From automation to digitisation
A couple of months ago I wrote this blog foretelling “the end of the age of automation”. The other day I read an article in the paper about how an online accounting system (SaaS) vendor was jeopardising the livelihood of auditors and accountants. They have devised a disruptive approach of providing “assurance” to banks about their clients’ financial integrity by integrating key financial indicators into the clients’ books. You don’t need an auditor or accountant to advise you on when and how much you can apply to borrow from the bank when your executive dashboard includes a ‘borrowing health’ indicator. This spoke exactly to the threat most existing companies will face by ‘digitisation’.
Firstly some context and positioning. Dr Michael Rosemann from QUT was one of the keynote speakers at a three day conference. And faced with a tough crowd of steely CFOs all with a firm grasp on reality, that job was never going to be easy. But he did it with style and panache, credibly building a compelling vision of the future of business and the key role that CFOs with “digital minds” would play in it. Nobody I spoke to afterwards was anything but engaged and alive to the message and the opportunities.
The thrust of the presentation was that we are in the downward slope of the age of automation where investment and effort were focussed on the power of the company to drive productivity, efficiency, low cost per transaction, etc. Of course an “age” goes on for ages and the job of a keynote speaker is to jolt you out of complacency, but the new “age of digitisation” is already upon us. This is the age of business being disrupted (of course it’s evolution, not revolution) by new companies with new business models driven by “digital minds”. These business models frequently connect individual service suppliers with individual customers at a micro level. In doing so they remove the operational aspects that many traditional companies are heavily invested in.
Breaking away from the examples given by Dr Rosemann, here are some things that have changed for me personally that completely align with the message.
An obvious and globally headlining example is Uber. Taxi fleet companies have relied for years on the high barrier to entry to fend off and protect themselves from competitors. The cost of vehicles, licenses, booking, despatch and billing systems, etc made it difficult for new players to gain a sufficient foothold and scale up. Then along came Uber. “You have a car, I know someone who needs a lift, let me connect the two of you”. And the legacy model was broken. Payment goes from hirer to driver with a healthy clip for the introducer. Yes there may be legislation and insurance issues but they don’t seem to have stopped the world from embracing Uber in a rush. By the way this ‘service’ has been around for decades in lift sharing and cost-plus hitch hiking around the world. I considered using it via newspaper classifieds, in the States in the early 80s to get from East Coast to West. “Meet me on the corner of 37th and Broadway, pay half the gas plus $40 and I’ll give you a lift to Denver”. The other current market darling in almost the exact vein is of course Airbnb doing the same thing with private rooms against hotels. I have used both of these services at the expense of the traditional models very satisfactorily.
Here’s another personal example. I have a dog, a scruffy stupid one, but the kids love him. When we go on holidays he usually has to stay behind. There are only a few pet kennels within an awkwardly reasonable distance from where we live. I guess the barrier to entry is probably pretty high for new players. The cost of land nowadays makes a kennel business a bad investment and I’m sure there is plenty of legislation involved as well as vehemently objecting neighbours. We used to put the dog in to one of these places, the daily rate was outrageous and I really didn’t believe the service was 5-star as we pulled away down the drive. But those few kennels had cornered the local market and were probably pretty complacent about their business model. Then we discovered Pawshake, business that connects pet owners with local families who are willing to look after a pet in their own house and garden. And the legacy pet hotel business is broken. We found a family with a huge garden only 10 minutes away who didn’t want to own a dog but loved the idea of having one for a week or so now and then, and at a quarter of the price. Payment goes from dog owner to local family, with a clip for the introducer, and the dog gets a much better holiday as well! Now this digital business won’t be constrained by geography, space and animal welfare legislation (and backend automation), it can connect pet owners and local families all around the world and clip the ticket 24 hours a day without any capital intensive investment other than the web technology. Gently introduce some online advertising and product sales on the web page for a cost-free kicker.
None of these businesses are shatteringly new concepts by the way, they take a commission for introducing buyer and seller, a marketplace; nothing new there. The difference is in the cost base. It’s all front end and no back end. No capital infrastructure, no bricks and mortar, no vehicles and warehouses, no land, no plant, no massive payroll. Nothing but the technology layer and a payment gateway. And probably large legal bills in some cases.
While many in the current world are frantically focussing on the age of automation – interconnecting all the systems in the backend and between the backend and the frontend to drive down their costs – the new world has done away with the backend completely and is driving a different business model. Dr Rosemann’s point was compelling for the agile thinking CFOs in his audience. You don’t have to stop what you are doing right now but you do have to start thinking about what you have in hand that you can use differently in this new world.
A great example of this I came across just last week is JJ Foods. This is a food supplier for restaurants in the UK. They were constantly hearing from their clients that it was difficult to setup an online presence that really worked, was affordable and self-manageable. Yet most restaurants really wanted to do it as they saw the growth potential for bookings and delivery/take away sales. JJ Foods was a trusted supplier to a large community with a common problem and they were visionary enough in 2012 to decide to branch out. They developed FoodIT as an online restaurant platform and have spun off a completely new line of business with a recurring revenue model that leveraged their existing customer list. You can see the easy sales pitch: “you already buy all this food from us, how about we help you sell it as well?”
Talking to CFOs at the dinner table that balmy night on the Gold Coast, one individual had already seen the possible opportunity within his own business to repurpose and refactor something they already did at an enterprise level and turn it into an “as a service” offering to the market starting with their existing clients.
For this company the age of automation was the enablement for their age of digitisation. I think that is exactly the conversation that Dr Rosemann was striving for.
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