Digital is radically changing everything…

The Digital Divide — Part 1

Or Selling into Mid-Market Leaders and the Fortune 500

Part 1: What and Why

“Change is inevitable. Progress is optional.”
- The CEO Whisperer

Cliché? Yes. Overused? Absolutely. True and Relevant, today more than ever? Undeniably.

To Understand
The following is an amalgamation of many different principles and concepts from the extensive references at the end of this article. These include sources such as Accenture, PWC, HBR, McKinsey, Gartner, Forbes, Forrester, numerous opinion pieces and many others. Naturally I’ve included my thoughts and perspective along the way.

Who Should Read This (7 min read)
Executive leadership
, particularly among the up-and-coming companies striving to differentiate and compete, and the Fortune 500 trying hard to adapt. This is intended first and foremost for the key stakeholders involved in planning and navigating the companies path to success.

Sales, especially those selling into the mid-market leaders and the Fortune 500 that may not yet be “digital first”. This is the story that gets you a seat at the table, assuming you can support the key takeaways below.

You don’t like reading, I get it. Can’t blame you. Below are the Cliff’s notes. Primary themes… embrace technology-driven innovation. Differentiate through your customer experience (CX). I know… breaking news flash. You’re welcome.

Key Takeaways
Pay attention to the lessons history provides us

  • The Fortune 500 are disappearing 236% faster today compared to 15 years ago
  • The average lifetime on the S&P 500 was 61 years in 1958… today it’s about 20 years, and in less than a decade, it’s projected to be 12
  • On average, an S&P 500 company is replaced about once every two weeks
  • Only 3 of the top 10 firms on the Nasdaq in 1999 were still in the top 10 last year
  • The Nasdaq top 10 has had a 70% attrition rate over an 18 year period

Be where your customer is, protect and engage them

  • Mobile first is so 5 years ago, and it was never “mobile only”
  • What is your user journey?
  • How are you using design thinking to create a repeatable model for innovation?

Obsess about, and become hyper-focused on, creating an unrivaled customer experience

  • The top 10 Fortune 500 make up just 2% of the companies on the list, yet their combined revenues was $2.2 trillion in 2016, accounting for 18.2% of the $12.1 trillion earned by all the F500 in total
  • The top 4 companies by market cap are Apple, Alphabet, Microsoft and Amazon… think about the impeccable customer experience they’re setting the bar with
  • Liquid customer expectations are seeping from one industry to entirely different and unrelated industries

Go beyond developing awareness around digital… and commit to delivering a comprehensive cross-functional strategy

  • Or accept the inevitable decline, rapid demise and eventual extinction of your company

What follows is a protracted case on “why”, which leads to the “how”.

You’re the 5% That Actually Enjoys an Academic Read
For those of you who, like me, enjoy parsing through the details… congratulations, you’re in luck… so am I. We’ll begin by diving into the details.

You probably know there’s a growing digital divide. According to a 2016 Pew Research and 2014 US Census data, 13% of the US population (making less than $30K) has broadband access vs 38% (making $75K or more). That’s basically a 300% difference between those two cohorts. The top cohort is obviously leading the way. The bottom cohort is lagging. This begs the obvious question: how many will get left behind?

*Digital Divides — Feeding America, Pew Research Center

Digital Transformation (DX)
There is a similar divide in the corporate world. In November 2011 a 3-year study conducted by the MIT Center for Digital Business and Capgemini Consulting concluded that 30% of companies globally have an effective digital transformation (DX) program in place.

Fast forward 6 years after the original MIT report to February 2017, a follow-up study by McKinsey & Company concluded that “on average, industries are less than 40% digitized”. This would suggest there has been 7% progress over the past 6 years. There are those who might say that’s not much progress.

Also in February, PWC released their 10th anniversary Global Digital IQ® Survey (2017 edition), noted that only 52% of 2,216 execs at companies with revenues in excess of $500M in annual revenue, rated their Digital IQ as strong… which is actually down 15%, from 67% in 2015!!

Perhaps a reflection of the transition from optimism to pragmatism, that occurs as one develops a greater appreciation for what goes into a robust transformation program.

However, 68% of executives surveyed said their CEO was a champion for digital, more than doubling from 33% in 2007. So clearly there is an awareness around how important it is to adapt. What seems to be lacking, is the “how”. How do we drive digital transformation across the enterprise?

~~~The most compelling finding however, ties in with a theme we’ll consistently be coming back to…. the survey found that 82% of top-performing companies pay attention to the human experience surrounding digital tech!!!

This underscores how important it is to be aware of, and tap into, the liquid expectations consumers have today. Accenture reports that, “the digitization of everything and liquid consumer expectations are creating the next wave of digital transformation.”

Let’s step back for a moment… what is Digital Transformation? That is complicated answer as you’re probably aware. The more people you talk to, the more varied answers you’ll hear. Perhaps there is no one “right” answer. One way to think about it, is using technology to enable new types of innovation and creativity in a particular domain. There are 3 stages to this process: 1) Digitization 2) Digitalization and 3) Transformation.

Digitization is the “what” an organization is going to digitize. This is a concept that has been around for a long time now. To digitize is to convert something (such as a paper concert ticket) to digital form. That leads to Digitalization which is the actual process, the “how”, in getting to the desired effect or outcome. This “outcome” is then the Transformation itself. This sequenced motion empowers companies to transform and change existing business models.

I really like this concise definition of digital transformation from Brian Solis: “The investment in and development of new technologies, mindsets, and business and operational models to improve work and competitiveness and deliver new and relevant value for customers and employees in an ever-evolving digital economy.”

Collapse of the Establishment
It took 60 years for 88% of the Fortune 500 to churn. In comparison, according to the CEO of Accenture, over half the companies from the F500 have been replaced in the past 15 years. That means the F500 are disappearing 236% faster today. Some of this may be due to acquisition or PE public-to-private deals, etc, but the bottom line is more companies are recycling from the key indexes far more quickly than ever before.

The S&P 500 illustrates another similar example. In 1958 the average lifetime on the S&P 500 was 61 years. By 2011 it had decreased to 18 years. 2015 was one of the highest churn years ever with 28 companies being replaced. Innosight is projecting we could be looking at a 12 year lifespan by 2027.

On average, an S&P 500 company is replaced about once every two weeks. How about the Nasdaq… only 3 of the top 10 firms on the Nasdaq in 1999 were still in the top 10 last year (70% attrition rate in 18 years).

Why? What’s causing this extraordinary accelerated turnover?

New digital business models are the principal reason for this mass exodus. The aforementioned study by McKinsey & Company concluded that “on average, industries are less than 40% digitized”.

The result of all this… is a growing divide. One that’s increasing rapidly and affecting organizations of all shapes and sizes, at a dizzying pace that leaves most companies struggling with vertigo.

Another interesting trend to note, is organizations that run leaner (in terms of # of employees) today are far outperforming others in terms of market cap.

*The 5 most valuable companies in the US are tech firms that employ far fewer workers than their industrial predecessors

So the question is, how do organizations not just cement their current place in the market and develop a defensible position for their business, but actually move the needle in a meaningful way by driving the business forward and capturing more of the market?


The Customer Hug
Let’s talk about why this is happening. Look at the rate of consumer adoption of major technologies over the years. It took 75 years for the telephone to connect 50M people. It took Angry Birds barely a month. Interesting to consider… as quick as Angry Birds came, appearing to be the next Disney with plush toys, movies, amusement parks, etc… they flew south in almost the blink of an eye.

Today’s smartphone is twice as powerful as the computer that sent two astronauts to the moon. Think about that for a moment.

The consumer has radically embraced technology which is driving the digital transformation that’s wreaking havoc on just about every industry and affecting almost every single business.

What is your business doing today, to adapt to the radical pace at which your customers is adopting new technology, and the liquid expectations that come with that? Tesla may not be making money yet. But consider the amazing customer experience Musk is committed to delivering. This is the same customer Netflix is delighting.

Consumers today can have their dry cleaning picked up and dropped off from their home. Same for groceries, and well, really just about anything. I can don my freshly pressed shirt from Rinse, put on my dress shoes from Zappos, throw some pommade in from Amazon (at this point, insert the _________ from Amazon) and head to work in an Uber or Lyft that also, arrives at my house.

So the key question… what are you doing to insulate your business from Amazon, Netflix, Tesla, etc? And if you don’t think you’re competing with these companies, because you have a construction business, pizzaria or are a florist… you would be very wrong. This precisely what we’ve been talking about… liquid expectations, are “when customer experiences seep over from one industry to an entirely different industry.”

In “Part 2: The Danger and the Opportunity”, we’ll explore these concepts further, as well as look at real world examples highlighting the danger and opportunity before us.

If you found this interesting or relevant, I’d love to hear from you. Please share any thoughts you have on the topic!

About the Author
Andrew Elliott helps business leaders drive digital transformation to improve performance and deliver customer-obsessed experiences. In his downtime you’ll find Andrew plotting his next adventure to distant lands, probably in a vineyard or on a beach. Follow him on Twitter: @4ndrewbiz.

All views and statements expressed are his own and do not reflect those of his clients, employer or his employers clients. Nor are they likely to be all that original- as shrewdly observed by Samuel Clemens and Jim Jarmusch… we’re all basically regurgitating someone else at this point.

Referenced Resources