Digital Transformation Ahead…Ignore At Your Peril
Guest Post by James Vila
Did you know that Digital Transformation is a ‘thing’? Of course you know that digital marketing is a thing, otherwise you wouldn’t be here, breathing in the wisdom of colibridigitalmarketing.com But what about a bigger picture digital transformation?
“…the application of digital technology in all aspects of human society.”
Wikipedia (as good a source as any on this particular topic) defines Digital Transformation as “the change associated with the application of digital technology in all aspects of human society.” I like this because it gives a sense of the breadth of impact this change is having on all of us.
Digital — fad or fate?
However, as we all know there are so many trends labeled as ‘transformational’ in business, that most of the time, the wisest course is simply to ignore them. Just tune them out and focus on the basics: creating a product or service that meets a customer need; ensuring it is available in the right channels at the right price; and finally, communicating the heck out of the value proposition to create demand and drive sales.
But what do you do when one of these transformational trends proves to be the real thing, when the very basics themselves are changed by it? Just occasionally, ignoring trends can kill your business, just ask the ghosts of corporations past, companies such as Armstrong Rubber, Cone Mills or Hines Lumber. Never heard of them? Well, they all featured in the 1955 Fortune 500 list.
By 2014, 88% of companies on the 1955 list had disappeared from the Fortune 500. Even more striking, Forbes contributor Steven Denning has demonstrated that Fortune 500 life expectancy is declining precipitously. 50 years ago, it stood at c. 75 years, now it is less than 15. Technology has always played a huge role in business disruption and I believe Digital Transformation will significantly accelerate the company fatality rate.
As digitally literate business people most of you are already ahead of the curve in this area. So my point is not be a doom-monger but to get you even more excited about the future! To provide some examples of the impact that digitalization is already having and get you motivated about how to meet some of the the challenges and opportunities it presents.
From Steam To Digital
Think of digital transformation as the 4th major wave of industrial disruption. First we had steam, which mechanized production, then electric power which created mass production, thirdly information technology, which created the Internet, computerized processes, and gave birth to eCommerce.
And so to the fourth revolution — digital, which is blurring the lines between physical, virtual, and even biological entities.
So what do we mean by digital transformation? I define it simply as a means of creating new opportunities by creative application of some specific new technologies to change what an organization does and how it does it.
In other words, creating new business models (how you make money), new operating models (how you run the business), new products and services, and new user experiences (what you sell and how it is consumed by customers. The key technologies driving this forward are Artificial Intelligence (AI — think Alexa), the Internet of Things (IoT — think smart home), advances in Big Data (think Google’s search algorithms), Mobility, Augmented/Virtual Reality (think Pokemon Go and Oculus Rift), Peer to Peer and Cloud Computing (think Spotify, iCloud, Amazon Web Services).
There is one more key characteristic that is essential to an understanding of digital…and that is speed. This is not one of those market disruptions that will take years to catch on. The essence of digital is that it changes things very fast.
Sawhney’s Three Models of Digital Disruption
Work done by Professor Sawhney at UCLA has done a nice job of identifying three simple digital disruption models which i think helps make all this real.
1. Uberization — creation of “On-Demand” services, connecting customers with assets and/or labor marketplaces that match demand with existing and new sources of supply’ Examples include the eponymous Uber, Lyft, Airbnb, Instacart (grocery delivery), Doordash (food delivery) and Taskrabbit (home repair).
2. Servicization — providers that use networks to add intelligence to assets or to offer assets as a usage-based service. This model has typically been more prevalent in B2B market place.
The most striking examples are software companies such as Google and Salesforce, Cloud Service providers such as Amazon and traditional industrial companies such as GE and Caterpillar that are providing added value by embedding sensors in their hardware that delivers data which helps its customers use the hardware more effectively.
These companies have transformed the way organizations implement systems such as Customer Relationship Management (CRM), (Enterprise Resource Planning) ERP and Human Resources (HR) that are essential to the way they run their businesses and consume basic IT services such as applications, storage, security and compute power. These disruptors have forced giants such as Microsoft, SAP, and Oracle who were once able to command huge margins for their products and services, to completely re-engineer their business models.
3. Amazonization — using technology to increase logistical efficiency and enhance customer experience, removing intermediaries such as traditional retailers or distributors from the process.
Clearly Amazon is the most powerful example here. The havoc it has wreaked upon the traditional retail environment should be sufficient unto itself as a proof point. In the last year alone we have seen the disappearance of storied brands such as Radio Shack and Sports Authority, whilst retailers such as Macy’s, Sears, and even Target and Walmart are closing hundreds of stores. In the 2016 Holiday Season in-store sales dropped 5% and the number of transactions fell 7.9% according to estimates from analytics firm RetailNext. In May, a research note from Credit Suisse predicted that up to 25% of malls in the US will disappear in the next 5 years.
Digital Is Real: Keep Calm But Please Change The Way You Carry On
So what are the implications for you and your organization? First, it makes sense to understand whether your business is susceptible either to the threat of the basic disruptions described above, or more positively, are there growth opportunities you could be looking at? Is what you are selling relevant and priced correctly? Is the competitive environment changing? Could you disrupt your competitors by leveraging digital capabilities to provide new products and services to existing customers, or create new products and services to expand your customer base?
Second, undertake a quick audit of how you run your business. Could you reduce your costs by taking advantage of open source software, or usage-based Cloud service providers? Taking out non-value-adding cost will enable you to invest more to differentiate the experience you offer your customers. For example, are you leveraging analytics to understand not just your customers but also the efficiencies of your processes? Are your infrastructure and your processes agile and adaptable enough to adjust your approach in real time vs. ripping and replacing every time the market shifts?
Finally, from a marketing perspective, are you keeping your eyes on the prize to understand how shifts in technology are driving changes in target audience behaviors? It is estimated that US digital marketing spend will near $120 billion by 2021. Investment in paid search, display advertising, social media advertising, online video advertising, and email marketing will pace to 46% of all advertising in five years. However, many players are dialing back pure digital advertising investment, prioritizing instead investments in data, technology, and customer experience infrastructure.
For example, looking back, how quickly did you enable mobile and social in your communications strategy? Again, how strong is your application of analytics in determining messaging and channel mix optimization?
Moving Ahead with Digital Transformation
Whatever the areas you decide to prioritize, don’t let perfect be the enemy of good. As the 19th Century British writer Anthony Trollope once wrote: “A man’s mind will very gradually refuse to make itself up until it is driven and compelled by emergency.” As we all know, any decisions ‘compelled by emergency’ are rarely good ones. Digital time may not be on your side…so get going!
About the Author
James Vila is a Senior Customer Experience Strategy Management Consulting Leader with 20 years’ experience in global enterprise transformation including 8 years at Cisco Systems working with top 50 Customers to design and implement new business and operating models and creating new customer experiences at the intersection of business and technology innovation.
Originally published at colibridigitalmarketing.com on July 18, 2017.