Digital or Die

Introduction

I am hearing a LOT about digital these days. Every large organisation seems to be investing in a digital strategy with many creating new C-suite Chief Digital Officer roles. (There is now even a CDO club. Interestingly with a website that looks to be from the mid noughties). But what do we actually mean when we talk about digital? Is it a technology? A distribution channel? A way of thinking? Depending on who you ask, it is all of these and more. It is also intrinsically linked to data and analytics (hence my interest). This post will attempt to unpick what digital actually is, what’s driving its growth, why it matters and its relationship with data and analytics.

Digital Vs Analogue

Digital describes technology that generates, stores, and processes data in terms of two states: positive (1) and negative (0). It contrasts to analogue technology, which conveys data by representing it as electronic signals of varying frequency or amplitude.

With analogue technologies information is conveyed as an analogy of reality (hence the term. No I didn’t know that either). For example, an analogue watch conveys time by representing it as hands moving across a circular face and an analogue cassette recorder (like the one I used to record songs from the Sunday chart show on — taking care to pause it at the end of every song) records sound as magnetized areas on a reel of plastic tape. This represent an analogy of the sounds originally heard (it being the mid 1990’s, it was probably Oasis).

Instead of storing information on materials like plastic film or magnetic tape, digital technologies convert the information into a string of zeros and ones, transmit them in a variety of ways (such as radio waves for mobile phone calls and telephone lines for the internet) and then decode the zeros and ones back into information at the destination.

Digital has several benefits over analogue. Digital signals are more error resistant. They don’t degrade over distance as they are transmitted or over time as they are stored. Digital information can be more easily converted between media and accessed or distributed remotely than analogue. And digital information takes up less room than analogue — consider how many bookshelves you would need to store the contents of your kindle or how many vinyl records represent what’s on your iPod.

Viva The Revolution

The number of people using digital technologies such as the internet, personal computers and mobile phones has skyrocketed. This is due to the relative cost of these technologies and the elements that underpin them (computing power, storage and bandwidth) decreasing, and also due to the fact that it has become impossible to live a normal life without using them. (How DID people navigate the streets of London before Google maps?) This has given rise to the term ‘digital revolution’.

The social, economic and political implications of the revolution are phenomenal. Interconnectedness, communication, trade, globalisation, ASOS…. The ways of working, living and communicating that we now take for granted stem from our ability to convert information into zeros and ones. And we DO take it for granted. I recently threw a massive wobbly at Apple because my iPhone 7 would not retain downloaded music; I had a full blown argument with my Amazon Echo because Alexa couldn’t find the Archers podcast (seriously Alexa, how hard can it be); and I have stuck with my high street bank despite the fact I know for certain I would be better off switching to a different provider simply because I know that the bank who would benefit me financially don’t have a mobile app, which is the way I prefer to do my banking. The 11 year old who patiently hovered over her cassette recorder every Sunday afternoon diligently pressing pause when the song ended had far lower expectations than I (and the vast majority of other consumers) do today.

Amazon didn’t have to transform — it was born digital

It is this change in consumer expectations that has got businesses to pay so much attention. When businesses talk about digital strategy they are talking about putting in place systems and processes that enable them to interact and transact with customers via the means that have become commonplace thanks to the digital revolution. The personal computers and smartphones and mobile apps that we now take for granted and demand businesses use as channels to interact and transact with us. The reason that we demand this form of engagement is that it is efficient and convenient. Why would we queue up in a bank branch for twenty minutes when we can transfer money on our mobile phone app in less than 60 seconds? Why would we trawl through the local Yellow Pages to find hotels and then call them to see who has vacancies when we can research and book on TripAdvisor? Why would we buy a street map of a city we are visiting for the first time when we can navigate on our phones? Digital is the new normal. It’s what we expect. And businesses that are unable to provide it are unlikely to attract or retain our custom. (Remember Kodak and Blockbuster?)

The challenge to businesses that have been around since before the digital revolution is that their systems and processes were not originally designed to operate in the digital era. The likes of Amazon, Uber and Netflix came into being once the digital revolution was already in full swing and as such designed their products, distribution methods and business models around digital technologies from the off. They didn’t need to transform. Organisations that have been around for longer than this have (for the most part) not been able to naturally evolve to keep up with the rapidly changing technology landscape and consumer demands. Legacy technology, siloed application-centric views of data, a lack of digital skills and a lack of agility have all made it challenging for large, traditional organisations to keep pace. As such they have to implement digital transformation programs to force changes in the way they operate to enable them to compete in the digital world.

This doesn’t just mean attracting and retaining customers, but increasingly extends to employees as well. I am part of the last generation who remembers what it was like before the internet, mobile phones or podcasts. In just three years’ time millennials will constitute around 50% of the global workforce. Their impact on the world of work will be felt more keenly than any other generation that has gone before them. Their expectations, skills and ways of communicating all differ greatly from the generation before (have you tried to have a conversation with a sixteen year old lately?) and are often incompatible with traditional corporate culture. Thus corporations need to embrace digital not just to attract and retain customers but talent too. This means transforming internal processes as much as the customer facing elements of the business.

Digitalytics

Digital transformation programs obviously vary hugely by industry and company. Some common threads include mobile, social, cloud, real-time, data-driven and analytics enabled. The importance of data and analytics to digital strategy cannot be underestimated. Garter go so far as to suggest that “…data and analytics is not simply a set of related disciplines, but instead has become a multidisciplinary field within a larger digital business strategy.”

Data analytics are so key to digital strategy because:

1. It enables companies to compete for their slice of the digitally enabled customer base;
2. It helps businesses transform their internal processes to make them more efficient and competitive; and
3. Digital interactions themselves generate reams of data which companies can then plug into a glorious feedback loop to learn even more about their customers and compete even better.

Lets’ look at each of these in turn.

Let’s get personal

Companies have been using analytics to understand customer preferences and needs and target appropriate products and offers for years. Before the digital revolution this was done by, for example, sending snail mail shots and then analysing the demographics of those who responded or conducting surveys or focus groups. This was slow, data volumes were small and therefore the inferences that could be drawn from them were limited. Post the digital revolution we increasingly interact with companies online providing real-time feedback on what works and doesn’t work for us and allowing companies to continually adjust what they offer us based on our feedback. For example, real-time A/B testing is used to optimise web content; increasingly granular models are used to predict what customers need based on life-stage; income; location etc.; and recommendation engines are used to suggest products, content and even romantic partners based on our personal preferences and those of people similar to us. We are much more likely to purchase a product if it has relevance to us, and are increasingly irritated and likely to switch-off from a brand or provider if they continue to extend irrelevant offers. Of course there are downsides to this approach. For example, Facebook assumes that because I am at a time of life where pretty much every woman I know is pregnant or a new mum I too must be interested in nappies and nipple cream. But on the whole, data driven targeted marketing fuelled by and delivered via digital channels does deliver business benefits.

Heal thyself

Data is also crucial to helping businesses digitally transform their own internal processes. In an increasingly competitive landscape where consumers have more choice and freedom to switch providers than ever, companies must combine their consumer-centric digital process enhancements with internal process enhancements to keep costs low and the business efficient. This need is compounded by the point we touched on earlier relating to the changing workforce. Recently graduated millennials are likely to be more attracted to organisations who boast digitised, data-driven, automated internal processes and practices than those still require paper expenses receipts, report using spreadsheets and PowerPoint packs or make decisions based on executive hunches and not data. Using data to drive people decisions in HR can ensure that new hires have the right skills and cultural fit and are onboarded successfully reducing attrition — a key risk in the current ‘war for talent’. Google, for example, mines data about pretty much all employee behaviour, from the length of the lunch queue to the behaviour of new hires. Managers are sent regular prompts (based on modelling of historic data) when they have a new starter suggesting how that new hire might be feeling and actions the manager can take to ensure their first few weeks are as pleasant and productive as possible (I can’t find a link to back this up but someone who works at Google told me. And they’re Google. So I believe it).

BIG data (it actually genuinely is)

Finally, digital interactions generate data. Lots of it. Big data in fact. In the days before internet shopping the majority of retailers knew nothing about you. The advent of loyalty cards gave a select few of them access to your shopping history and basic demographic information. (Most famously Tesco who used Dunhumby to crunch the numbers). Internet shopping gives all online retailers access to this information, as well as data on the products that you look at but don’t buy, any online reviews you leave, the terms you enter into a search engine, your payment method, the device and location you are connecting from etc. As this data is being automatically generated through our online behaviour (and doesn’t require expensive focus groups or lots of stamps to obtain), collecting and analysing it is a no-brainer. These digital breadcrumb trails helps companies understand customers better, driving increased personalisation and optimisation of prices and products.

Conclusion

So there we have it. From analogue cassette recorders in the mid 90’s to arguing with your amazon echo today, in less than twenty years the digital revolution has seen consumer expectations and interactions change drastically. Probably more so than in the preceding total history of retail. Traditional organisations are scrambling to adapt to this new world for which their technology, processes and culture and not designed and are implementing digital transformation strategies galore to force change or risk becoming irrelevant. The race is on.