Digital investment frameworks: a value-based approach to focusing effort and intent
We’ve seen digital move from the periphery to become a core concern in almost every large business over the last decade, but often without a clear understanding of its role as a value driver, nor with a principal position in strategic planning. The result may be underinvestment, delay, diffusion of effort and the curse of continually revisiting old battlegrounds. This article is an argument for well-communicated investment frameworks built around a common understanding of the specific value that digital can add to a particular company, at a particular stage of digital maturity, in a particular market context.
The need for investment frameworks is all the greater in complex, federated organisations — think of a global manufacturer with semi-autonomous national marketing divisions. Typically, one or two markets will be early adopters of digital and go their own way, sometimes duplicating effort and creating waste. Others will look to global to lead — and then divisions squabble over who pays and who gets what product features or resources. The digital team is faced with multiple conflicting demands and tries to please everybody, loses focus, attempts too much, fails everywhere. We see these patterns again and again.
The way to change the pattern is to create a set of guiding principles that every manager responsible for investment proposals and decision making understands — completely. The framework is built on a well-informed and shared understanding of how to create value for customers, how to apply business assets and capabilities effectively, and how to exploit the full potential of digital product design and technology to create a defensible strategic advantage. This should be encapsulated within one clear product vision, driven by customer insight, that enables leadership to make quick, consistent and effective investment decisions; helps product teams understand their objectives and remit; and enables divisional leaders to appreciate the characteristics of a product that is likely to make it onto the product backlog/roadmap (and avoid wasting everyone’s time by pursuing no-hopers).
Here’s an example. In 2015 Finnair was — in digital — the same as every other airline, meaning it was beholden to third party global distribution systems which took a big cut of the seat price. Sales leadership spotted an opportunity to gain significant commercial advantage by bringing ticket sales onto a well-designed bespoke booking engine, making direct sales, first in the home market, then for its profitable Asian long haul routes. The team targeted a 10% increase in conversion that would generate €30m additional revenue. In fact, once the beta site was rolled into production it achieved a 35% increase in conversion and 20% increase in order value. This would generate c.€165m additional revenue if all ticket sales were direct (they’re not — it’s 50% in the home market and around 15% in Asia). Nonetheless, in terms of return on investment (which was in the low single figure millions of euros), that’s an annual multiple of >20x in revenue terms, a significant rise in profit margin as well as improvements in efficiency ratios.
That was then, this was 2017. Finnair was asking, Where do we go from here? There was no clarity around how digital leverage worked elsewhere in the value chain and four product teams (in web, mobile, in-flight and shared services) struggled with lengthening backlogs, overlapping roles and no clear product objectives.
And so a strategic reset was initiated; this resulted in a framework to inform investment decisions and product objectives around a two-to-three year time horizon. At the heart was a shift in focus from sales (job done) to retention and brand building through improved customer service. A deep dive into customer needs generated a high level value proposition with a foundation in genuine customer insight, encapsulated in a deceptively simple phrase: “Finnair [aspires to] treat every customer as an individual: they can tailor their experience, stay in control and feel at ease before, during and after their journey”. The phrase unpacks into a set of clear priorities: capture and generate data that enables Finnair to recognise it customers and (crucially) act on that information in real time; help customers stay connected and in control (especially in buying ancillaries and coping with exceptions and flight interruptions) and enable them to feel at home and in comfort through the emotional highs and lows of air travel.
At the purely functional level these priorities suggest ways to win: single log-in for all of Finnair, payment details and preferences shared across all touchpoints, automatic rewards for loyalty; a clear and up-to-date journey view and flexibility to tailor the flight; payment services I’m familiar with, information in my language, support at my destination or changeover.
The message to stakeholders is clear. If a product supports these customer goals and generates useable customer data, it is likely to be prioritised. Likewise, organisational and operational blockers (eg. destructive service agreements and KPIs) must be eradicated and technology dependencies removed, gaps in customer knowledge bridged. An obvious and immediate change was greater investment in mobile — an inherently personal channel — and the extension of the scope of the mobile app from loyalty rewards to flight management; greater investment in in-flight entertainment and onboard wifi, where use is exchanged for personal data; the creation of a shared services team building APIs to serve ticketing, flight management and loyalty on web and mobile; and a shift from native to hybrid mobile apps to accelerate development. Everything flows from a clear common purpose into new channel-specific KPIs and team objectives.
The effect of this new framework was to shift digital focus from basic e-commerce to serving the whole customer journey, and creating the culture, teams, capabilities and operating model to design a new category of experience. It also helped stakeholders from different departments to understand collective priorities and how to pursue them from a departmental point of view. Waste was eliminated, backlogs cleared and renewed, operational and infrastructure adjusted around supporting the value proposition and — most interestingly — stakeholders from operational divisions brought into the digital team as digital transformation champions with intimate knowledge of operational procedure, constraints and opportunities. This represented a new level of digital maturity for Finnair.
Now let’s travel from Helsinki to Copenhagen. The Carlsberg Group, in 2018, was as ever worrying about the structural decline in on-trade sales. What could digital do?
The answer was discovered in a programme called ‘Reinvent the Bar’ that explored multiple aspects of customer need, technology opportunities and service provision for bar, restaurant and hotel owners, initially in the key (and very varied) markets of Hong Kong, Switzerland, Denmark and the UK.
As at Finnair, investing in the capture, analysis and delivery of actionable data within products was a cornerstone of the framework that arose out of Reinvent the Bar. Key insights were that hospitality owners lacked data with which to make informed decisions to increase sales and grow their businesses, as well as suffering from high staff turnover and consequent quality failings and excessive recruitment and onboarding costs. There were opportunities to use data from Carlsberg sales systems, POS systems and open APIs and also to reduce reliance on subjective sales knowledge (which encouraged pursuit of short term KPIs and risked increasing customer churn).
Critically, the purpose of products and services was elevated above ‘beer sales’ to growing customer effectiveness and capturing and reusing customer data, reducing reliance on sales teams (and so reducing cost of sales and customer churn) and growing customer value. This was the basic investment framework, one that stretched the boundaries of the category.
Four products that fitted this model included online self-service trade sales, a training app for bar staff that promotes up-skilling and thereby retention and employee satisfaction, and an intelligent easy-to-install refrigerated beer keg that monitored usage. Most successful was an AI-powered business insights app that helped bar owners to understand optimum times for opening and closing, local events to support, popular food and beverage combinations, beer and other taste trends and local benchmarks for turnover and profitability. This exceptional ‘how to grow’ support service with 10 different data points was so effective that users’ month-on-month incremental spend increased by €430 per month, yielding a 9% increase in revenue from Carlsberg’s on trade customers and 65% ROI in the launch year.
Ascential plc in 2018 was a very different situation: a private equity backed company in the middle stages of a transition from old to new media, reinventing a magazine and events business — a chunk of the old Emap empire — as ‘a specialist information data and analytics company that helps the world’s most ambitious businesses win in the digital economy’. This goal was achieved through a hybrid approach of acquisition and organic digital transformation. One of Ascential’s biggest and most analogue brands is Cannes Lions. The investment imperatives here were clear: maximise the audience value and earning power of the five day main event at Cannes — and reduce churn. With digital generating just 11% of marketing category revenues in 2019, it was important to shift revenue share from physical to digital and to even-out revenue generation over the year. Another clear opportunity was to leverage the brand into new categories that can be served online, such as business education. Consider this the framework.
Two product ideas that fulfilled these key objectives were taken forward. First, an app that enabled Cannes Lions visitors to get the most out of networking and events at Cannes — people and parties! the real reasons for attending — with the goal of reducing churn. The second had the objective of increasing digital income and year round revenues, achieved by using the classic digital tactic of repurposing an underused asset. In this case, the asset was found in the untapped reservoir of 50 years of entries of video, radio and print advertising submitted to the Cannes Lions awards. By cleaning up and reorganising the data and introducing smart search filters that suited real audience needs, we gave the archive a new lease of live and generated €1.5m subscription revenue in the first year, paying back 75% of investment and fulfilling a prime directive of the investment framework.
A digital investment framework identifies strengths to be utilised and weaknesses to be overcome in order to achieve specific business objectives, be they to redefine a category, defend against disruptors or push up strategic barriers to entry; its instruments might be a fresh customer insight or a new ways of applying existing assets, capabilities or partnerships; or finding smart ways into adjacent markets or channels that build the lifetime value of existing customers — in all cases using combinations of digital and data leverage alongside traditional business mechanisms.
If you’ve got this far, you must be wondering, then, is ‘a digital investment framework’ any different from ‘a business strategy’? The answer is No! Except in one important way: a digital investment framework is a business strategy that places digital at the core and as an instrument for breaking through into new territory. It describes the over-riding objectives that an investment idea should meet, and states “This is how we decide how to employ our resources”.
The case studies cited above are from Made by Many client programmes. Illustration by Paul Davies. This article is one of three companion pieces on digital investment process, digital investment frameworks and potential rates of return.
