Going digital? Rethink control as much as technology!
In light of recent conversations, it seems significant confusion and apprehension still surround what we now call “Digital Transformation”.
Following encouragement by some of my conversation partners, I therefore thought I would write a series of articles attempting to demystify the task facing traditional businesses as they gaze into their digital future.
In so doing, I will favor simplicity over technical or intellectual perfection, starting today by defining what I believe “digital” means, before moving on to defining “transformation” in my next article.
After 20 years in and out of the digital world, I have become convinced that digital is about unleashing human potential by:
- Applying data and technology to the relevant parts of one’s business
- Creating a new kind of customer relationship
- Embracing external collaboration
- Creating the right environment for employees to thrive
Indeed, I do not believe that remaining relevant in the digital world is simply about deploying technological tools. It requires letting go of traditional visions of control and embracing a much more collaborative approach to one’s business.
Applying data and technology
It goes without saying that using technology and increasing amounts of data to solve problems more effectively is a key part of digital transformation.
Thanks to the creation of the internet, the launch of mobile devices, unprecedented advances in processing, storage and compression technology and/or breakthroughs in data science, machine learning and robotics (to name but a few), machines are able to either:
1. Perform tasks we previously thought impossible (e.g. self-driving cars)
2. Outperform humans in meeting existing challenges (e.g. search)
It is therefore not surprising that a recent PwC survey of over 2,000 senior business and IT executives around the globe, showed very clearly that 85% of respondents still confuse digital with technology.
Unfortunately, this narrow vision of digital leads to a series of common mistakes:
- Excessive focus on technology investment at the expense of a more holistic, though sometimes more focused, approach including strategy, marketing, process design and organization restructuring (among others)
- Under-estimating the importance of data and how to apply it to a particular problem
- Asking the IT organization or a single executive to “solve the problem” as opposed to leading a “whole-company” transformation from the top
- Disregarding non-tech dimensions (talent, culture, leadership, governance)
In my experience, these mistakes are at the root of most of the issues plaguing digital transformation efforts.
Here are a few examples I have witnessed over the past twenty years:
- start-ups and large organizations developing a new technology that fails to find a market because it neither solves an actual problem nor meets a particular customer need.
- A large retailer complaining that, having created a best-in-class Enterprise Data Warehouse, her team doesn’t know how to leverage it, or even which questions to ask the data.
- Large telcos and media conglomerates buying B2C video platforms only to realize they have no ability to integrate or run this kind of business.
Technology undoubtedly has a role to play, but it is crucial not to over-estimate its importance.
At the end of the day, technology must be a tool to solve specific problems and seize specific opportunities, not an end in itself.
A New Kind of Customer Relationship
Recent technological advances have led to a radical change in the relationship between companies and their customers:
- A very different and infinitely more complex customer journey spanning the online, mobile and “brick and mortar” worlds
- More direct contact and two-way conversation with customers
- The ability to collect far more data about the customer across a growing set of touch points
In turn, this has allowed for new products (e.g. affordable customizable shoes like shoesofprey.com) and new ways of marketing them (e.g. influencer and social media marketing)
More importantly, it has led to widely different customer expectations.
In exchange for providing feedback and personal data, customers are now increasingly expecting to receive a truly personalized experience.
To remain competitive in the digital world, companies must therefore:
- Proactively capture customer data, turn it into genuine insights and use it to design not just products, but entire customer journeys and experiences;
- Constantly analyze and fine-tune how a customer interacts with their brand(s) either directly (e.g. through consumption or advertising) or indirectly (e.g. providing feedback on social media or review sites);
- Revisit core business processes, from procurement to customer service, in order to find opportunities for efficiency (e.g. through process re-design), relevance (e.g. by interacting with customers at the right time on their journey) and flexibility (e.g. through automation or supply chain flexibility).
In so doing, companies must also avoid three common digital traps:
- Transferring too much value to the customer by failing to price in the cost of customization (e.g. OOH companies offering highly creative campaigns using data without charging a premium);
- Excessive value leakage to data and technology platform suppliers (e.g. as is the often the case in programmatic display advertising);
- Creating an excessive cost of complexity through inappropriate process design (e.g. holding too much inventory).
This is a tall order to be sure, but, as companies like Amazon have shown, designing and constantly innovating outstanding customer experiences can give a company a seemingly endless opportunity to broaden its relationship with customers through the launch of new products or channels.
More to the point, this is a challenge traditional companies like Starbucks, which generates more than 40% of its revenue from non-beverage products, have risen to in the past.
Digital just raises the bar.
Embracing External Collaboration
Another defining characteristic of the digital economy is the way in which it has embraced inter-company collaboration to drive efficiency and growth.
At a micro level, digital companies have been able to drive the quality, cost-effectiveness, flexibility and speed of software development by “cobbling together” best-in-class software connected by application program interfaces (or APIs). A smart way to focus on their own core competence while benefiting from the expertise of others.
At these companies:
- The people delivering the end-user experience are not employees.
- The assets used to deliver this experience are not owned by the company.
- A really great app, customer and supplier relationships and the right processes to ensure a high quality, cost-effective customer experience are the sole sources of long-term competitive advantage.
I would therefore argue that remaining competitive in the digital world requires shifting one’s mindset from control and ownership to collaboration and partnerships.
Start with the bias that you should not build anything yourself and work back from there!
The right environment
Digital transformations often succeed and fail based on the level and quality of focus on what have traditionally been considered “soft” dimensions: talent, culture, leadership and governance.
Indeed, I firmly believe that the defining characteristic of outstanding digital companies is their ability to attract high quality talent and motivate entire organisations to excel.
The first way successful digital players achieve this is by reframing the problem.
They do not ask: how do I grow 5% this year? They dare dream the impossible, by asking the right question: What if I were able to go beyond received wisdom or remove a stumbling block and create something entirely new?
When successful in answering this question, they achieve something that most companies can only dream of:
- They give employees something they can believe in
- They find Blue Ocean (to use the phrase coined by INSEAD professors W. Chan Kim and Renee Mauborgne though a similar principle can also be found in Peter Thiel’s “Zero to One”), where they compete mostly against themselves, writing the rules of an entirely new game as they go along.
Second, they involve employees in solving problems, emphasizing empowerment and teamwork over hierarchy, ego and control.
Third, they make allowances for and sometimes even encourage the right kind of failures and imperfections, thereby enabling the kind of speed, calculated risk-taking and experimentation that drives productivity.
Finally, they recruit different leaders at all levels of the organization. These leaders genuinely believe in the boundlessness of human potential and aim to remain:
- Authentic at all times;
- As open as situations allow;
- Confident enough to engage in genuine dialogue;
- Skillful in modulating leadership styles on a much broader scale;
- Humble and flexible enough pivot when the facts or their understanding of them changes;
- Courageous enough to take calculated risks and allocate finite resources aggressively enough to make a difference.
By creating the right type of environment, these companies are able to attract the best talent. More importantly, they allow their teams to be “in flow”, a state of mind in which they achieve a multiple of what they are able to accomplish in the throws of anxiety or disillusionment.
Once such an environment is in place, it “only” takes applying best practice management techniques to achieve digital transformation, but in order for the environment to change, so must its leaders.
Over to you!
Invitation to continue the dialogue
If any of the above resonated or if you would like to hear more, stay tuned for more articles.
In the meantime, please do let me know what you think and reach out via linkedin, if you would like to discuss any of the above in more detail.