This is a little rough – and no-doubt contains my usual mix of typos and unfinished sentences…but better out than in, as they say.
Time after time in recent weeks, I’ve been speaking with people in different businesses and sectors – all facing digital disruption in one form or another, and all grappling with similar issues. How do we launch something new without losing sight of our core business? Should we use our brand? Our existing teams? Should we integrate or separate? I’m not sure there’s a ‘right’ answer to any of these questions – but I’ve started to think of it in slightly broader terms.
My theory is this: The only way for an incumbent to survive being digitally disrupted is to think 90% transformation, 10% innovation.
What does this mean? Well, put simply: once your core business is being disrupted, once the rules of the game are being fundamentally changed, it isn’t going to be enough to do something smart on the side. Only a radical rethink of the business is going to work.
It might not be where you start – but it is definitely where you have to head to. This is especially true if you have left it too late: and the unfortunate truth of real life is that everyone always leaves it too late.
Innovation is great – but it’s not enough
Innovation is exciting and essential. Every so often, someone comes up with something innovative that takes a company to a new level: The iPod. The Mach 3 razor. Post-it notes.
Without some level of innovation, businesses just stagnate, intellectually as well as financially. So, don’t get me wrong, I’m all for innovation. In the digital world all the more so.
It’s just that when your core business is being structurally challenge at the pace and severity that the internet tends to work at, you instantly find that no matter what neat thing you’ve got cooking up on the edges it’s just not going to be enough.
In some cases it is short term maths.
I did some of the numbers on this when I took a quick look at Archant – a UK newspaper group with small but rapidly growing digital revenue. You’re losing, say three pounds for every pound you gain; or you’re having to invest more to make the same – so something is going to have to give.
But this bit of number crunching isn’t always the case – some media businesses, particularly those in classified markets that attacked the net early are showing net growth. Pages Jaunes in France, for example saw total revenues rise a respectable 4.6% for the first half of this year, with a 23% increase in internet revenues more than making up for a 3.6% decline in their core print business. They are not alone here.
I think they call it ‘leverage’
For a business like this however, ‘doing enough’ isn’t just about the numbers – it means not just having a neat digital bit and as good a traditional business as you can given the circumstance. It means making sure that you’re putting the full weight of our brand and resources into the future of your business.
This is important for two reasons. First because your key competitive advantage is your existing business. Unless you are building on that, and making use of the best bits of it, you are disadvantaged against disrupting competitors who are by their very nature nimbler and quicker.
The other reason is that there is no point charging ahead digitally if you leave your core business behind.
This is one of the problems that happens when people launch newly branded spin off businesses. Take Abbey National launching Cahoot for example.Cahoot launched quickly – it was a lovely cuddly web-friendlynew brand. Launched much faster than anything possibly could have been from within Abbey National.
Great. But the problem? What about all of those Abbey National customers who didn’t want to bank with something called Cahoot – they just wanted to stick with Abbey National but bank online? In other words, the challenge isn’t about launching something new – but transforming the core.
The big idea vs the three point plan
The final aspect of ‘doing enough’ – is probably the most important – which is having an overall integrated vision for the future of the business – a clear understanding of the role it is going to play in your customers lives (and budgets).
Another way of putting this – as others have said, is that having a ‘digital strategy’ is not as important as having a business strategy with a digital aspect running through it.
I have lost count of the number of three point plans/ strategy presentations I’ve seen recently from businesses in different sectors that go as follows.
1. Accelerate digital growth
2. Stabilise the core business
3. Reduce costs across the board
I’ve attached one from HMV c. 2007, but there’s a lot more out there once you start looking (HMV .pdf here).
There is nothing wrong with these actions - On a similar HMV slide from another presntation they at least have the big bubble – Transforming HMV…although it would be just that bit more credible if they explained what they were transforming from and to.
For example, they might well launch a social network, they might revamp their website for the umpteenth time and revamp their stores, but the only way that business will really work is if they manage to find a role for the business as a whole in a world of Amazon etc, and where Verdict predicts that 60% of the music and DVD market will be online by 2012.
My favourite bit of integrated retail transformation is Argos. By rights their form of catalogue based retail should by now be dead. Maybe they could launch a website, but that would simply make them a second rate Amazon (without any books…but you get the idea).
Instead, they’ve used the web – and the phone - to make shopping with Argos a better experience all round thanks to their Check and Reserve it functionality where you can reserve online or by phone (either call or SMS) and then just go to the shop to collect.
The result? According to their latest results (.pdf here) the internet now accounts for 21% of sales and Check and Reserve is growing at 50% a year. In all 37% of sales are multi-channel.
I suspect purists might say the internet has been an ‘enabling’ technology for Argos rather than the sort of disruptive presence HMV has found it. That is true
Yes, but you still need 10% innovation
The kicker in this argument is that some businesses would rather have 100% transformation and 0% innovation. The point is – everything starts with innovation. It’s where the business learns. But, almost from the start you need to think about how this can be used to transform the core business.
In other words – it’s ok to have something away from the core or off brand – but if it stays there, it is depleting value, rather than creating it.
And the innovation never stops.
But what’s all this got to do with newspapers
Well – I’ve deliberately set out on this blog not just to write about newspapers – so perhaps I’ll just leave it here for the moment – and come back to what this means for newspapers in another post.
Filed under: Innovation, Retail | Tagged: argos, hmv, Innovation, Retail, Transformation | 4 Comments »