
Clearly, digital disruption is a business leader’s greatest challenge, but as many as 40% of respondents to the Innosight survey admitted that ‘day-to-day decisions’ undermined their ability to embrace transformation. Another major reason given for failure to transform was ‘lack of coherent vision for the future.’ All of which indicates that Cisco’s Chambers may be a voice to listen to.
“Either we disrupt or we get disrupted,” Chambers said at his final keynote address as CEO.
To be competitive, you need to become more efficient, and this means digital transformation. It can start with sensors built into machinery, and continue up the value chain through stock control, logistics, finance and HR. Making the business smarter, more nimble and more efficient.
The big change for leaders? You need to embrace change, and drive it in your organisation. It begins with creating a visionary purpose for the enterprise: a detailed blueprint for where the company needs to change and move. Don’t settle for tech ‘fads’ or quick-fix consultants, but take time to look at the big picture and learn from the pioneers who have taken their companies digital and prospered.
 Michael E. Porter and James E. Heppelmann, “How smart, connected products are transforming competition and companies.”