Leading Digital Strategy

Driving Business Growth Through Effective E-commerce

Christopher Bones, James Hammersley

• Publisher: Kogan Page
• Year: 2015
• ISBN:
  9780749473105
• Edition: 1
• Topic: Business
• Subtopic: Digital Marketing
• Index: Business

For a business to thrive competitively in today's marketplace, it needs to have an effective e-commerce channel. Getting it right opens up new markets and opportunities; getting it wrong leads to declining revenues and profitability. To ensure effectiveness, business leaders and decision-makers must understand how e-commerce channels work to make the best strategic choices for their business. Drawing on experience in consulting to large complex organisations and ground-breaking primary research with senior executives from leading corporations, Leading Digital Strategy creates a convincing case for action and offers practical strategies, methodologies and models to improve the effectiveness of a company's online offering. It explores how to align organisational structure with wider goals and implement a customer-centric culture. With coverage of the key digital trends, tools and technologies affecting business today, it provides a practical framework for multi-channel success. This book challenges leaders to become as fluent and creative in digital as they are in finance, sales and marketing, and equips them to choose the right strategy and the right people to make it happen. With strategies for improved operational performance and enhanced engagement from senior management, Leading Digital Strategy gives readers the power to drive forward effective digital initiatives and realise rewarding opportunities for change.

1

21st-century markets

---

EXECUTIVE SUMMARY

We are in the throes of a revolution in how business is done, and driving this revolution is digital technology. However, digital is not just changing the face of business, it is changing the face of how we live. In this chapter we outline the emerging impact on business, on organizations and on leadership and lay out challenges that digital has created for business leaders in the 21st century. We look at the impact in two aspects of business, marketing and organization design, and lay out why understanding the consequences for thinking and practice in these areas will be critical to long-term success. This chapter also expands our core proposition: that whilst digital has developed product and service opportunities for some businesses, for most digital is first and foremost a new route to market, and a new channel through which it can deliver customer service which brings with it the unique capability to listen to customers in the marketplace. It is this dual functionality that business leaders need to understand and learn how to manage to grow. At the end of the chapter we set out a framework for thinking through strategic choices and the role that digital can play in delivering your strategy.

---

Schumpeter’s gale

The opening up of new markets and the organizational development from the craft shop and factory to such concerns as US Steel illustrate the process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one… [The process] must be seen in its role in the perennial gale of creative destruction.¹

So wrote economist Joseph Schumpeter in his book Capitalism, Socialism and Democracy in 1942. Built partly on analysis of the impact of the Illinois Central Railroad on the economic landscape of the mid-west, the now famous phrase ‘creative destruction’ has its champions and its critics, but there is no doubt that the argument he proposes is one that recent changes may be illustrating just as powerfully as the advance of the railroad in the 19th century: the perennial gale driving today’s mutation being digital technology.

The impact of the digital revolution on our economic structures is already dramatic. The impact on people is potentially even more so. One commentator describes it as living in ‘a world that is changing faster than we can learn’.² The pace of change around us seems to be increasing exponentially – driving a sense of incessant revolution through which it is difficult to keep abreast, let alone get ahead, of what is happening. We have difficulty finding time to reflect, make sense and respond. In many aspects of daily life, we hear people talking about being short-term, not being in control and working long hours. The technology that enables our digital engagement now causes as much concern as it does excitement as smarter and smarter devices become available, driving more of us into a world where 24/7 interaction becomes a reality. Recent research has revealed that IT-addictive behaviours are creating serious problems for individuals and organizations alike.³ One conclusion from this is that our world is at risk of being populated by sociopaths whose ability to form attachments is focussed firmly in the virtual.

The impacts are far from all negative. We have seen dramatic shifts in longevity, not just in the population as a whole, but also in terms of medical conditions that even 10 years previously were seen as death sentences. Since the early 1970s the chances of surviving breast cancer have now increased by 55 per cent.⁴ HIV no longer automatically leads to AIDS and eventual death and with effective treatment can be subdued to such an extent that it cannot be transmitted. Genetic research using the latest digital technologies has isolated genes that have until now defined lifespan and life quality and that is already enabling eradication of inherited defects in some specific cases through manipulation of fertilized eggs prior to implantation in the womb.⁵

This is a world defined through the ease by which we can make connections and find information. Newspapers are no longer the primary source of news – individual posts, tweets and uploaded videos can shape our view of events or even make an event news. Our lives are closer to that of Orwell’s Winston Smith than we think. Governments too can make connections and access information about us far more readily than when they had to rely on people. Edward Snowden’s revelations⁶ suggest a world where little is safe or secret, and where Big Brothers are watching, listening, reading and assessing every move we make. Regardless of whether or not we agree on the legitimacy of such activities the fact they can be done is down to the technology that we have adopted with such alacrity over the past few years.

In product terms, we experience significant shifts in functionality and relevance in much shorter timescales than previous generations. As we replace computers, televisions and mobile telephones for example, what replaces them can be a significantly different product with radically different functionality. As communications continue to speed up, so products achieve ubiquity faster and replacement cycles get shorter and shorter. A recent article in MIT Technology Review showed that whilst it took almost a century for landline phones to reach saturation in the United States, mobile phones reached this in just 20 years. Furthermore the emerging data trend suggests that smartphones are on track to halve that rate yet again, and tablets could move still faster.⁷

Like it or not, if we are looking for an answer, a product, a service, a home or a source of entertainment we are now likely to turn to the web and start our search there. For an increasing number of us we stay with our search online through to completion. There are now many signs that digital business is redefining markets in nearly every sector of the global economy and in retailing in particular there are now signs that we are living through a period of creative destruction. This book is particularly focussed on e-commerce and in this sphere there are three areas that it is worth considering as we explore the impact and implications of digital technology on modern business: retailing; the sharing economy; and the emerging propositions that look to leap over the top of traditional routes to the customer and ‘deal direct’.

The retail sector

The classic example of the impact of e-commerce is of course retailing. A recent study from the United States⁸ looked at the impact in retailing over the period 2007–2011 and concluded that the US was ‘in the midst of a profound structural shift from physical to digital retail’. The author argued that the drivers of this shift were: the online cost advantage that enabled lower prices with the same if not better margins than offline retailers; wider selection; and increasingly better service. It suggested that, as pricing in the traditional channels would remain under pressure, this would result in increasing numbers of offline bankruptcies which in turn will remove competition from online players and further boost their market share.

The study highlighted figures from the US Census Bureau that suggested that there were two very different patterns going on with respect to e-commerce penetration. In the largest categories – food and beverage, and health and personal care – e-commerce penetration was well below the overall average. These categories are dominated by supermarket and drug stores and here e-commerce has as yet achieved only modest penetration.

The other categories are speciality retail categories that populate shopping malls across the US. They consist of clothing and accessories, electronics and appliances, furniture and home furnishings and media, sporting and hobby goods (media defined as books, magazines, music and videos). All of these demonstrated e-commerce penetration well above the overall average, ranging from a low of 12 per cent for clothing and accessories, up to 24 per cent for media, sporting and hobby goods. It’s in these speciality retail categories that e-commerce to date has had its strongest impact and where the pace of online share gain shows no signs of slowing down.

The study highlighted that, for the period in question, the US Census Bureau reported that these four speciality retail categories, representing total sales of just over $600 billion, grew by only $5 billion. That’s less than 1 per cent over four years. The e-commerce players increased their cumulative sales in these categories by $35 billion over the time period. This suggests that the cumulative sales of traditional retailers in these categories shrank by $30 billion in just four years.

Regardless of geography there is no doubt that retailing is undergoing a seismic shift. Where once every high street had a bookshop and a music store there are now far fewer who can boast one, let alone both. Large appliance and electronics retail showrooms are also reducing rapidly. The woes of US giant Best Buy have been in the media spotlight for some time and although recent innovations have boosted the share price, sales remain stubbornly on a downward track.⁹ In the UK, online retailers overtook bricks-and-mortar operators for market share in consumer electronics in 2011.¹⁰ In January 2014 the UK’s Office for National Statistics reported that two-thirds of all retail sales were transacted away from bricks-and-mortar outlets.¹¹

The sharing economy

If retail is the classic example then the transformation of the sharing economy is the latest emerging example of the creative destruction power of digital technology. There is nothing essentially new about a sharing economy. People have swapped assets through bartering as part of the human trading system for thousands of years. People have rented out their property, shared facilities and transport for nearly as long. Prior to digital, this required face-to-face interaction and local knowledge.

With the advent of digital technology, the sharing economy is currently producing explosive start-up growth and has an international impact that is disrupting traditional business sectors such as hospitality, and regulated sectors such as taxi transportation which have to date been protected from change by local governments and, in places, powerful trade unions. The outstanding examples are Uber and AirBnB. Over the last few years these companies have grown from being just another disruptive technology start-up to international names responsible for reshaping the model of the sharing economy from one based on personal knowledge and trust to a global network where systems and compliance reassure and build confidence.

It is fascinating that they are reversing a paradigm that has developed over the last couple of hundred years that the state should pay a role in setting a regulatory framework to ensure service levels and protect the consumer from abuse. We are being invited to trust their systems and quality assurance processes, mostly unregulated, as opposed to the services of those who are regulated. This lack of regulatory protection also applies to the supplier. In a London taxi, for example, if you soil the inside the law holds that you can be charged for cleaning it up. Some of the emerging problems with these models spring from the fact that unlike the traditional sharing economy where personal relationships and tru...

Table of contents

• Cover page
• Praise for Leading Digital Strategy
• Title page
• Imprint
• Table of contents
• Acknowledgements
• Introduction
• 1 21st-century markets
• 2 Identifying the e-commerce opportunity
• 3 Putting customers first
• 4 The new marketing model
• 5 The business of e-commerce
• 6 The growth organization
• 7 Leadership in change
• 8 Digital leadership in practice
• 9 The e-commerce leadership model
• Glossary
• Index
• Full imprint