The archetypical internet story is one of young people working long hours out of garages, developing an online service that will change the world. Many of these ventures struggle and die unnoticed but few bring immense riches to their founders. The mainstream media trumpets their achievements, inviting people to consider how company that has never made profit can be worth so much.
All of this is far removed from the everyday reality of ‘traditional’ industries, those that provide ‘real’ products and services. Business leaders in traditional industries ignore or dismiss the stories as an interesting but irrelevant sideshow. Their focus is on producing real benefits for their customers, be it agricultural produce or insurance services.
For long time now, most business leaders in traditional industries have been happy to disclaim any technical knowledge and leave the internet to their technical staff. If anything, business leaders view the internet with sense of unease, nervous of how internet projects seem to cost too much and under-deliver on the benefits promised.
Meanwhile, the internet has had an impact on almost every traditional industry. In some cases it has been marginal, perhaps an additional information or sales channel. In other cases, it has been profound – be it newspapers struggling for survival or the almost complete disintermediation of travel agents for booking routine flights.
The reality is that the internet is changing traditional industries. The internet is not merely about online services, it is also about the ‘real’ economy. The choice business leaders have is to either react to competitors, often from outside traditional boundaries, or proactively innovate using the internet as competitive advantage.
What then should non-technical business leaders in traditional industries do?
My suggestion is to treat the internet, and more broadly IT, in two different ways simultaneously. The first, as business function. At the same time, look at the internet as critical element of business strategy.
The internet as business function is relatively straightforward. Business leaders can treat the internet similarly to standard business functions like finance or marketing or human resources. Well run, incremental costs savings and efficiency gains are possible. Leaving details to technical staff, business leaders could focus on typical weaknesses – poor risk management and governance.
The real change I advocate is treating the internet as critical element of business strategy. This requires using the internet as primary enabler to fundamentally change the game.
To be clear, there is no such thing as an internet business strategy. Rather, business leaders need to create breakthrough business strategies using the internet as key enabler to achieve business outcomes. Technical knowledge is not required. In fact, lack of technical knowledge can actually be bonus so that thinking is at strategic level rather than technical detail.
Applying internet thinking to the real economy isn’t easy but it is the path to big leaps. My top five tips are:
• Build networks not hierarchies.
• Treat customers as both consumers and producers.
• Look for step changes, eg, cut costs by 40 percent, by questioning the unstated ‘obvious’ assumptions of your industry.
• Don’t extrapolate the past to define the future.
• Promote openness and allow everyone (staff, customers, partners, suppliers) to innovate without asking for permission first.
As evidence of the potential of this approach, consider what Sir Ralph Norris did with Air New Zealand. In 2001 the airline had essentially collapsed. It was nationalised and Sir Ralph, person with the finest business understanding of the internet and IT, appointed CEO. After stabilising the company, he shifted focus from flying planes to flying people. He led shift to unique hybrid business model, combining full service and cut price. The central, critical enabler of this business transformation was the internet. Air New Zealand not only survived but thrived.
We need more of these stories, more big leaps forward. Limiting the internet to business function is likely to only deliver incremental gains. Applying internet thinking to business strategy, including the ‘real’ economy, is where the real opportunities lie. M
Vikram Kumar is CEO of MEGA and former CE of InternetNZ.
