Digital Disconnect: Plugging into Disruption in Sweden

Accenture High Performance Business Forum Point of ViewJanuary 2015

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Digital disruption In today’s world, markets seem to change overnight. With companies coming on the scene with break-out innovation that effectively rewrite the rules for entire markets and sectors. It’s a business development model that looks more like a shark fin than the traditional bell curve. Instead of product or service adoption gaining momentum gradually and sustaining over time, companies experience sudden, dramatic success. Established businesses can disappear virtually overnight in the face of such sudden and unexpected competition. Consider companies like Kodak, Blockbuster and Nokia that once dominated their respective sectors but then lost their positions by not keeping up with technological development.

Up until now, disruption has been driven by start-ups like Spotify, Uber, Airbnb and the like. Now traditional companies are starting to take action. But most are still only scratching the surface of possibilities. Disconnected from a far deeper opportunity when it comes to digital disruption. Instead, they’re focused mostly on cost-cutting initiatives, hesitating to go further into disruptive plays that will drive revenue, innovation and growth. Doing that requires plugging into digital technology on a large scale: changing business models and radically re-imagining how to create value for the ever-changing digital customer. For those that do plug in, the reward will be a competitive edge that puts them far ahead of rivals. Companies that continue to hesitate will fall further behind and risk never catching up.

Trial users

Innovators Early Adopters Early Majority Late Majority Laggards

Everybody else

When and how do Swedish businesses perceive digital technology disrupting their own industries? How exposed do they feel to it and what actions are they taking? What are the trends shaping the Swedish marketplace and how do they compare to the rest of the Scandinavian region? These are just a few of the questions we sought to answer in new research by Accenture conducted in the fall of 2014, based on more than 400 interviews from executives within leading companies and public organizations in Sweden, Denmark and Norway. In Sweden alone, 150 interviews were conducted.

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Digital disruption is here and companies see it as an opportunity…

Digital Disruption is here, few are prepared

According to the study, Swedish companies acknowledge digital disruption is coming in the near future. In fact, 60 percent of all respondents expect their industries to change significantly in less than five years as a result. And almost all (95 percent) see it as a business opportunity rather than a threat. What’s driving digital disruption? According to respondents there are two catalysts: “Meeting underlying customer needs,” (34 percent) and “reducing costs,” (24 percent).

Despite their awareness of when and how digital disruption will reshape their businesses, few companies are prepared and many still seem to lack an understanding of the full implications of it. An overwhelming majority of respondents see digital disruption as a business opportunity, yet only 17 percent report having a strategy for capturing the value of digitalization. What’s more, a full 71 percent of those surveyed don’t believe disruption will come from outside the borders of their own industry. This despite the fact that grocers are becoming bankers (ICA) and retailers are entering the insurance market (Amazon.) A vast majority—85 percent—are not primarily using digital technology to drive new sources of revenue outside their traditional business models.

60%

60% Share of respondents who say their industry will see digital disruption within 5 years

Share of respondents considering digitalization a business opportunity rather than a threat

Main drivers behind respondents’ digital initiatives

Solve underlying customer demands in a better way

New opportunities to save costs

34%

24%

95%

95%

…but few are prepared

29%

29%

Companies who see digital disruption coming from outside of

their current industry

27%

27%

Able to respond to disruption impacting the operating model

42%

42%

Claim to be prepared to take advantage of digital

opportunities

17%

17%

Have a written and formalized strategy which is widely

communicated throughout the organization15%

15%

Say new revenue streams beyond current business is the main driver of

digital initiatives

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Leaders starting to cash in on digital opportunitiesSwedish companies that see themselves as digital leaders reported a higher positive impact on revenue from digital development than followers. How much higher? Leaders reported gaining 32 percent of revenue from digital versus 11 percent reported by followers. And over the last three years, leaders’ revenue growth was almost three times that of followers (3.2 percent versus 1.2 percent.) That’s because leading

Leading companies, not just start-ups, have begun to cash in on digital opportunities

3,2%

1,2%

3-year revenue growth (median)

FollowersLeaders

26%

11%

Share of revenue from digital business

FollowersLeaders

According to the Accenture research, digital leaders in Sweden come in all shapes and sizes. They exist in every industry—from consumer goods, retail, utilities, industrial equipment and chemicals, to name a few. Some are global firms with tens of thousands of employees. Others are local with a few hundred in their workforce.

companies are beginning to experiment, moving beyond applications that are “one offs,” to efforts that go deeper: changing models, approaches and processes below the surface of their businesses. How exactly would that look? In the case of a retailer, for example, that would entail moving beyond an online store to creating a seamless, multi-channel customer experience.

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New business models, new innovationWhen it comes to digital disruption, what separates leaders from followers is the depth of change they’re willing to take to embrace the promise of digital technologies. Consider companies in two different industries: retail and media. IKEA leveraged digital to transform their traditional paper catalog into a digital one and added an augmented reality solution that allows customers to test items in their homes, viewing them in a 3D program. Schibsted, a company once known for print publishing, now dominates the digital classified ad market in Sweden. Rivals who failed to change in the face of digital media are extinct, or scrambling to catch up to survive. What the two companies share: Both saw digital disruption coming and are

changing their core business models to capture the promise of it.

How do the characteristics of digital leaders like IKEA and Schibsted differ from those that are followers when it comes to leveraging digital technology? For starters, they anticipate digital disruption coming much closer in time, (76 percent versus 56 percent for followers) and are, to a larger extent, prepared and have started to leverage digital technology to drive innovation. According to the study, 36 percent of leaders report a positive impact from digital development on innovation versus 12 percent of followers. And 11 percent report changing their business model as a result of it versus only 3 percent of followers.

Leaders also invest more time and money in digital (24 percent versus 16 percent for followers). Digital followers, on the other hand, view technology as a tool for steadily improving existing business activities, using it to drive process efficiencies affecting only one link of the overall value chain. So efforts are focused on incremental, instead of transformational change. And as leaders continue to make gains, followers will fall even further behind the curve when it comes to leveragin digital technologies, making it even more difficult to close the competitive gap.

Leaders have, to a much larger extent, already leveraged digital technologies for innovation and new business models

Leaders see digital disruption coming closer in time, are better prepared for it, and are investing more time and money in the digital area

Re-structuring of business model

Prepared to take advantage of digital opportunities

Share of projects related to development to become a

digital company

Share of investments related to development to become a digital company

Innovation

Expect digital disruption in their industry within 5 years

Have a written and formalized strategy

See a significant impact from digital development on…

Followers

Followers

Leaders

Leaders

3%

12%12%

12% 56%

12%12%

3%33%

3%25%

3%16%

11%

69%

39%

24%

36%

72%

31%

3%

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Achieving true transformationDespite some of the inroads leaders have achieved, most efforts are not yet truly transformational but are instead experimental in nature. While a much larger share of leaders than followers have a digital strategy in place, a majority of leaders (69 percent) still lack a written digital strategy that is anchored in the organization. Leaders might also underestimate the effort involved. For instance, only 11 percent see a significant impact on the business model and only 22 percent believe that digitization will change their company structure. And surprisingly, only 25 percent of leaders say the opportunity to solve underlying customer needs in a better way is the main driver behind digital initiatives. What’s clear: Now is the time for digital leaders to truly transform to stay ahead of the digital race in Sweden.

Obstacles blocking Leaders from working

effectively with digitalization:

Company’s culture69%

Lacking technology39%

The way incentives and rewards motivate

people does not support this

24%

Company’s organizational

structure72%

Lacking understanding of what digitalization

is and involves31%

…hava a written and formalized strategy for where it wants to be in

a digital world

Share of Leaders who:

12%31%

…see a significant impact from digital development on the

business model11%

…say the opportunity to solve underlying

customer demands in a better way is the main driver behind its digital

initiatives

25%

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Companies in Sweden understand that digital is no longer about the future. It’s about the now. Yet too many are either failing to act in gaining digital capabilities, or they’re doing too little. Ultimately they lack the strategies, structural and cultural alignment and investments that will take digital opportunities from promise to profit.

Beginning the journey requires deep company transformation. For followers that means learning from leaders by:

• Stepping-up and facing the digital challenge for what it is by developing a clear view of disruption that is coming and how to leverage it

• Leveraging digital development not just to drive cost reduction but to create new revenue streams through innovation and new business models

• Investing both time and money in digital to be able to realize value

Since the threat of digital disruption will most likely come from other traditional players copying or leveraging the strategies of start-ups, leaders need to make sure their organizations are squarely on the road to digital transformation.

• Driving digital transformation by adopting a strategic mindset that starts with the needs of the customer—one that generates new revenue streams with new business models

• Integrating the entire organization into the digital transformation, e.g. by adjusting the company structure, culture and educating the organization

• Investing where it really matters and creates value (i.e. prioritize right investments)

From promise to profit

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Companies in Denmark and Norway appear more ”concerned” about digital disruption than Swedish companies

Norway

Share of respondents who say their industry will see digital disruption within 5 years

Share of respondents considering digitalization a business opportunity rather than a threat

Claim to be prepared to take advantage of digital opportunities

Have a written and formalized strategy which is widely communicated throughout the organization

When it comes to digital technologies, Sweden has multiple star disrupters that have re-written the rules of competition. And despite being small in size, Sweden is formidable when it comes to technological development. In fact, when you consider technological innovation on a per capita basis, Sweden is just behind Silicon Valley in terms of productivity according to Skype founder, Niklas Zennström.

Sweden and the rest of Scandinavia

Yet surprisingly, the Accenture research showed Sweden behind Denmark and Norway when it comes to digital development. Start-ups—with the likes of Spotify and Skype—have led the digital charge. It appears that traditional players in Sweden may need to catch up to their new entrant counterparts.

75%

89%

89%

54%

54%

Sweden

60%

95%

95%

42%

42%

17%

17%

Denmark 77%

77%

91%

91%

58%

58%

29%

25%

25%

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To plug into digital disruption, and prepare for the shark’s fin model of business development, Swedish companies need to consider three areas of activity: understand, identify and execute.

Understand: The company´s senior management needs first to understand how digitalization can potentially impact the fundamental structures of its company’s business and operating model. They can promote this understanding through assessing their internal resources and identifying digital champions who can push the digital agenda. This way digital capabilities are clearly linked to the most important areas of the business.

Identify: Identify and setup innovative partnerships. Companies should look at potential partnerships among customers, suppliers and partners, NGOs – in fact anyone with bold and interesting ideas – with a view to strengthening their ecosystems and taking relevant steps to establish new digital business models. They should also engage with that same ecosystem of innovators, entrepreneurs, customers, suppliers and others to spot the disrupters early and collaborate with them before they cause problems.

Execute: Last but not least is the need to start creating new business models and products and services based on digital insights and opportunities. Once a company both understands the concepts and can identify the opportunities it is well positioned to create new products and services in markets that did not previously exist. It’s important to remember that the key source of digital advantage comes from continuously testing new ideas and ‘learning by doing’, through prototyping and beta trials.

”In fact, when you consider technological innovation on a per capita basis, Sweden is just behind Silicon Valley in terms of productivity according to Skype founder, Niklas Zennström”

Plugging in

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“Equipping your salesforce with an iPad is fine. Getting ‘likes’ on your corporate Facebook page is great. Tweaking your website can get you some results. But Swedish companies need to go deeper than that. Dealing with digital efforts holistically instead of in isolated initiatives. Transforming their businesses to capture new revenue growth and realize new sources of innovation.” -Caroline Holm, International Digital Expert, Accenture Strategy

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AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 305,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.

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Authors:

Caroline Holm Accenture Strategy caroline.holm@accenture.com

Mikael Stenstrand Accenture Research mikael.stenstrand@accenture.com