July 03, 2018
If you want to dip your toes into the mystical magical world of Digital Transformation, you might find this cheat sheet useful. It's a big topic and a bit of googling will reveal there's a myriad of approaches to crack it. Naturally, at Valtech, we came up with our own definition to tackle this beast:
Digital Transformation is the process of adopting new business models, organization designs, strategies and work practices to gain competitive advantage from digital technologies.
For the purpose of our article, let's simplify and say that competitive advantage based on differentiation is about providing more added value to our customers. In our experience economy, added value—aka: market premium—springs out of a greater level of personalisation, if we pay heed to the works of Joseph Pine and James Gilmore[1]. We might therefore infer that the more effort we put in to serve our customers' needs, the more we get out of them. Easy.
That is until we let the innovators’ dilemma muddy our waters. As laid out by Clayton Christensen[2], businesses face diminishing ROI from serving existing customers and, while incumbents are busy optimising for the mainstream customers' current needs, disruptors can overtake them by focusing on niche customers and future needs. The latter is a speculative strategy, a luxury for large businesses, nevertheless it is the key to securing success in the long run.
And to make matters a tad harder to chew, we can add accelerated market change onto our plate. Customer behaviours, technology platforms and standards and our competitors' strategies are all factors beyond our control that drastically affect our position.
The good news: businesses can scale quicker and exploit the long tail of their markets more efficiently than ever before, thanks to digital. The bad news: these opportunities are just as open to the next guy as they are to you. The solution? Learn faster than they do.
Learning is an effort, it takes investment of time and resources. The question naturally arises: how can we decrease the cost of learning? The adage is to 'fail fast'. It is the notion of weeding out bad ideas through trial and error. Fail fast is the mantra of all Silicon Valley innovation frameworks out there, from Design Thinking to the Lean Startup movement. A bias towards action is good because it flexes those practices that enable your organisation to react to customers in real time.
With these principles in mind, you can brace yourself for the transformation bit. It takes time and it is by no means a linear process, however there are some steps worth considering. If for nothing more, than for the reassurance of performing due diligence.
First, have a game plan. In consultancy terms; develop a clear strategy. More precisely, an alignment of three levels of strategy:
- Corporate strategy: the top layer that guides the allocation of resources, organisation design and portfolio decisions
- Competitive strategy: a BU's plan to achieve a target market position through managing its marketing mix and tackling market forces
- Customer Experience (CX) strategy: the approach to optimise your service or product to the target customers
Second, define your ideal delivery mechanisms. Borrowing some tricks from service design, you should map out and spot the opportunities to improve the processes that underpin your operation—i.e.: production, training, customer service, data management and so on.
Third, turn your attention to your culture and ways of working: your shared values, mindset, practices and competencies (hard and soft skills). Technology provides the tools, but it's the community of your people that will ultimately realise the potentials of digital.
Finally, make a roadmap to develop those digital tools and to improve them continuously. Here we have two aspects to consider:
- Systems: software features, standards and platforms and
- Information: which by and large refers to how you process data to build business intelligence.
Fundamentals out of the way, let's get down and dirty with our to-dos.
Customers
“The purpose of any business is to create and keep customers”, tells us good old Drucker[3]. Consequently being ‘user first’ is essential. Learning from user feedback helps us to comprehend the forces that shape demand at all times. Chances to tailor your offer to your customers significantly decrease if you retrospectively apply lipstick over your solution.
A touch of effort, therefore, should be devoted to improving both your customer intelligence and customer experience. By customer intelligence we really mean capturing and analysing user data—that is personal, transactional, behavioural, engagement and device/usage data. Remember: when it comes to data, on top of the immediate engineering concerns, you will also have to tackle GDPR compliance, security and privacy issues.
Customer experience refers to assessing the perceived quality of interactions across different channels and touchpoint. What we objectively know to be true matters as much as what customers subjectively perceive to be true.
Strategy
“No battle plan survives first contact with the enemy”[4] , still, devising strategies are essential to prioritise your efforts. This step by step guide should provide a valuable starting point:
- Do your homework: assess your position and the forces that shape your market (SWOT analysis, Scenario planning and Porter's 5 forces are the oldies but goodies for this purpose)
- Vision: articulate your rallying cry and unite stakeholders around shared values
- Success criteria: set strategy themes to focus your efforts and guide your decisions
- Strategy map: define key activities considering 4 aspects: Financial, Customer, Process and Learning
- Balanced scorecard: pick KPIs to measure the performance of those key activities
- Benchmark: set a baseline and targets to measure how you're doing and to guide investments and incentives
- Roadmap: form a plan of how you are going to implement and communicate changes. Set some milestones worthy to celebrate
Also, have a strategy to implement your strategy. Make sure you link strategic goals to budget and incentives and that you consult both internal and external stakeholders throughout the process.
Business models
When establishing mental models of your business operation, a lean mindset may offer some useful principles:
- Identify value from the standpoint of the end customer
- Map your value stream and spot the steps that can be simplified
- Create “flow”; a tight sequence of actions that deliver value
- Seek perfection by reducing the 7 types of muda—wastes from overproduction, waiting, transporting, inappropriate processing, unnecessary parts, excess motion and defects.
Filling in a lean business canvas is a popular activity these days because it can provide your stakeholders with an overview of what you're on about.
As for business models—in the classical sense, that is the way in which your organisation generates income—we have 7 options to choose from as laid out by Erik Schlie et al[5]:
- Sales: selling unique, individualised products or services
- Subscription: long term service contract
- Retail: trading with physical products
- Commission: fees paid for completed transactions
- Advertising: fees paid for opportunity to access customers
- Licence: purchasing access to a digital products and intellectual property
- Financial management: profiting from taking investment positions and from financial services commissions
Operational processes
Even if your scope is limited to a particular area of the business, mapping out processes of the end-to-end service is strongly advised. This birds-eye view will help to check the impact of changes on the whole system. It also sets the context to assess the value we realise for the customer. We ought to look at interactions on the customer-facing front-stage as well as on the back stage that houses internal processes invisible to the user. Nota bene: there are many mission critical activities that take place far away from these customer interactions. Make sure you call out supporting processes—such as training, budget-setting, supplier activities etc.—as well as actions in the customer’s remit—such as product research, price-comparison, peer reviews etc.
This service blueprint will lay out your sand pit where you can experiment to create superior customer experiences. For this end, borrowing ideas from behavioural economy could be useful, because as long as we deal with people, biases will play a part in forming decisions. However, achieving the holy grail of customer engagement and loyalty takes more than wits. It takes empathy. So, brace yourself to step in the users’ shoes and utilise your emotional intelligence while you cook up the secret sauce that will get people hooked.
Once we’re familiar with the outlines of our solution, it's time to release the IT crowd. Architects will draw up the solution architecture, business analysts will groom the product backlog and multidisciplinary Agile teams will code, test and deploy the desired software features and data infrastructure. Remember, iterative development is a key principle of Agile, so expect a lot of learning and changes along the way. It's a small price to pay for making sure we're not developing things that the customer never really asked for.
Change management
Your plan of action is in place. Now, enable people to make it work. Foster kaizen culture of collectively learning and implementing improvements. This will require the psychological safety to experiment. Make it clear: it's ok to make mistakes and correct them in the next iteration. Win over both the hearts and minds of people and explain why we do what we do.
Usually an executive level sponsor takes the initiative and provides the vision for transformation but it's the frontline champions who set it in motion. If the company culture is open, effective ideas and work practices can quickly spread across departments and silos. Semi-formal cross-pollination initiatives, like academies and communities of practices, can provide platforms to share knowledge between marketing, IT, HR, Strategy, R&D and other functions. Most of all, multidisciplinary agile teams learn collectively while working together.
External stakeholders, coaches and consultants, provide useful insights and expertise to make digital transformation smoother. Just make sure you don’t take boilerplate solutions. Your business is unique, don't let anyone tell you otherwise.
Finally, don't let your expectations bring you down. Organisational change is a messy business. Be mindful of the complexities you're dealing with: it's about targets, technologies, information, perceptions but most importantly it's about people. Be in it for the journey. Enjoy the ride!
[1] Pine, J. and Gilroy, J. (1998). Welcome to the Experience Economy. Harvard Business Review, Available at https://hbr.org/1998/07/welcome-to-the-experience-economy [accessed 28. June 2018]
[2] Clayton, C. (1997). The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Reprint. Boston: Harvard Business Review Press
[3] Drucker, P. (2011). The Essential Drucker. Reprint. New York: Routledge
[4] This quote is attributed to Helmuth von Moltke the Elder, a XIX century Prussian Field Marshall and military strategist
[5] Schlie, E, Rheinboldt, J, Waesche, N. (2011). Simply Seven: Seven Ways to Create a Sustainable Internet Business. Reprint. Basingstoke: Palgrave Macmillan