Every Company Is A Technology Company. Or Is It? (Part 2 of 4)
Channeling the digital obsession
“Every organization I talk to says they’re doing digitization,”
said, Robert Sutton, Professor of Management Science and Engineering, Stanford UniversiProf. Sutton is not alone in making this observation. In fact, unless one lives on the moon, it’s almost impossible to not notice this wave of digitization. Of course, Blackberry, Nokia and Kodak lived on the moon! (No offense! I love how these companies are reinventing themselves!)
In my previous article in this series, I talked about how one could attribute the success of a digital strategy to the companies’ ability to recognize, understand and respond to three key trends that have occurred over the last decade or two: the Obsession, the Osmosis, and the Overhaul.
Today, let’s discuss the first of these.
Trend 1: The Obsession
It’s fair to say that almost all companies have a digital agenda today. Not doing anything to digitize the business poses risk of going obsolete, but even doing something to digitize is highly prone to failure.
According to a study by Fujitsu in 2017, the average cost of a failed digital project is above USD 570,000. I refuse to believe that 70–90% of companies, after investing exorbitant amounts in digital transformation, fail at setting the right culture, leadership, skills, or alignment (to which most online literature on digital transformation success/failure point). There has got to be something deeper and more fundamental that guides success.
In my view, it is the way companies define ‘digitization’ and channel their digital obsession.
Every company perceives the world differently, understanding their strengths and threats differently. This makes them define the term ‘Digital’ differently, and hence their attitude and plan towards digitization varies vastly.
Quoting George Westerman, Principal Research Scientist with the MIT Sloan Initiative on the Digital Economy –
“When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.”
Broadly, there are two ways in which companies define Digital — one leads to a fast caterpillar and the other to the butterfly.
Defining Digital — Take 1: The fast caterpillar
The first and the most common definition that companies form is equating digital with innovation, often brought about by startups and young companies.
This is a fair definition for legacy enterprises to get started with. But it allows for a fatal human flaw to creep in —
We are all programmed to oversimplify others’ successes and overestimate our own strengths.
In imitating startups, we infer their success as something that can be achieved quickly by launching a lot of innovative experiments — after all, these startups grew quite fast. Moreover, we begin to rely on probabilistic outcomes, thinking, “if we launch 10 experiments, at least 1 of them will be successful, and that will drive us through the next disruption.”
When we look at digitization with this lens, all these experiments tend to focus inwards on the strengths and weaknesses of the existing product, and manifest in the form of one or more of the following responses, giving us a really fast caterpillar!
Technology obsession: Believing that innovative/disruptive companies succeeded because of the technology stack they adopted and the only way to go ahead is to get the same stack in our business. And thus begins a multi-year lift-and-shift exercise with metrics that ‘make digital happen’. Often, the end objective gets set to statements similar to:
Let’s set up a private cloud and move our operations to it
Let’s re-architect the product with microservices and DevOps, using agile practices
Let’s find an application of blockchain for our product
Data obsession: Believing that disruption stems from the strength of the data pool of the company. Everyone saw the acquisition of Whatsapp for over USD 20 Billion, even though it had no revenue, only a whole lot of data. Someone said, ‘data is the new oil’ and we all started to build up our own reserves of this new oil. But in doing so, we forgot to define what we want to do with all this gathered data. Have you heard statements like the following?
Let’s gather more data about our customers
Let’s set up a best-in-class data warehouse
Let’s create a single view of the customer
User Interface (UI) obsession: Believing that all we need is a better, slicker user interface to make it easier for the digital-savvy consumer to get to us. After the success of Airbnb, several hotels and travel sites thought that the answer was in adding the ‘search with maps’ feature to their reservations app. After the success of Amazon in online retail, several brick-and-mortar stores like Sears launched an ‘online ordering portal’; After the success of several mobile apps, a lot of websites launched a mobile app that had the exact same information and experience as the mobile site and then struggled to increase app adoption. Companies with this mindset, often make such statements as:
Let’s make our customer interfaces seamless and more ‘with-the-times’
Let’s create a user-friendly mobile app
Let’s increase our touch points with the customers (read send them more offer notifications)
What’s wrong with these, you ask? Well, technically, nothing! These are all great first steps! They bring about incremental efficiencies to the business — generally in terms of cost reduction or process improvement — and also help change the mindset of the company. They bring more agility to the system, and in fact, work well in influencing the ‘public image’ of the company as a ‘tech company’. Hence, with these moves under the hood, companies get all geared up to set-up well-funded digital initiatives.
Funding, public image, agility, mindset change, efficiencies, new-age tech — these are all important elements of any transformation. But what often happens is that these scattered experiments in innovation and technology adoption run in silos. Hence, they make the business better to a large extent, but because they do not consolidate into an overarching business strategy, they almost never succeed in tackling the issue of competitive advantage.
Defining Digital — Take 2: The Butterfly
The second take on defining digital, which is more evolved but less common among companies, is when they equate digital to value creation for the business. This means that when companies look at new-age digital practices, they first figure out what value this would bring for the business, define metrics that indicate business outcomes, and then plan what changes in the technology, data strategy or UI do they need.
Prima facie, Google seems to have grown with scattered experiments. However, if you look close enough, you would observe how all of Google’s (or Alphabet’s) offerings add up to the single goal of hyper-personal data collection. Whether it’s the flagship search engine or Google Home or Google Nest — all of their in-house and acquired products are built with a unified end-to-end strategy of creating a single view of each and every user — their preferences, lifestyle, location, opinions, needs, relationships, and every other imaginable point of data — to hyper-personalize delivery of information to them and increase the usage and stickiness to Google’s products.
Much the same way, on its face value, Amazon appears to be built on a collection of scattered experiments, however, all of its offerings are centered around a single goal — increasing e-commerce transactions. They acquired businesses and launched products to support this one goal alone. Some businesses like AWS are incidental from the infrastructure they created in order to increase e-commerce transactions, and making it serviceable to other users was an after thought.
Companies like Alphabet, Amazon, Uber and Airbnb, being digital natives, understand this since inception and find it easier to respond appropriately to this trend. They do not have to go through a shift in mindset. Legacy organizations, on the other hand, need to be more mindful of how they respond to this trend — it’s a slippery slope of being disguised by the early success of scattered digital initiatives. Unlike what the startups and the digital natives make it look like, the path to digital transformation for legacy organizations is a long one and there is no quick fix way to achieve it.
Nike, for instance, has had over 25 years of experience in experimenting with and learning the ways of digital transformation. Nike went through three waves of transformation before finally getting it right — starting from scattered experiments moving onto unified experiments to finally creating a business strategy for the digital age. It is a classic example on the importance of embedding digital transformation in the business strategy. GE and Ford had very similar experiences with their scattered digital experiments, or even unified ones that were cut off from the core business strategy.
Thus, for legacy organizations, digital transformation is a long-drawn game with short-term milestones.
Of course, this doesn’t mean that any strategy is a good strategy to unify innovation. In order to reap the most benefits of your digital transformation, create your strategy around your customers and your ecosystems.
Customer obsession: Let me take the example of Kodak to explain this. Kodak recognized itself by its product and defined its business as making and selling analog cameras. When they thought of digitizing, transforming, and improving their business, they took steps to strengthen this proposition. But now let’s flip this. Had Kodak recognized itself by the customer need it served, it would have identified itself as being in the business of capturing moments (remember the iconic Kodak moment?) and their response to digitization would probably have been different. This is the difference that customer obsession can make.
While digital transformations last over years, customers preferences may not remain the same over the years. This, thus, becomes a more challenging task than simply setting an objective and achieving it because the objective is always moving.
The only sustainable advantage you can have over others is agility, that’s it. — Jeff Bezos, CEO of Amazon
It is important to be agile and continuously incorporate feedback from customers to improve our offerings. Digital transformation, for companies with this view, becomes a continuous process.
To build customer obsession, ask yourselves two key questions:
What is the ‘primary need’ of the customer that we can address?
- People don’t want to book a taxi, they want to go from point A to point B. If traditional taxi companies focused on this, they would have launched Uber before Uber.
- People don’t want to withdraw cash or own cards, they want to buy what they want, when they want. If traditional banks focused on this, they would have launched Apple Pay before Apple Pay (and the several others).
- People don’t want to buy the best running shoes, they want to compete and stay fit. In the last decade, Nike focused its digital transformation effort on this and succeeded after previous two phases of partial success/failure.
How can we reduce our customers’ pain points?
- People have to wait for too many days after their online purchase as compared to the instant gratification of in-store ‘retail therapy’. Amazon realized this and worked on its supply chain, bringing in features such as ‘Amazon fulfilled’. Sears, on the other hand, could not support its online ordering with a robust supply chain and the digital storefront caused even more frustration for customers than shopping in store ever could. The best of tech, UI, data strategy and funding by Sears in its online business could not save its downfall.
- People have to fill in the same information while signing up for any mobile app. Facebook solved this by launching Facebook Connect — allowing users to fill in their information on Facebook once and then use a gamut of other apps with just one click (figuratively, of course). Banks will soon realize the same pain point of people in getting ‘KYC verified’ by several agencies. A one-click ‘Financial connect’, similar to but more trust-worthy than ‘Facebook connect’, is soon on the cards. And the Bank / financial industry player that builds this first will have an edge over the others and have a better chance at market dominance.
In the Facebook Connect example, notice how in solving the customer’s pain points, Facebook actually solved the pain point of the app developers that sat at the periphery of its ecosystem. Thus branching from customer obsession to ecosystem obsession.
Ecosystem obsession: This is similar to customer obsession, except that instead of centering the business definition around customers, companies begin to think about all the players in the immediate and the peripheral boundaries of their ecosystem. They begin to redefine their business model as that serving not just the customers, but also the suppliers, the facilitators, other producers, and so on. This also increases the complexity of the transformation another notch, but when done right, such transformations create disruptive leaders.
To build ecosystem obsession, ask yourselves:
What are the needs of everyone in our ecosystem (and not just customers) that can we can address?
How can we reduce the pain points of everyone in our ecosystem?
What business are we in?
I’d leave out the details of this one for the fourth and the final article in this series — the Overhaul.
Concluding remarks
Customer and Ecosystem obsession is not achieved with digital enablement alone, but with ‘Digital Thinking’.
Digitization is a state of mind, a way of thinking, that works towards eliminating friction from the system and enabling seamless transitions between the various channels of interaction. Digital enablement brings in efficiencies and is always the first step towards any digital transformation — a no-regret move — but in the absence of a customer/ecosystem-centric strategy, after the initial efficiencies are achieved, companies may find it difficult to translate them to business value.
It’s phenomenal what companies have been able to achieve by simply channeling their obsession with the term ‘digital’. Hats off to all those who are on this path. Nothing worth doing comes easy.
Watch out for the next article in this series, where I’ll talk about how ‘Osmosis’, the slow blending of technology and business acumen, influences the success of digital transformations and digital organizations.
Read previous: Every Company Is A Technology Company. Or Is It? (Part 1 of 4)
