Digital Disruption Part 6 of 13

New imperatives for leadership and innovation

This article is an excerpt from a white paper co-authored by Peter Alkema and Dr Jeff Yu-Chen from Gibs University.

The “network effect” is what helps achieve such pace: The more customers join, the more it creates compound benefits for existing users.

Facebook’s early growth was deceptive, but when it started doubling large numbers they became very large numbers.

“Over The Top” (OTT) services such as Whatsapp have harnessed the network effect very well to drive message growth using their “groups feature”, a classic customer intuition that disrupts utility push messaging such as SMS by creating a social experience.

The so-called chasm described by Moore is also a point of discontinuity – incremental improvements cannot create disruption: Think candle to light bulb and horse-drawn cart to Model-T.

Dematerialisation is simply the abstraction of assets into pure services, often in a peer network such as Airbnb, which itself doesn’t own a single bed and is thus extremely “core-asset lite”.

Demonetisation usually follows this abstraction quickly because traditional asset-based business models rely on these assets to make money.

The exponentially-growing base of digitised business customers who call Uber at an airport are quickly eroding the revenue streams of car rental companies whose assets become very expensive, depreciating parking lots of unused vehicles.

The queues, paperwork and car keys have been dematerialised into a slick, expectation-managed, safe transport experience (and time in the back seat to catch up on emails).

The final stage is when the peer network of significant numbers of fully connected people triggers the large-scale democratisation of information.

When Nokia bought Navteq for $8billion they tried to control vehicle movement information.

This company had rolled out physical sensors on millions of road miles in Europe and Nokia wanted to own and include this data in their GPS product.

This would have been an extremely clever product enhancement for their hundreds of millions of customers but they were rapidly disrupted, practically before they even started.

Around the same time, the little-known Waze app had started signing up users to its slick maps and GPS user interface.

Instead of investing in expensive assets, they simply asked their users to agree to send back their own vehicle movement information.

Waze aggregated this data, churned it through algorithms and sent it back to users in the form of road hazards, traffic hotspots and optimal routes.

Achieving all the six ingredients of exponential success meant it was quickly snapped up by Google for $1.1billion, leaving Nokia executives puzzled that the rules of the game had changed – quickly and simply.

Can SA Banks adopt these exponential growth principles?

South African banks are unlikely to achieve exponential growth at an enterprise level, simply because of their size and share of the market which is already established in a mature phase of their lifecycle.

The concepts of exponential growth are more useful in new or existing product lines, a good example being FNB’s offering four years ago of discounted mobile devices bundled with cheque accounts.

The bank outsold the local distributor of iPads in a relatively short space of time, demonstrating exponential and disruptive thinking in a market that needed fresh and innovative action.

It may be that such growth in parts of a business cannibalises product lines elsewhere, but at lower costs and higher profit margins which is beneficial overall.

Executive leadership plays an important role in balancing these internal considerations and recognising how to gain and maintain market leadership.

The FirstRand Group has a strong owner-manager culture due to the entrepreneurial spirit of its co-founders, which means its business units have a high degree of autonomy to innovate and stay competitive.

Internal IT of the large enterprise is also going through an evolution from being an enabler and service provider for business to a partner and catalyst for growth and new thinking.

While typically the Fintech ecosystems and partnerships are being incubated by business, it is the IT departments that understand the most about how Fintech actually works and whether or not certain ideas will really take off and disrupt the market.

Certain IT assets might be strategically important, and architectural principles must be in place to guide investment decisions, but there shouldn’t be holy cows that are protected without sound reason.

The world is moving too fast for vested interests in proprietary vendor tech stacks or specific technology that may delay or prevent teams from betting big or even just prototyping new and disruptive technology.

Collaboration is also crucial so that insight and learnings are freely shared across organisational boundaries; failures should be welcomed as stepping stones to success not reasons for blame and points scoring.

Startups inherently know these unwritten rules; their survival depends on it – but large organisations risk being too comfortable with their size and dominance.

Ideally, each full-function team in a large company should think and act as if they are a business within a broader environment of support and structure.

This is the breeding ground for exponential thinking and the highly profitable growth and success that comes with it.

The pursuit of transformative initiatives leading to exponential growth requires the transformation of the organisation at a deeper level as well as a transformation of the leadership team’s fundamental assumptions.

Changing the mental model to upend the core beliefs becomes the prerequisite step for cultivating new and courageous business model.

Leadership of digital businesses is a complex and contradictory undertaking. Leaders need to adopt different modes of thinking and embrace paradoxes.

The executives of the organisations must suspend their preconceived judgement and demonstrate a strong sense of credulous curiosity towards their customers’ current pain points and the emerging trends.

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