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Digital Darwinism: don’t get left behind

Digital Darwinism: don’t get left behind

Embracing digital isn’t just desirable – it’s do or die. Read our KPMG experts being interviewed in The Times

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Remember Blockbuster and Kodak? These household names went bankrupt for the same reason: they failed to see how new technology would destroy their business. At Blockbuster, the advent of movies on demand meant that no one needed to visit a video rental store; Kodak didn’t understand that digital cameras spelt the end for its film photography sales.

These are textbooks examples of natural selection in the business world: just as in nature, enterprises that do not evolve in a changing environment will not survive. Their fate may be sealed by nimble new entrants to their markets (Netflix in the case of Blockbuster) or the ability of existing rivals to pivot more quickly as the world changes – Kodak competitor Fujifilm began planning for digital photography in the 1980s. But either way, standing still often proves fatal.

This is the existential threat now challenging British businesses facing a wave of digital disruption, says Adrian Clamp, a partner at KPMG. “There is a whole suite of new technologies available to businesses and growing at an exponential rate,” he says. “Cloud computing, mobile, data analytics and social media are already changing the way companies do business; and there’s more to follow from technologies, such as the Internet of Things, virtual and augmented reality, artificial intelligence and more.”

The promise of these digital technologies is twofold. First, they offer businesses an opportunity to do what they already do more effectively. Online sales, for example, enable businesses to sell more of their products to a wider audience, with no need for physical outlets. Similarly, behind-the-scenes digital technologies are generating efficiencies and improvements in areas ranging from supply chain logistics to financial management.

The second digital impact, however, is more profound. In some cases, these technologies are changing the very nature of what a business does. In the motor industry, for example, Ford is so convinced that technologies such as self-driving cars, smart cities and ride-sharing apps will change the way in which most people get from A to B, that it is moving away from 100 years of motor manufacturing to a focus on the broader mobility industry.

This prospect of business-model change is both exhilarating and disconcerting, says David Rowlands, UK Head of Consulting at KPMG. “Businesses are excited about the opportunity technology could give them to secure competitive advantage but they’re anxious about how to exploit the opportunity,” he says. “It can be difficult even to articulate the problem, let alone to envision a solution.”

And yet there are already examples of well-known British companies that are getting this right. Could they provide a model for other businesses seeking to disrupt before they’re disrupted?

Online grocer Ocado is a good British example of what is possible. Years of experience building supply chain and warehousing facilities, that enable it to get your shopping to your door in a half-hour slot, have won it valuable market share. But now the business is changing: it offers its technology to retailers worldwide, selling them the same systems that have performed so well for its business. This is a significantly bigger market than keeping Britons’ fridges well stocked.

Or consider Virgin Bank: earlier this year, this challenger bank announced it was effectively starting again. It is building a digital architecture that will allow it to go way beyond simple banking products, with apps that enable customers to manage all their personal finances.

There are many more examples of successful digital transformation and Britain doesn’t have the monopoly on innovation. The story of John Deere, for example, is compelling. This agricultural machinery manufacturer – it is difficult to imagine a more un-digital business – has reinvented itself, building sophisticated databanks of information fed back to it by sensors in the tractors and plant used by farmers. Using this data, on everything from soil conditions to weather patterns, it offers farmers detailed real-time advice on how to increase crop yields.

These stories are inspiring. They prove that it is possible even for the most traditional businesses to reinvent themselves in the digital age. Digital Darwinism is certainly a prospect that should concern business leaders, but the fittest will survive and prosper.

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