Digitalization: The threats and opportunities

Leslie Moeller Photo: PR

PwC strategy consultant Leslie Moeller will tell the Globes Israel Business Conference how companies can avoid obsolescence.

The threat of digitalization on the business model of veteran companies is so great that they cannot afford to continue with 'business as usual." This is the bottom line on digitalization, which both threatens and encourages businesses, says Leslie Moeller who leads PwC's Advisory Retail & Consumer practice globally as well as Strategy&’s business globally. He will address next month's Globes Israel Business Conference in Tel Aviv. Moeller sternly warns companies wishing to rely on their tried and tested capabilities, saying, "It won't be enough to remain competitive in the new digital reality."

Moeller said, "There are a lot of changes happening in the world that people are aware of. But probably the single biggest impact has been trends from digitalization and I think it's fundamentally transforming a wide variety of industries."

He continued, "Digital retail is growing five times faster than store retail. In Israel, it's a similar story digital has grown at 14% in the last five years versus 3% for stores. This is having a real impact on product companies and retail companies - you can take retail companies broadly including your typical retail stores but also banks, car dealers and anybody that is customer facing with a real estate store front."

"When Amazon committed to its identity they said that you know there are three things that consumers always want - more shelf space, a lower price and faster service and they'll never tell you that they don't want these things, and I think that digital makes all of that stuff possible. And as an aside, you know that if you are a retailer and you start moving volume out of your physical stores into digital - you know the stores lose scale and they start to lose money. So I think there is not just a change in the consumer experience but a fundamental restructuring that will occur in both retail and real estate. Fundamentally there will be much fewer stores in the world and much less demand for real estate and both the consumer products companies, the stores and the real estate industry will have to give."

Globes: Do you see a world without physical shopping demand?

"No. I would just say fewer and more focused. Consumers still want convenience in retail. There is also an experience that's worth having and so consumers are always going to want retail. The other thing that I think that is quite true is that consumer shopping happens and that won't change so fast so this migration to digital has been going on for a long time and will probably continue to go on for a long time. So it's not like I think it will disappear but I do think that they will become more contributing missions and there will be things like lifestyle or premium malls that serve us that way, I think that strip malls will still exist that provide consumers a shopping experience for focused categories but I think the amount of real estate that looks that way will be less. Significantly less. And if you are a retailer, right, the need to serve us both physically and in digital is imperative, you know you don't really have a choice and that's a complicated thing to do.

But maybe if I am a retailer I will need to possess storage place in every city and every state in order to meet the client's demands.

"Yes, I think retailers have that already. They have storage. I think the real question is how to serve consumers. Where in the supply chain to break the physical flow and start serving consumers from that. So is that from the PC or from the store level and then I think you probably need to have focused assets in that area that serve consumers so you're not just going to use your typical retail assets to do that. Commercial real estate companies and income producing real estate companies are a good example of the aforementioned overall new trend. But digitalization also provides other changes such as allowing many people to work from home or remote locations, which will change demand for regular office space, or create demand for offices in more sensitive urban locations."

"In any event, digitalization allows for expansion of services and a company's abilities, and all these will bring about a structural change worldwide."

Let's look from the consumers' point of view. Will companies with smart, and real time profit and recognition abilities make a new kind of consumer, maybe an unwanted and low grade class of clients that have bad credit history etc.?

Moeller said, "At the end of the day, the amount of information that companies will collect on consumers will allow them to better understand them and what their needs are and then for instance they will build business systems that better fit those needs. So if you look at banking. You can already see the difficulties that your traditional retail bank has as people move transactions more and more online you can see in the US for instance the number of branches, you know growth has stopped. On the other hand, dedicated fintech players can collect analysis and better predict peoples' liabilities and then find the right way to lend to them and that's not all for just wealthy individuals, for instance that might also be for people with good scores and have a good future and I think that people with a high credit risk that might have more availability to credit vis-a-vis what the risk is."

"Another place that's interesting," Moeller continued, "if you think about it is healthcare. The need to control healthcare spending is kind of universal. Having better digital and clear information on people's health is great, on their behavior and variables is good as well. So being able to provide real-time feedback on how they are doing, 24/7 access to some kind of healthcare support even if it's digital or telemedicine is probably a pretty exciting future."

"Obviously media is the first along this path, so if you look at telco and media, you know media has been digitalized for a while. I think broadcast TV in some countries continues to have a pretty good audience. Video on Demand and new types of personalized services are driving differences in the way that people are consuming media and that will have an effect on telco companies right. They will have more demand for their services, they will be more personalized but on the other hand if I'm just an infrastructure company, and I might be highly regulated, it's a question of how I'm going to make money. That market will face a lot of change and needs thought about what their model needs to be."

In his current position, Moeller leads retail strategy and consumer products. He has more than 24 years in consumer consultancy for leading companies worldwide and advises on subjects like growth strategy development, defining organizational identity, adapting business portfolios and more. In his previous position with Strategy& he managed the company's activities in North America, led the consumer products, digital and media practice and consultancy services in global sales and marketing.

As part of his job, he assisted companies in strategic development, building capabilities and coping with strategic questions faced by both large and small companies. What they want to be? What distinguishes them from their rivals? What activities should be expanded or reduced? And what is the organizational identity and the abilities required to implement a strategy and provide long term value?

So what will happen to industries if they don't adapt their business models to the new world and to the new technology?

Moeller said, "Companies that have not adapted their strategies face declining failure through eventual obsolescence. A lot of these companies have good physical assets and consumer behaviors are changing but it will take time. So I think the dangerous thing for these companies is kind of the gradual decline. They are not going to wake up tomorrow and be out of business but there is a slow, long-term gradual decline and they'll wake up in 10 years and wonder what happened to them. So I think the real risk is companies not being complacent and not taking the risks seriously enough.

So if you are sleeping today, you will pay the price 10 years from now.

"And the dangerous thing will be is that you know you are not growing, it'll be a kind of slow decline but you won't realize how bad it is until you are on the other side."

Are there entire industries that you see as obsolete industries?

Moeller said, "Not really if you define it broadly. Like consumers will always need, for instance, insurance. But you know insurance delivered digitally with a lot of programs with points related to fitness. I think there is a company called Vitality Health that does a really good job about that. You know they will change the way the industry works but it's not like people aren't going to need insurance."

"People are going to need transportation. But what transportation is going to look like. They can either buy a car or lease it. That's an open question. But it's all about fundamental consumer needs. So the way they get met might be dramatically different."

So what do companies that have the traditional face-to-face work with the client have to do to survive in a digital, global competitive world? What must companies do to change from a model based on physical terms into a high-tech digital company with high-tech capabilities?

He said, "I think the first thing that companies need to do is kind of commit to an identity that talks about a problem that they are going to solve and the way they are going to solve it. So if you go back and you look at Apple when Steve Jobs came back, and I think we can provide you the quote, but he said something like, and I'll get you the quote, "We don't need to beat Microsoft. Apple needs to remember who Apple is and that's what we need to do." And I think the whole vision they had of being the center of the consumers connected world, which is what they would do and then they became really good at doing, building a set of capabilities. You know integrating different technologies, not necessarily creating them but integrating different technologies. Doing it in a way that is consumer friendly and easy to do, and then lastly adding high-fashion with the public. Right so I think they were clear about where they thought the world was heading, what they were going to do about that and you know they are not the cheapest product but the best product and then building a set of capabilities up against that. And you know back at the time they were one of the first IT companies to go out and hire designers and add a real fashion component to the product. So, the issue is commit to an identity, which clearly defines your consumer proposition and how you are going to do it and think carefully about the capabilities you are going to build that will deliver that value proposition to your customers." "We've got a little bit about Amazon, I think it's a similar thing. In some ways they committed to provide everything that consumers want, right away at a low price. Right. So a lot of shelf space, low prices, immediate service. You know if you look at the businesses they have built they have been on that path, they have been often doing that. They started off with a really good consumer interface for Internet shopping. They have been building an immediate service distribution system in many ways, you know, from 24-hour delivery, from experimenting with drones you know to providing content digitally one of the world's largest cloud suppliers, cloud services suppliers. I think they make it very clear about what they want to do and then they've been building the capabilities to deliver that to their consumers and customers."

What Israeli companies are doing all this correctly and we can learn from them?

"IDI Insurance, known as Bituach Yashir, is the second largest insurance company in Israel in terms of market value. It's an insurance company that decided to focus solely on simple private insurance products mainly for vehicles and homes. It has the ability to price well, quality and highly efficient marketing, and has convenient technologies for those working with it. It's a direct and simple insurance company and it is putting very real pressure on Israel's other insurance companies, which have different cost structures."

He added, "Another example is the Shufersal supermarket chain that has successfully leveraged digitalization for growth. The company understands that it must adopt digitalization as a core element of its identity and operations in order to find a new point of balance with its physical operations. Despite its substantial market leadership, Shufersal has made major investments in digital infrastructure, in a proactive way, and shaped Israel's future food market, and show growth in its operations."

"The digital revolution is being felt in Israel but slightly behind others in the world," concluded Moeller.

Published by Globes [online], Israel business news - www.globes-online.com - on November 27, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Leslie Moeller Photo: PR
Leslie Moeller Photo: PR
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