By Cherry Eromosele

The magnitude of change Andrew Grove, former Chairman of Intel Corporation, in his classic, Only the Paranoid Survive, provides a fresh perspective to Michael Porter’s ‘5 Forces’ analytical model.He articulates the possibility of a ‘10X’ magnitude force of change to Porter’s ‘5 Forces’ variables, such that the changes the variables provide to a business are not incremental.

They are landslide. Essentially, the force of change is about ten times what an industry or a business is typically accustomed to.

The wave of technology change the world has seen in the last couple of decades, perhaps more than anything else, best typifies this. It has provided this ‘10X’ change for most businesses, creating new industries and businesses and making some hitherto existing ones obsolete.

As with most changes like this, the first reaction from most businesses is denial and then frightened acceptance. However, change in ‘10X’ magnitude is as much an opportunity as it is a threat. The difference in outcomes, are in how quickly businesses are able to adapt their models to take advantage of the direction(s) of change.

Change is real: The magnitude force of business digitisation

Digitisation is essentially the transformation of all or some of the processes of production and delivery of products and services from analogue to digital. With digitisation, production, delivery and customer management are facilitated through a technology interface. In this process, some industries give way for others, akin to Joseph Schumpeter’s theory of creative destruction.

In the music industry for example, business models have been completely altered, as record stores, once the seller-buyer interface for records have been almost replaced by online channels, which stock a lot more records than any record shop would have. iTunes, Amazon and Spotify are examples of digital companies that have emerged from the relics of what is a fast fading analogue business model.

Are there reasons for business to be worried about the magnitude of digital change? Absolutely! Digital channels lower barriers that industries have held as anchors for relevance. This increases the level of competitive activity in an industry, leading to commoditisation of industries and in some case, complete redundancy. Digitisation puts a lot of power in the demand-side of the economic equation, as the information asymmetry which titled in the favour of supply is moving towards demand. Amazingly, a good number of companies still view digitisation as either a fad, or something that will pass with time. They still see their traditional business models as sacrosanct and will at worst, only concede a little to digitisation.

Forces driving the digital change

Business digitisation has moved from just being a supply-side need for production efficiency. These days, social factors like changing consumer behaviour, digital competitiveness, information management efficiency, innovations in outsourcing and cloud services, demand for technology security, crowd-related innovation and technology disruption. Whilst the strength and magnitude of these forces differ from one industry to another, we can, with some level of certainty, posit that their impact on the interface between businesses and consumers will remain strong.

Consequently, organisations are expected to anticipate and respond to future directions of these forces. This may not come easily, as it requires organisations to build a set of skills and competences that have to be integrated into the organisations’ value chain.

Digital capital

The last half century has seen businesses scale their operations globally through smart deployment of financial and human capital. Going forward, a critical success factor for businesses will be how well they are able to develop and implement a compelling digital capital strategy. Digital capital covers the, “resources behind the processes key to developing new products and services for the digital economy.” These resources are both tangible (internet software, servers, routers, to mention a few) and intangible (competencies and skills in design, data, analytics, social profiling of consumers, among others.

Businesses need to develop these resources, emphasising those that are more critical in their industries and then deploying them in ways that can innovate their business models and achieve competitive advantage.

Aligning digital capital to business model redevelopment

These resources then have to be creatively deployed on a business model to build the competitive advantage required to scale a business. Below, we present some ways digital capital can be deployed and the value businesses can get from them.

Option 1: Improve Traditional Business Models

The efficiency of service and product delivery can be improved through a smart deployment of a digitisation strategy. In Nigeria, banks are beginning to open accounts on social media platforms. The service objective is the same (acquire new customers), but rather than do it on a physical interface, it is being done on a website or application. Businesses can deploy this strategy, not just in dealing with customers, but also in managing relationships with vendors and staff. Improve business efficiency by optimising every unit of investment in the business.

Option 2: Alter Existing Business Models

Digital capital can be deployed to alter a business’ current business model. One of the easiest ways to get this done is to incorporate an e-commerce channel to a traditional brick and mortar billing and payment system. Traditional brick and mortar travel booking services develop online presence. With this, consumers can book and pay for their travel from remote locations.

Option 3: Create Entirely New Businesses

On the back of very strong digital capital, businesses can actually develop completely new value propositions. Interswitch, a switching and payments service provider, with its competence in digital payments, has created the Interswitch Financial Inclusion Services (IFIS), to provide financial coverage for the around 40 million Nigerians without coverage. Increase in revenue. The value of this to a business includes the diversification of business portfolio and possible reduction in portfolio risk

Digitisation has largely been seen from the point of view of the power it is taking away from organisations to their stakeholders. This is true, but is only one side of the story. By deploying soft and hard digital infrastructure, businesses can still make their value propositions not only relevant, but compelling building blocks for growth.

• Cherry Eromosele is the Chief Marketing Officer of Interswitch