January 21, 2014

Companies Pursue Cross Sector Growth as Digital Technologies Dissolve Traditional Industry Boundaries, Accenture Research Finds



New digitally enabled markets to achieve higher growth rates than the traditional sectors they replace


DAVOS, Switzerland; Jan. 21, 2014 – As the global economy continues to recover, a majority of companies intend to pursue growth opportunities outside their own industry sectors as digital technologies help create new higher growth markets, according to new research by Accenture (NYSE: ACN). The research also shows that most top executives believe the ability of new digital technologies to dissolve industry boundaries is the most important structural shift businesses will face over the next five years.

The report, “Remaking Customer Markets: Unlocking Growth with Digital,” includes a survey of 500 C- level executives in 10 countries, which reveals that while 64 percent say their companies will continue to focus on growth within their current industry, 60 percent plan to pursue growth in, or in collaboration with, other industries in the next five years. The report examines six ‘digitally contestable markets’ in which established and new players from multiple sectors are using digital technology to reshape traditional industries and create higher rates of growth: Healthcare, education, financial services, manufacturing, retail and transportation. Among the findings:

According to the report, the aggregate value of three digitally contestable markets in 2018, alone – shopping, paying and staying healthy – will be US$5.9 trillion to the U.S. economy, €747 billion to the German economy and GBP£519 billion to the economy of the UK.

Despite recognizing the fundamental shifts taking place within their own industries, only 38 percent of the executives surveyed said that these shifts would be the primary driver of their company’s strategy, while 60 percent said their strategy will be influenced most by broader economic conditions.

“Digital technology has been with us for years but is now dramatically disrupting and reshaping traditional industry sectors,” said Mike Sutcliff, group chief executive – Accenture Digital, which offers solutions and services across digital marketing, mobility and analytics to help companies unleash the power of digital to drive growth. “Although companies recognize the potential of digital transformation, many are not yet aligning their growth strategies accordingly. Revenue growth will increasingly depend on their ability to embrace digital business models to redefine their own sectors, transform the way they operate and create entirely new products and services.”

Working with new partners
The report also reveals how companies plan to participate in digitally contestable markets in the next five years. Collaboration, rather than acquisition, is the preference, according to the research. Of those companies seeking growth beyond their current sector, 63 percent will create strategic alliances and 46 percent will enter into joint ventures. Only 39 percent plan to expand into non-traditional industry sectors through mergers and acquisitions.

Asked what capabilities will be needed for success, executives surveyed pointed to a blend of digital and “analog” requirements. Digital technologies were identified as critical enablers, including data analytics (cited by 50 percent of respondents), mobile computing and/or app development (48 percent) and social media (46 percent). But, consistent with the need for greater collaboration, the most important enabler identified by business leaders is in fact personal relationships and networks, cited by 58 percent of executives.

The report shows that there is a gap between companies’ intentions and their readiness to pursue new business models, however. Among survey respondents who classified their companies as being above-average performers, 80 percent said their businesses were well positioned to understand trends outside their traditional industry, compared to just 52 percent of respondents representing low-performing companies. Additionally, 84 percent of respondents from self-classified high-performing companies said they were well positioned to collaborate with outside entities to grow in non-traditional business sectors, compared to only 39 percent of low performers.

“Customers’ experiences increasingly rely on services jointly provided by companies from multiple sectors as banks, retailers and travel companies work together, for instance,” said Mark Spelman, managing director, Accenture, and co-author of the report. “Incumbents must be open to entirely new ventures and partnerships that disrupt their existing business in order to secure future growth. And while sharing data and deploying mobile or analytics technologies is important, companies must develop new capabilities and more flexible strategies to form those more open and collaborative networks that are at the heart of digitally contestable markets.”

Steps to success
According to the report, companies that hope to expand into digitally contestable markets and achieve competitive success must master three key capabilities:

“In digitally contestable markets, customers care less and less about which company or sector provides services, as long as those services meet their needs,” said Mark Spelman. “That creates commercial threats and opportunities, of course. Policy makers and regulators also need to respond to the blurring of industry boundaries if they are to keep up with customer demands and if they are to ensure regulation supports rather than restricts dynamic new forms of economic growth.”

View the full report at accenture.com/customermarkets.

About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with approximately 281,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com.

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Contact:

Matthew McGuinness
Accenture
+ 44 7740 038 921
matthew.mcguinness@accenture.com