Why Big Companies Can’t Jump

A Business Story — Davids vs Goliaths.

Corporate leaders in every industry understand the need to transform digitally but many are struggling, where to start ?

Especially in enterprises with lots of employees, a history of success in building strong business assets and external market analysts who only want double digits from the established business models they have invested in.

The network of Appsolute Value have worked for and studied more than 20 firms that have been (and still are) transforming themselves to become Digital Masters. The outcome: Digital transformations come with many challenges, hurdles and gaps.

This is a series of 3 posts distracted from a larger e-book. The book (in draft) currently titles “The Customer is a Not King, He is a Dictator” has been written originally to celebrate ten years of mobile technology. In this Digital Business ‘Trilogy’ we share what we have learned especially related to Digital Transformations and Mobile Technology across industries.

David vs Goliath — Digitally-Born vs Tech-Wannabees

Disrupt or be disrupted. The main threat for the big companies are the small tech companies which create new business models with agility and high-speed. The big enterprises have followed suit with innovation labs, away from head office.

It’s the Goliaths versus the Davids. The Davids are digitally born. They do just growth-hacking. The Goliaths are tech wannabees. They do digital transformations.

In 2017 we celebrate 10 years of mobile technology. Most big companies are transforming towards a mobile first organization. Not an easy task since many have become big digitally only by using the web and many are handcuffed digitally by embedded web infrastructure. For Goliaths the main focus and resources are allocated to the intense integration effort.

For example Toys R Us’ CEO David Brandon recently announced their efforts to completely revamped their outdated website. Costs 100 million. Time; 3 years! 3 years in which more millions of dollars had to be spend on locked-in, outdated technology.

This is what we have seen at other companies as well, monstrous single-tech digital programs freezing other resources and multi-tech digital programs are not getting funded to build various digital artefacts. From a digitization point of view, this approach of digital transformation works rather counterproductive.

Although progress have been made, we have seen, senior management yet to produce the real top or bottom-line increases. The question is if the direct bottom-line focus is the right way to reach Digital Mastery. Venture capitalist follow different ways to quantify the return of investment. 1 out of 6 big companies cannot quantify the return on (digital) investment, Mc Kinsey reported recently.

So what improves an enterprise chances to become a real digital enterprise.

As all companies now are impacted by new technologies, we found it helpful to define three pillars leading to Digital Mastery, the 3S Model:

Strategy, Structure and Services.

Figure 1 — The 3S Model

Heart it before? Maybe but here is what it really stands for in the Digital era:

Strategy — Platform-first and understanding the Power of Interactions

The typical strategic thinking is that we compete over (physical) products and services.

I love to quote from the ‘new’ business model strategists Van Alstyne, Parker and Choudary to step away from typical strategic thinking while digitizing your business.

In their book the ‘Platform Revolution’ they have modelled the new digital enterprise very well, in an almost black and white setting. They simply divide enterprises in two worlds (i.e. business models), pipes and platforms.

The latter are the new-style companies embracing a new set of rules to corporate success.

Pipes still dominate every industry. They are firms that create stuff (products and services), push them, sell them to customers and customers consume them. It’s a linear flow of value-creation.

Television and radio are pipes, pushing out content. Schools are pipes where teachers push out “their knowledge” to kids.

Businesses on the web, blogs and eCommerce stores are all following the pipe model even though they run on the internet (being the world wide web).

Here is where a lot of enterprises take a wrong turn with the mobile internet and find it difficult to transform digitally beyond the web, by thinking one has to push the same stuff, just enabled by another technology and just another online distribution channel.

Still the internet is the reason the other business model emerged, The Platform Model. Platforms however don’t push stuff out to consumers. They pull consumers who co-create and consume value.

Apple, Google and Facebook are the great examples. Wikipedia, Open Table, Uber and Airbnb are other examples of the purest form of The Platform Model

For those who are not familiar yet with strategic platform thinking , here is a quick crash-course:

-Platforms make it very easy to connect by easy plug-in to the platform. (Youtube). Technically APIs are the best connectors.

-Platforms pull, both consumers and producers. (eBay)

-Platform fosters the exchange of data (content) and both consumers and producers co-create value onto the platform. The data creates matchmaking. This can be content or products. In case of eBay, this platform matches buyers and sellers of products. Wikipedia matches producers and consumers of content. Apple’s App store matches users and developers.

Platform thinking applies to all internet business. However most traditional enterprises are not fully internet based. Even if companies have invested big in Digital, this does not make them a successful platform business.

Therefore many industries are struggling to come to terms that the business model has changed and trying to integrate the two isn’t paying off either, resources show hard to be interchangeable !

The use case for web businesses are usually still linear established, thus pipes. This makes it an even larger obstacle to transform to a more platform business. This is a first challenge to think more in platforms.

Especially retailers are struggling with this challenge, eCommerce are merely web stores following the pipe model. They push product (information) and other content to customer, for them to consume them.

E.g. buying an insurance or applying for a credit card follows most of the same business process, just online, cutting out various paper-driven and other manual processes. There is the ‘convenience play’ to it for customers since they don’t have to go to a physical branch or insurance agency.

When they aim to become mobile-first to capture the always-on consumer, they meet the second challenge. Since web internet business has become push, they try to run new technology on a pipe model approach as well. However those digital transformations, extending mobile to the linear flow haven’t become a big success with a large, growing engagement of users in return.

The main reason is the digital thinking paradigm:

As we will see at the second pillar, the use cases for the platform model, using new technologies, are far more based on the interaction model. Mobile technology enables businesses to interact first with customers, this can lead to a non-linear flow, a transaction or more information to be consumed by the customer. Interaction makes the users on the platform also more intelligent.

Figure 2: Interactions favour mobile technology

‘Customer Intelligence’ created by platforms isn’t always perceived as a value. This maybe so from a pure commerce (i.e. sales) perspective however information on a platform creates value outside business boundaries, value to communities (being communities of users). When network effects kick in when the platform grows, the value of the community grows. The hidden secret to success is mining the data but in a different way than has been done by industry-wide grown web analytics tools.

It creates value to marketeers. If data is mined beyond the push processes of the pipe model (e.g the customer funnel) and more on the interaction of customers (and producers) on the platform, better intelligence will be the result. For marketeers, new more granular data emerge about target groups and more essential, about individuals which they can exploit (with the right software in place) for personalization and better campaigns.

Amazon have seen first success in leveraging more platform-based data models within the linear model. Despite some privacy concerns at first. Now the stage is there to go beyond and step up towards more personalization.

The best model for most pipes to grow to digitally is the ‘intelligent platform model’. Its not necessarily a hybrid model. It’s a business model built upon the Platform model with a strong Big Data play. Aggregating (consumer) data from both models including connected third parties paint new models like DaaS to monetize on. Data as a Service creates new valuable customer relationships.

Depending on the agility and digital transformation ambition companies can then earn themselves a spot as a Digital Master in the digital readiness quadrant of Westerman and Bonnet.

In doing so, this will increase also the likelihood to extend the companies’ life into the Digital era.

After having established your strategic digital direction, centered around platform thinking, the next step is to lay down the organizational foundations. (I call this the second pillar, Structure (or platform structure )).

We already saw in the Strategy section that platform thinking is key to digital mastery.

Creating new Digital Ecosystems

So enough about the notions of platform and pipes. Lets get practical. First of all, lets think more in interactions and where they take place most intensively, social networks and mobile devices.

The mobile experience must be at the center of the reinvented strategy, given the fact how smartphones and tablets are transforming how people interact with friends, retailers and other businesses. The customer journey needs to be reimagined, beginning with mobile and using the non-linear pull model. More on experience design in part 3!

Managers make decisions every day but not always curated ones based on strategic thinking. They may not recognize network effects, they know how to push but don’t know how to pull. They need to be guided and learn the other ways of strategic thinking and to understand how the new digital technologies work and work with product teams on a more iterative mode.

At the same time, as we saw earlier, business metrics need to adopt to the digital strategies. Most KPIs are still (direct) sales oriented. As we will see sales-driven KPIs follow more a push strategy while most digital strategies will create business value from pulling customers (‘engagement’), eventually leading to more (digital) revenues.

Product Managers are better off with KPIs like the ‘love ratio’ or Unique Monthly Visitors. These are better, platform-oriented KPIs to meet digital strategies.

Despite good intent, digital transformation effort suffer from sluggish, big-company ‘rulebooks” like long planning and budgetary cycles, market research missing the point, lengthy corporate processes, legal can’t do’s, C-suite decision-making powers and more.

New KPIs help redirecting focus to customer journey mapping (away from business processes). With a focus on the journey, there is more focus on the customer touch points to make them better and unlearn management to think inside-out.

Outside–in thinking is important to create the power of ecosystems, new ecosystems: your customers are your experts, not people within. So leverage the user from outside your business. User Testing, in this context, is a strong process to add to your digital organization.

Outside-in thinking isn’t the same as popular themes like 360 degrees customer viewing. Its simply about building platforms using the three most digital transformative technologies: cloud, social and mobile.

Use cloud as a global production infrastructure, mainly production of (new) customer services like messaging. Cloud infrastructure allows external developers to extend the platform functionality, using APIs, easy, fast and cheap.

In a platform-driven strategy we have seen more success at companies and their IT stepping away from the need for full legacy integration.

Mobile architectures are being built in parallel with existing business. Separate (platform) systems with customer facing capabilities have proven to be more successful (see case below). Simply because it allows the organization to be more committed to the strategy and it turns out it benefits the bottom-line.

The message is; donot expand your existing assets, build systems to employ assets of other’s. Generate user traffic and rely on network effects kicking in.

While these front-end systems can run by an agile organization, it allows digital products to fail faster, build a spirit of experimentation and change in much more faster release cycles.

Global organizations benefit as well. Local apps and (cloud-based) databases can be added as needed without touching much of any central underlying system that run the operational business side.

At one client we used new cloud services from Amazon Web Services to allow internal developers (for mobile products initially) to extend platform functionality towards local front-end functionality from the one side and to main central production, back-end functionality at the other side, just by writing simple, mean and lean APIs. This saved also a lot of time and money to integrate with existing, heavy-weight web services.

In banking, Blockchain technology promises even more disruptive transformation of a whole industry. It’s an open infrastructure, replacing global networks like e.g. the established (very complex and expensive) payment networks of the banking industry. With bitcoin, just being an example of a front-end application for platform-modeled transactions.

It makes this industry so interesting to watch, for other industries and for companies, eager to become a digital master and be a disruptor.

Banks are a Goliath, entangled and locked-in by their own networks, mutual agreements and infrastructure. Small tech companies (Fintechs) are now becoming little Davids, using new technologies like Blockchain to provide faster, better and much cheaper banking services.

The second technology which really fosters a platform strategy is social media. Facebook, Youtube, Pinterest not only build network effects, they also rebuild consumer’s online ID. It provides what’s called social gravity (attracting participants (both producers and users) to the platform.

The 3 C’s to construct Digital Ecosystems

With network effects and social gravity apparent, that other important platform element is kicking in, Matchmaking (creating value by making connections between producers and consumers on het platform). For matchmaking, three C ingredients are required Content, Community and Co-creation.

The interactions, now happening on social media, capture rich data. Data is the heart of matchmaking. Most importantly it constitutes a new online ID and its mainly built on customer’s mobile devices. There is only a handful of marketeers who enable mobile technology this way, for those that do, they tap into new business value and create new and far more personalised engagements with customers.

Just think about web vs mobile usage. A consumer uses a mobile device much more than a personal computer. It fills up a mobile online ID in a much richer way. Where consumers are, how and with whom they interact with their personal connections (family, friends), their lifestyle (using apps). To mention just a few, much more personal angles.

Beyond Apps

To think more in platform digital relationship building, mobile-first and creating interactions, marketing management and product management can collaborate in a new (triangle) setting to pull new customers and increase engagement enabled by technology.

Figure 3 — The Mobile Tech Triangle

Most of marketing managers mine and define their customer (behaviour) using linear analytics and instruments, Google Analytics, Adobe or key words for SEO optimization.

Just a few are aware that SEO doesn’t really work on mobile phones. However other tools like AppAnnie provide new sources of information about what people do and look for on mobile phones.

Instead marketing should reprioritize marketing budget and invest in new Analytics engines and engage with large social media providers like Facebook to find new customer data and create network effects with their marketing campaigns.

One example of a Canadian Retailer which has started to redefine their digital marketing towards the platform model is Canadian Tire.

With Tested they use nationwide, individual consumers to test products. Canadians test for Canadians is a solid community play providing co-created content on their social platforms (Facebook, Youtube) and even national television.

Another hidden gem is Canadian Tire’s Catch App. The App is creating a community of avid anglers who are using their mobile devices and the app to co-create and share useful information to other anglers. Very outdoor-driven, fostering the Canadian lifestyle, Canadian customers love to identify with.

Obviously the marketing and sales function need to redefine themselves. Marketing associated departments like merchandising (at retail), data-engineering, need to transform also. And find new digital partners who can transform your interactions and build new customer relationships.

Foremost, this shift need to focus on building new services that enables anyone with a smartphone (who hasn’t one) to connect, communicate and co-create (with a camera, voice or other content) and share. New technologies like AR, VR, IoT, AI in the end will all be mobile-enabled.

These services is what everyone calls ‘the user experience’, collectively ‘The Experience Economy’. Services providing awesome experiences to consumers are the third key (or pillar) to Digital Mastery.

Product Manager s— The new Digital Heroes

The role of Product managers is becoming more important. Especially their contribution in building the Intelligent Platform model. As I outlined in the previous 2 posts of this trilogy, the alternate business model for larger companies to embed in their digital strategies and digital transformation programs.

In collaboration with marketing management (and data management depending how organized), the product managers form the Interaction Management ‘business layer’.

Its very important and a key differentiator against small tech competitors (and even internally towards IT), this management layer upgrade their level of technical understanding beyond the web and master the ‘tech fearlessness’.

When we talk about Products, in the digitization context, we mean products, which use the internet as a base to create business value. At the internet, Products are rather a software application, a website (html) or mobile application (Android, iOS).

Once strategy and structure have been reset to the platform business model, these applications come into play to build new business value.

It makes it also easier to understand why mobile apps are better suited to build new platform business value:

· Mobile Apps reside on mobile devices which are personal and go where-ever users are going. Mobile devices not only build a more richer online ID (in favor of marketing), they also allow access to the platform 24/7 , anytime, anywhere.

· Mobile is much better equipped to interact with users. Interactions happen on mobile devices using mobile apps far more than on PCs, and growing.

· Mobile Apps allow for better (interaction) experiences. (because of the above)

· Websites push stuff. Mobile Apps pull (depending what services and experiences are provided to mobile users).

For instance retail apps most favorite features are shopping lists, sales alerts and (personal) offers. They all pull the customer.

Shoppers Drug Mart, Canada’s largest drug store retailer uses their Core app only to pull. They only display offers and coupons. Growing over time into more personalization and growing their loyal customer base as they link their app services to their own, Canada’s most popular loyalty program.

· Mobile Apps are cheaper to build, easier to maintain. This largely depends also on agencies and consultants who often grow these products for you. If they talk about responsive web design (being cheaper or easier to integrate), let this be a red flag for your platform strategy. It shows linear thinking extrapolating their linear ‘pipe-model- capabilities’.

· Mobile Apps are now around for a decade and have gone through an evolution. Native apps are becoming more a strategic product choice over hybrid and web apps. Main driver across industries is the rich experience.

Websites have grown in majority to the push model. Still examples have been established of Web applications growing the (intelligent) platform model. Mobile applications have subsequently built to provide mobile-specific services to grow the platform (of users and producers) even more.

There are some interesting examples emerging in the very traditional insurance industry and how new platform thinking can lead to new Millennial-wanted insurance products.

For a Dutch Insurance company the social technology platform provider Insided built successfully a customer community ‘Onderling’ allowing members to be actively involved in approving other member’s insurance claims.

In European and American insurance markets, Usage Based Insurance is becoming an increasingly popular insurance product where customers pay-as-they-go and can earn points (towards lower premium) based on their driving behaviour and compare how they do to other users at the insurers platform.

They are all examples of platform-based innovations, separately build with their own operating model, mean and lean integrated with the mother organization and branded separately.

Over time integration have shown to be very expensive, time and resource consuming and most importantly it holds in place the pipes, the organizations ‘comfort zone’.

Product management is all about service design. Products execs usually start with translating a platform strategy approach into a roadmap. New customer journeys are the input. If journey mapping has been done in the past based on a single mobile technology, reimagine them, don’t reuse them. Millennials are now the main target group for most businesses. They have different needs, different lifestyle and are very mobile-savvy.

Figure 4 Customer centricity with Service Design

Service design is a growing business capability. Organizations we have worked for lack a premium design capability. Adding (mobile) UI designers and UX experts to their agile processes is a strong step to focus on robust, awesome experiences.

In most agile teams, QA is provided by IT and/or the 3rd party development vendor. Product management can take more business-led responsibility for QA by allocating user testing to the UX team.

With the number of digital channels increasing, within the experience economy, its less about omni-channel, more about an overall coherence of digital customer-centric experiences

Some organizations we have worked for have made the extra step to turn experience management into an executive responsibility by appointing a CEO, Chief Experience Officer.

The CIO and its business peers like the CEO, can have that strategic conversation about the required set of products and services. It should provide new ecosystems where experiences are enabled by new and emerging technologies.

In retail, eCommerce ecosystems, as explained in earlier posts, have grown more like the pipe models pushing physical products. mCommerce, haven’t taken fully advantage of specific mobile (interaction) capabilities. Retailers replicated the eCommerce model onto mobile devices, just another set of screens, just another channel.

However mobile technology provides many more opportunities to build new services (experiences) to engage the mobile savvy generations of customers and to create platform value.

What we have seen working is boldness, not simply incorporating a few digital elements here and there. Moving the needle to make your customers learning the value of digital rapidly and set ‘customer satisfaction’ equal to speed, convenience and electronic accessibility in the purchasing process.

Canadian Tire has built experiences using new digital technologies like AR and VR. Those products not only set the stage for Digital revenue growth for this retailer without cannibalisation and rewarded with higher stock price by the public investment community.

As new technologies come around, retailers keep on having the opportunity to establish new ecosystems like Conversational Commerce. AI technology opens up opportunities to create new services like chatbots.

Chatbots can either be built to interact with customers and building (new) relationships or just push products similar to web ecommerce and mCommerce. It’s a strategic choice.

Bank of America has built a chatbot Erica and embedded the chatbot application into their mobile app. It lets the bot to built new relationships with customers, helping to manage and control their finances.

Digital transformation is a hot topic and driving dramatic change to every company. Resisting change is common, so it rather takes boldness to fuel powerful decision making across all management layers.

Big companies cannot be a small tech company. However they can open up to those companies by providing them access to their platforms (and charge them a fee).

So the premium to Digital Mastery is to scale the change of Digital Transformation. Not being a couple of loosely coupled initiatives but rather a digital program with a portfolio of initiatives following an approach of a strong digital strategy direction, internal collaboration and multi-functional teams (or agile ‘squads’ as Dutch Bank ING calls them) with people moving from (digital) project to (digital) project.

With so many digital technologies coming into play, being ubiquitous and affecting many new customer behaviour aspects, another key ability for large companies there is to rebuild powerful analytics engine and let the customer benefit, personally !

While Goliath cannot be a David, a David can become a Goliath. Big companies can move to the intelligent platform model. Building platforms, creating new experiences to engage users and upon platform growth, to make them customers and/or fans of your brands. Create the right wings and you’ll fly !