“Digital transformation” is one of the most overused and yet least understood terms dominating boardrooms. As companies across industries face disruption and uncertain futures, one certainty has emerged — becoming digital is required to play and win in this “age of the customer.”1
Marketers have witnessed how the digital evolution is altering customer expectations, changing how companies create, deliver and capture value. Customers have more choices, connectivity and access, and these changes are driving demand for unprecedented levels of convenience, control and transparency. In our experience, no sector is immune to the phenomenon: nearly nine in 10 business executives anticipate that digital will drive significant changes in their sector.2 By the end of 2017, two-thirds of Global 2000 CEOs will have digital transformation at the center of their strategy.2
By the end of 2017, two-thirds of Global 2000 CEOs will have digital transformation at the center of their strategy.
Yet even as the threat of digital disruption is recognized, only four in 10 of those same executives say they are adequately preparing to play in this digital world.2 Organizational change is difficult under normal conditions; the speed and scale required by digital imperatives makes the stakes even higher. Given the notable attention to the topic, why do 84 percent of companies appear to fail at digital transformation?3
THE UNAVOIDABLE TRUTH
Why are organizations ill-equipped to reinvent themselves to meet the demands of the connected consumer? We suspect that part of the problem lies in the terminology itself. “Digital transformation” is frequently interpreted as something leaders do to their businesses. But doing digital is not the same as being digital. Doing digital implies the solution lies with implementing software, integrating IT solutions or adopting new platforms. In a 2016 audit of firms in retail, financial services, manufacturing, telecom and other verticals, the dominant focus was on transforming IT processes,3 not the business strategy, profit model, value chain nor the customer value proposition.
Simply changing technology doesn’t transform a business or deliver sustained competitive advantage. As Nicholas Carr pointed out, technology alone has become commoditized and is now, at best, a vanishing advantage. 4
In contrast, being digital requires re-architecting a firm in ways that might conflict with “business as usual”; may pose a threat to the historic philosophy; and requires a new value proposition, place in the value chain and operating model.
BEING DIGITAL: THE SIX-SIDED SOLUTION
How can companies explore and succeed in this modern landscape? The following key ingredients offer a digital transformation approach that sustainably creates, delivers and captures value.
- Focus on customer outcomes. Understand what customers want to achieve, and then leverage digital connectivity, data, analytics, and new business models to deliver the end goal to the customer. (Example: Philips Lighting Managed Services now sells lighting as a service, not just lightbulbs. It understands customers do not want the best lightbulbs and fixtures, but instead want reliable, cost-effective lighting.)
- Embrace the new digital ecosystem. Companies in today’s complex digital ecosystem must identify emerging roles, potential partners, new competitors, shifts in value and communications trends to understand how to retain customer mindshare through evolution that truly differentiates. (Example: GE Digital has positioned itself into the center of the Industrial Internet of Things through its Predix platform. At the same time, it’s leveraging the GE Digital Alliance Program to partner with Cisco, AT&T, Intel and others, maximizing opportunities that drive industrial productivity and efficiency and deliver unprecedented customer value.5)
- Link channel activation and data systems to unmistakable customer value. Companies must resist temptations to blindly turn on channels and invest in capabilities without clearly understanding if and how they will create value. Companies that build consumer journey models and analyze performance at each stage are strongly positioned to remove friction and add utility and convenience. (Example: Rocket Mortgage by Quicken Loans delivers nearly instantaneous loan approvals by utilizing existing infrastructure to collect critical personal and financial data from applicants, saving time and reducing frustration, all through a digital device.)
- Map explicitly how digital creates, delivers AND captures value. It’s far too easy to chase the “shiny object” without defining a complete business model. Companies should ensure each new experience has a complementary value equation that supports key business objectives (financial and strategic). (Example: Disney’s MagicBand implementation overcomes customer objections to waiting in line and enables enhanced visitor experiences, which simultaneously provides both a new revenue stream and valuable customer behavior data to fuel the next innovation.)
- Enable persistent change management with nimbleness and agility. Companies must embrace a continuous culture of experimentation and risk-taking to iteratively evolve experiences at the speed and pace necessary for an organization to succeed. (Example: Amazon publicly embraces “high-velocity decision-making,” which never uses a one-size-fits-all process, requires only 70 percent of the information you wish you had, fosters a “disagree and commit” culture, and escalates true misalignment immediately. This fuels its Day 1 mentality.6)
- Define a strategic North Star to align investments and activities. Companies that establish a long-term mission realize the benefit of unwavering guidance for investments and initiatives toward the directed future state. Consistency of purpose eliminates the possibility of misaligned investments that are common in digital due to the abundance of hype around advancements. (Example: Garmin uses a North Star of “designing for people who live an active lifestyle.”7 This principle ensures Garmin doesn’t chase potentially attractive yet brand-detracting ideas like specific smart health care products [g., glucose meters] that could dilute the brand while tying up significant resources.)
IMPLICATIONS ON AGENCIES AND BRANDS
The digital space is intrinsically dynamic, interactive and exploratory, and will continue to disrupt and upend markets across industries. The price of failure to meet customer expectations is undoubtedly steep. While organizations typically experience the pitfalls of doing digital with IT solutions or disparate experiences, being digital requires leaders to step back and reassess how they serve their customers (and what value they create), and if their organization is adequately prepared to play and win in the emerging digital world. By addressing each of the six ingredients, leaders will activate the necessary revitalization of their people, culture, leadership, business models, processes and organizational structure to truly achieve the transformation of being digital.
About the Authors
Karen is a director in VML’s global advisory practice. She guides business leaders to understand disruption trends to identify strategies that transform global brands in competitive markets, spur revenue and profit growth, deliver superior ROI, and achieve strategic business goals.
Ben is a director in VML’s global advisory practice. He works with executives to develop digital strategies, business model innovation, and growth strategies that transform organizations and the customer experience.
1Forrester, “Digital Transformation in the Age of the Customer.” Commissioned by Accenture Interactive. 2015.
2MIT Sloan Management Review, “2016 Digital Business Global Executive Study and Research Project.” July 2016.
3Forbes, “Why 84% of Companies Fail at Digital Transformation.” January 2016.
4Carr, N., “IT Doesn’t Matter.” Harvard Business Review. 2003. https://hbr.org/2003/05/it-doesnt-matter
5GE Digital, GE Digital Partner Program Brochure. 2017. https://www.ge.com/digital/sites/default/files/GE-Digital-Partner-Program.pdf
6Amazon, “2016 Annual Report.” 2016. http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual
7Garmin, “2016 Annual Report.” 2016. http://www8.garmin.com/aboutGarmin/invRelations/reports/2016_Annual_Report.pdf