Digital business: where to play
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At an alumni networking event, guest speaker Professor Brian Armstrong shared his insight into the opportunities at our doorstep
The tipping point for digitalisation in South Africa may be only two to four years away. That’s how close we are in South Africa to the conditions that created the technology giants of the business world. At that point, digital technology becomes an essential part of everyday life and central to business strategy and operations.
How can we seize this opportunity instead of being crushed by it? Where do we look for the best way in?
Dr Brian Armstrong, Professor in the Chair of Digital Business at Wits Business School, gave some pointers at an alumni networking event at the Wits Club on 19 October. He also spoke about some of the dangers that could lie in a more digital world.
Dr Armstrong (BSc Eng 1982, MSc Eng 1985) has over 30 years of top level management experience in telecommunications, IT, technology R&D and systems engineering, in South Africa and abroad.
Whose opportunity is it, anyway? Dr Armstrong pointed out that the leaders of the world’s top tech companies are mostly middle-aged and older – like some of the Wits alumni at the event. And this isn’t a bad thing, because tomorrow’s businesses need not just engineering skills but also experience, leadership and management of people.
Disruptive force
Dr Armstrong said not all industries are equally at risk of being disrupted by digitalisation. The highest risk is in “knowledge industries” such as education, media, legal services, health care and consulting. But because the South African economy is skewed towards services, two-thirds of the economy is at high risk of digital disruption.
Why is this digital phenomenon so powerful? Armstrong believes that creativity and innovation happen when previously separate things intersect. An example from music: when blues and gospel met, the world got rock n roll.
Digitalisation is powerful, he said, because it is at the intersection of three things: new technology; a changing society or market; and changing business models and practices.
When deciding “where to play” in this business environment, it’s important to consider different industries, the trend towards convergence, and African opportunity.
Get specific but also prepare to cross boundaries
Different industries and certain parts of industries generate different levels of economic profit. Pharmaceuticals, for example, are at the high-profit end of the scale. Electricity utilities are at the other end. Also, business growth comes mostly from top-line and segment growth, rather than from increasing market share. And it comes from specific parts of an industry – sparkling wine, for example, might be the best performer in the broader beverages industry.
Over the decades, the world’s big technology companies have succeeded in different categories, such as fixed-line telephony or computer hardware or television. Now, these established businesses are moving towards each other and crossing category lines. The “digital migrants” or hybrids that are doing best in terms of share price growth – showing compound annual growth rates of around 40% in 10 years – are those that almost defy categorisation. Think of companies like Amazon, Google, Uber, Alibaba, Apple, Tencent and Netflix.
The evidence thus suggests that the next wave of transformation and opportunity is in the intersection of industries.
How ready are we? “There is an incredibly high correlation between digital readiness and financial performance of digital businesses in maturing digital markets,” said Armstrong. Where a market has high levels of adult literacy, smartphone penetration, mobile broadband and e-commerce, recent history shows that companies grow revenue, earnings and market value. South Africa is just a few years away from its “commercial digital tipping point”.
An eye on the challenges
Armstrong’s advice to start-up businesses is to know where your competition is coming from and to find something that global giants can’t replicate. Two things that are hard to replicate are a good relationship with a supply chain; and giving your customers an excellent experience.
So much for what can go right. What can go wrong is that the internet does not necessarily level the playing field. It actually concentrates wealth. Four global tech companies together outweigh the GDP of Africa. This inequality is not sustainable.
We also have to remember that “people are analogue creatures”, said Armstrong. Compared with machines, they are slow, costly and prone to making mistakes. So it is tempting for businesses to replace people with technology – adding to the problem of unemployment and inequality. And sometimes people deliberately destroy, cheat and steal. Technology gives them even great power to do this. So security and regulation are a challenge and we need to talk about how to deal with them.
It’s still important, said Armstrong, for a digitalised world of business to have “old-fashioned” values, skills and leadership, and to teach people to communicate and collaborate.