The very best years for building tall ships were not during the buccaneering age of pirates and privateers. Instead, they followed the introduction of the steam engine — a coal-fired innovation that supercharged the transformation of commerce on the high seas.
Before then, merchant vessels typically spent anywhere from 40 to 100 days making the crossing from Liverpool to New York. But in 1838, the steamship SS Great Western made the trip in 15 days, rewriting the economics of international trade.
It’s an analogy Jens Monsees, the CEO of WPP ANZ uses to illustrate the folly of applying legacy business models in a digitally disruptive age.
- Further reading: COVID Triggered A Decade Of Digitisation In Six Months, Says McKinsey
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Monsees is 18 months into a transformation program involving the company’s 4000 staff who work across 60 businesses and serve over 1500 clients. He, like other CEOs, needs to navigate the challenges of accelerating change.
And he has to do so while weathering the COVID-induced recession which trimmed revenues from $840 million to $730 million between 2019 and 2020.
Now, however, with the economy rebounding, Monsees may get to enjoy the results of his investment in new ways of working.
Leaning further into the analogy, he says the reaction of incumbents at the time was “Let’s build another mast. So they soon had five masts on these beautiful sailing ships.”
But in reality, they were already doomed.
The heart of the problem was a lack of imagination and a desire to entrench personal prestige instead of innovating for the customers’ benefit.
“The leaders, those guys at the top of the food chain with all the power, would tell you it was crazy to make a fire on a ship.”
This tension from the pages of history — between incumbency and insurgency — is playing out again in the age of COVID, according to Monsees. “I think this tension needs to be addressed and in a better way.”
While there’s evidence that a growing cohort of business leaders recognise a new reality, it’s just as certain that others will reach for a sixth mast.
The Great Experiment
CEOs we spoke to in preparation for this report describe the experience of the last year as one where COVID rendered business-as-usual untenable.
According to Craig Scroggie, the CEO of NextDC, a data centre operator with a market capitalisation of $4.8 billion, “It was incredibly challenging for a lot of industries. Airlines, hotels, hospitality, the arts industry, anyone that required physicality in order to deliver their services to ensure that society could function.
“They were immediately impacted,” he says. “And in most cases, they were not prepared. But people were able to continue by adapting and pivoting their businesses. If you were a restaurant, you went to take-away or you didn’t survive.”
Scroggie, whose business provides the digital bedrock on which other companies transform, describes the last 12 months as the single greatest work-from-home experiment in the history of the world.
“We’ve never seen such a significant transformation of how we work and how we live in such a short period of time [with] the remaking of industry and the remaking of commerce that has gone on in the last 12 months.”
After two decades of digitalisation, the underlying infrastructure was in place to help businesses, and the wider community, move from a physical world to a virtual world quickly, he says.
“That enabled us to continue to work, to be paid, to support our families and do the things that we needed to do to continue as a society. That was only possible because of the underlying digital infrastructure that was in place.”
Most legacy infrastructure would simply have buckled under the pressure, he says.
“Can you imagine if you put a ten-times demand on a power station or ten-times demand on a freeway or on a port or on any other traditional infrastructure? The internet was able to de-prioritise some services and prioritise others.
“Digital video, online shopping, e-commerce, all of those platforms and services allowed the world to make a reasonably seamless transition to a completely virtual world. And we managed through that COVID environment in a way that was incredibly powerful.
There, in the data
The 24th annual global PWC CEO survey released last week demonstrates how embedded the new thinking of digital acceleration has become.
The authors of the study reveal a critical mindset shift for CEOs, compared to the last great global challenge: rather than deploying technology to garner incremental savings, businesses used COVID as the impetus to transform.
“Today’s digital focus contrasts with the situation in 2010, after the global financial crisis, when the biggest investment priority for CEOs in our survey was gaining cost efficiencies.”
The report says that the rapid acceleration of many companies’ digital transformation programs during the pandemic are are not slowing down.
According to the authors of the study, “Nearly half of CEOs plan increases of ten per cent or more in their long-term investment in digital transformation.
“Paradoxically, despite the level of concern CEOs registered about cyberattacks, just under half of those planning for heightened digital investment are also planning to boost their spending on cybersecurity and data privacy by ten per cent or more.”
PwC also observes that there is a surge in the adoption of advanced analytics and artificial intelligence (AI) to inform decision-making. “Partly as a result, the gap between AI leaders and laggards is widening, according to PwC research. Companies on the leading edge are more deeply embedding AI in customer-focused applications, back-office applications, and risk management — while addressing algorithmic bias so that stakeholders trust the outputs.”
The report identifies how an increasing number of CEOs want to boost competitiveness through digital investments in the workforce — “36 per cent per cent aim to focus on productivity through technology and automation, which is more than double the share of CEOs who said the same in 2016. Anecdotally, CEOs in a variety of industries have told us about their plans to incorporate or expand their use of automation.”
Redwood City based Box in California is one of a clutch of workplace productivity companies, along with businesses like Zoom and Slack, who are benefiting from the pandemic-induced digitalisation of business process.
CEO Aaron Levie, who has watched the company’s share price surge from $US9 to almost $US23 over the year, says he saw three distinct phases in his clients’ responses to COVID.
He told Which-50, “Initially, there was this instant push to remote work, that covered a three to four months period. Most of what we were doing was really helping our customers with their crisis response.”
Typically that involved helping customers move into a remote work environment [so staff could] work from anywhere, be able to access their files from the Cloud — that was the core focus of that period.”
That drove healthy growth for Box, but that growth was tempered by the negative impact on the small business segment, many of whom cut spending during that time.
During the second phase, Levie says companies were adapting to the new environment while figuring out whether they could grow through this event.
They needed t to understand how to manage for a slow down, what it meant for headcount, and the consequences for supply chains and other operational issues, Levie says.
By the fourth quarter, however, the recovery was underway, and that coincided with evidence of accelerated digital transformation as companies came to recognise they had to bet big on digital over the long run.
It was around this time also that McKinsey and Company came out with a report saying that in the first half of 2020, its corporate clientele on average experienced the equivalent of seven years of transformation in just six months.
Levie says he started to notice that the nature of the customer conversations during this time was changing.
Companies started to ask themselves questions like: how do we transform our business process; how do we transform how we work with our customers; how do we change some of the underlying business models?
Box itself made a bet on that change, buying into the digital signatures marketplace through its $55 million acquisition of SignRequest. “We decided to get into the signature space because we saw that the digital acceleration was moving from [being about] just remote work to fundamentally [being about] our customers changing their business processes and the business models.”
CEOs like WPP’s Monsees are clear in their belief that Australia’s business leaders have no option other than to embrace the forces identified by industry leaders like Levie and Scroggie.
“If we want to keep our wealth and our fantastic lifestyle, we need to face global competition. More and more that is coming from an Asian perspective, but it came a long along already from a Silicon Valley and from Europe.”
Monsees says he worries that even with a very strong financial service sector and a strong strong retail sector, Australia might be about to miss a crucial competitive moment. “We need to transform rapidly now, and face that competition because otherwise, we are falling behind and will be left behind.”
“Everything is changing” he says, though he is skeptical about the ability of many boards to respond.
“In Australia, we don’t have that many digital-savvy board members or CEOs,” he told Which-50.
To lay out the business model and the future strategy you need a very good understanding of information and digital technology he says.
“Otherwise, it’s like you’re colourblind and talking about the rainbow.”
CEOs must lead the transformation, he argues. “You can’t say I delegated it to my Chief Digital Officer or to my CIO, you need to know what technology nowadays is offering. That’s one of the biggest hurdles.”
He is not alone in that assessment.
Former Amazon Web Services and Microsoft executive Shannon Nixon, the founder of digital transformation consultancy Ko-lab8, says we have arrived at the “Emperor has no clothes moment” for many organisations.
“Many companies who thought they had done transformation programs really didn’t, or they thought they’d been successful at it, but it turned out that things weren’t working the way that they thought they were.”
They realised that they need to accelerated what they’re doing, she says — a problem that was compounded by COVID.
Now, despite years of ever-growing technology investments, many business leaders still feel they are stuck on the starting blocks
Nixon describes a call with an executive in Europe working for a global conglomerate.
“They had had a multitude of firms consulting in there over the years. We were talking about what they were trying to achieve as an organisation or why they’re going down the path of transformation.
“He stopped and said, ‘I don’t even know where to start. What skills do I need?’ And I sat there and thought ‘I’ve been hearing the same question for years.’”
With strong results reported around the world from the first wave of vaccinations, confidence in returning for many businesses. That’s especially true for a country like Australia, which is experiencing an impressive rebound in business and consumer confidence.
The country is on track to experience the mythical V–shaped recovery — if it can keep the COVID wolf from the door for a few more months while it cranks up local vaccine production and distribution.
Consumers and office workers are returning to the city, home buyers are once again driving strong price growth for residential property, and in cities like Sydney and Brisbane crowds are returning to restaurants and cafes.
Apart from digital check-ins and compulsory mask-wearing on public transport, there’s a misleading calm that could fuel a disastrous complacency, since the danger has not really passed.
Australia’s business leaders would be well-advised to apply the same principle to transformation.
Although life is returning to normal, we don’t yet know what normal means.
NextDC’s Scroggie, for one, believes the next normal will not resemble the last one.
“I don’t believe that offices will ever be used the way they’ve been used historically. Real estate will still be needed, but it will be used very differently,” he says.
“Public transport, interstate travel, let alone international travel, will be forever changed.”
It’s really a massive adjustment, he suggests. “Ultimately the underlying driver of digital services will enable us to make the shift.”