Legacy Enterprise Insights

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Legacy Enterprise Insights

Some challenges facing legacy enterprise companies in the age of startups and digitization currently and in the future include:
  • Financial damage and bankruptcy.
  • Emerging technologies that force traditional models to become obsolete.
  • Understanding and implementing algorithms.
  • Merging physical and digital consumer experiences.
  • Navigating a rapidly changing business environment.

Below, you will find a deep dive of our findings and methodology.

METHODOLOGY

To conduct this research, we first analyzed the current and future/evolving challenges and threats facing legacy enterprise companies by examining case studies of legacy companies and insights published by reputable business media publications such as the Harvard Business Review. In doing so, we were able to illustrate a narrative of these challenges and threats, which have been presented below:

FINANCIAL DAMAGE AND BANKRUPTCY

Many legacy companies are facing financial damage and even bankruptcy as the result of digital disruption. These companies include Borders Books, Blockbuster Video, Sears, and JCPenney, to name a few. In 2018, retailers filed for bankruptcy at "record-high rates" as the result of changing consumer shopping habits. At least 16 major retailers shutdown in 2018, including Nine West, Claire's, The Bon-Ton Stores, Toys R Us, Remington Outdoor, Sears and Mattress Firm. According to McKinsey, digitization is putting a huge amount of pressure on financial growth for companies.

EMERGING TECHNOLOGIES FORCE TRADITIONAL MODELS TO BECOME OBSoLETE

Legacy companies face the threat of emerging technologies that disrupt their existing business models, for example, Ford, which is 115 years old. New technologies are disrupting the traditional automotive industry. These technologies include things such as electric vehicles, self-driving vehicles, ride sharing apps. Given this, Ford's CEO stated that "the model of the past is no longer tenable." Another example of how emerging technologies forced a traditional model to become obsolete was in the case of technology company, Cisco Systems, which faced a tricky transformation. The company had to be 'reshaped' from top to bottom in order to be transformed from a technology hardware company into a company focused on selling hybrid cloud and software subscriptions. According to training and business expert Robert Brodo, legacy companies must "disrupt their own business models before others do." Data from the IBM Institute for Business Value, 55% of executives worldwide agree that traditional value chains are currently being replaced.

IN THE FUTURE, ALGORITHMS WILL POSE A MAJOR CHALLENGE

According to the Harvard Business Review, "Every industry will soon be driven by digitization and every winning company will soon be using algorithms, or mathematical rules for processing information, to shape the end-to-end customer experience." HBR further notes that in the future, algorithms will be the driving force behind creating business value, legacy companies are faced with the challenge of becoming a 'math house', and that it's possible for them to do so at the same speed a start-up can, as evidenced by the digital transformation of legacy company GE. For example, GE is "is reasserting its preeminence by reinventing itself in the context of the newly emerging digital space." McKinsey notes that a lack of understanding regarding digital trends and a lack of digital talent are among the biggest barriers companies face when it comes to digitization, representing 25% and 24% of survey respondents respectively.

MERGING PHYSICAL AND DIGITAL EXPERIENCES

Legacy companies that have focused primarily on brick and mortar or physical product sales are challenged with finding innovative ways to merge their products and customer experiences with the digital age. For example, Nike is tapping into the consumer smartphone obsession to create a more seamless customer experience between the online and in-store segments. Overall, many aspects of the traditional customer experience have now become "digital by default" and data from Forrester shows that 46% of CEOs "think that half of their revenue will come from digital channels by 2020." According to McKinsey, in order to remain competitive among digital startups, companies should focus on digitizing the customer journey.

A RAPIDLY CHANGING BUSINESS ENVIRONMENT

According to training and business expert Robert Brodo, legacy companies are facing exponential change as the result of digitization. Brodo notes that in order for legacy companies to survive this, they need to operate with "boldness, purpose, and agility". Beyond adjusting their business model, Brodo notes that accomplishing this also requires a company to change their mindset about outdated methods of reaching successful outcomes as these methods won't lead the company to success in the future. Legacy companies are faced with the challenges of needing to become more future-thinking and nimble in terms of their company culture. According to a report by McKinsey, competitors who move more quickly and assertively through digital reinvention gain more rewards. They note that among companies "whose annual EBIT growth averages 25% or more," the majority are those who are competing digitally, while only 3% are still operating on a traditional model. The company also notes cultural and behavioral challenges as the biggest barrier to digitization, as noted by 33% of survey respondents.

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