Choosing the right digital transformation is a strategic decision. Which one is right for you?
If you are an established company, integrating digital technologies into your business can seem daunting. Digital can fundamentally change the way you run your business, and it’s not self-evident how to make the digital transformation a success.
You can choose how far to go in your digital journey, though your customers and competitors may push you further than you anticipated. Your confidence in navigating the change depends on how big the change is and how familiar you are with managing change processes.
Here are five digital changes, from least to most disruptive to your current business. Digital can change the market you’re in, the customers you serve, the products and services that you offer, and the way in which you deliver and capture value.
Change #1: Using new digital tools
The simplest change is adopting new software to facilitate how people work together. For example, using chat, internal social networks, or shared document storage to (partially) replace emails and meetings.
To make this change successfully, you need to select the right tools and roll them out in the right way. Implementing new tools and stimulating user adoption is a process that you have probably gone through before, so you can feel confident that you know how to do it.
At the end of the change, you will have increased your internal efficiency. You are still in the same business serving the same customers.
Change #2: Updating your IT architecture
The next change is redesigning your IT architecture to take advantage of the newest technologies. This means migrating from legacy on-premise software to cloud-based software as a service (SaaS). This change will give you cheaper, more scalable, easier-to-update software, possibly at the expense of some older custom features that may not be supported.
There are cloud-based solutions for all major business processes, from finance and ERP to CRM, HR, marketing, and customer service. The challenge lies in designing a holistic IT architecture and making the solution work for you, while maintaining service continuity and migrating your existing data.
This change requires defining the business requirements, selecting the right solution, tailoring it, and implementing it in close collaboration with experienced vendors. The selection process may not be new to you, but the state of the art in cloud computing is new and constantly evolving. Your level of confidence will depend on the size and experience of your IT department, and how well the business and IT teams work together in this process.
At the end of the change, you will have higher efficiency, more business insights, improved business processes and better decision-making. You can serve your customers better and run your operations more efficiently. You are executing better within your current business, and can seize opportunities for expansion.
Change #3: Digitising your business processes
The third change is to make your (currently physical) operating model more digital by redesigning it to create a better, faster, more integrated customer experience. This change is often driven by customers who are becoming more digitally savvy and expecting you to be just as digital in your marketing, e-commerce, and customer service.
Customers may expect more self-service and faster response times than in the past. Instead of going to a store or talking to a sales agent, they might want to find your products online and order with next-day delivery. They might want to chat to customer service or use an online configuration tool to try out different options.
Upgrading your customer experience is not achieved by building new software tools. This is a fundamental redesign of how you serve your customers and what you offer to them. You need to deeply understand who they are, what problems you solve for them, how they feel when they interact with you, and how you can improve to stay ahead of your competitors.
Your aim is to increase their satisfaction, improve their loyalty and grow your business. If you don’t, you risk losing your customers to faster, more agile companies who serve them better than you do.
Customer-focused processes are the usual starting point for digitisation because customer pull creates the greatest urgency there. This change can lead to knock-on effects requiring you to digitise other business processes in operations, supply chain and innovation. Digitising operational processes to improve their efficiency can unlock additional value.
Your confidence in navigating this change depends on how customer-centric you already are, so to what extent you need a shift in skills and mindset. It also depends on your prior experience in business process redesign, managing the software changes to support it, and organisational change management.
At the end of this change, you will have a different way of serving your customers. You will have updated your organisational capabilities, and your management processes will have changed to match. The core of your business has been upgraded, though the market you are active in may or may not have changed.
Change #4: Digitising your products and services
The fourth change is to digitise your products and services. A digitally enabled product can take different forms, such as adding sensors to measure how it is used and give the user feedback. Or adding connectivity so the product can be accessed remotely and controlled via an app. Or creating a software-based control interface that is updated over time to add new features.
This is the domain of the Internet of Things, the products that are called “smart”. Think of smartphones, smartwatches, smart thermostats, smart light bulbs, and so on. They contain connectivity and tailored software, collect, and make use of data, and have ongoing software upgrades to keep them up to date and secure. The data collected from these products can be used to provide personalised features and insights to the users.
You will have an ongoing connection with the user after the initial product sale, which will create ongoing support costs to your organisation. Covering these costs might require a new pricing model, such as charging for additional services or customisation options. This is why most software is now licensed through a subscription model instead of one-off payments.
To make this change, you need new skills in software development, an updated innovation process to develop new digital features, a process to analyse the data that you are collecting, and a process to keep improving products after launch. This change will have a knock-on effect back to the business process and IT architecture changes discussed above.
Your confidence in making this change depends on how comfortable you feel entering the world of iterative, ongoing product development, software management, big data, and analytics. This is probably new to you if you are coming from standalone physical products that require no after-sales support.
At the end of this change, you will be selling a mix of digital and non-digital, and you will have radically altered your innovation, product development and go-to-market processes. Your old business is still part of your company but you have added a new business to it.
Change #5: Digitising your entire business model
This is the most disruptive change you can make with digital technologies: building a new value creation model. This change will turn your business upside down and leave the old one behind. It’s an option to consider when you are being bypassed by a competitor, your current offering is at the end of its lifecycle, or you expect to become disrupted by changes in the market. It’s a bold move to make when doing nothing will lead to your decline and exit from the market. The core of this change is that you cannot make it while keeping your old business.
A famous example of digitising a business model is Netflix moving from renting DVDs to streaming video. They changed the product, the delivery mechanism, the pricing, the go-to-market model, the capabilities needed, in fact the entire operating model. What did not change was the job to be done: entertaining people in their homes with TV and film content.
Designing such a change requires you to think as if you were a start-up. You need to design a new model from scratch and enrich it with the insights that you have from already being active in your market. You need to decide which elements of your existing business model to keep, and make a new digital model for the rest. Then you need to prototype, test and refine the new model, and figure out how much to invest and how to scale up. In parallel you need to transition your customers from your legacy model and scale down your legacy business.
This is a tall order. It is unlikely that you have made this change before, so it will require a combination of your best business experts and external experts in venturing and business model creation. This change will not be fast or easy, and it will be profound. At the end of this change, your old business model is gone and the new one has taken its place.
These are the five changes, from simple to profound. Which one is right for you? That depends on your market, your customers, your strategic ambition, and your current operational efficiency. Before plunging into a digital transformation, you should explore your choices and engage in a strategic discussion to determine the best way forward.
© 2017 Veridia Consulting