Digital Transformation Strategies and Lessons for 2019

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Click to learn more about author Asha Saxena.

When enterprises take on digital transformation initiatives, they may underestimate the power to which digital has been altering industry landscape dynamics, consumer behaviors, economic fundamentals and what it means to stay competitive and relevant with its customers. People often forget how far we have come in a short period of time. The processing power of the latest iPhone is thousands of times faster and stronger than all of NASA’s computers were (combined) during the Apollo moon landing days. These mini computer devices are starting to connect to most of the world’s population, and this all happened since 2007.

Nowadays, iPad tablets and mobile devices have become almost symbiotically interwoven into many facets of our lives. In cities, most people can’t go anywhere without relying on navigational and ridesharing apps such as Google maps or Uber. Planning trips and vacations often come with using apps such as Airbnb, Trip advisor or friend recommendations on things to do, see and eat on Facebook. And even on vacation as long as there is a Wi-Fi connection, you can use your phone to check your email, listen to music, post and share experiences to Instagram, check your investment portfolio, automate and monitor your home, facetime your relatives, search the internet for movie or gift recommendations. 

My job as Big Data Strategy professor and tech entrepreneur entails coaching and consulting with CIOs, CDOs, CTOs of enterprise organizations. But, when I look at these magical little smart phone devices, and all of the digital changes and technology innovations it can and will enable going forward, it usually makes me want to have a ‘come to Jesus moment’ with them. Some executives might have the belief that having a few technology initiatives in the works

 such as AI pilot programs, automation and the integration of physical supply chains with digital technology is enough, well it’s not. Or as Scott Spradley, CTO of Tyson Foods said in the WSJ, “we are moving technologists closer to business units and creating a group focused on emerging technologies, encouraging teams to embrace cloud computing and faster execution.”

“Digitalization is no longer just an add-on feature to existing channels or products and services. Instead, many aspects of the customer experience are digital by default, as should be the processes that underpin it.”

Nike the largest sneaker manufacturer, understands the consumer obsession with smartphones and is using digital to merge the online and offline (in store) experiences together more seamlessly.

Why it matters – according to a recent Forrester survey, forty-six percent of CEOs, think that half of their revenue will come from digital channels by 2020. The World Economic Forum estimates that the overall economic value of digital transformation to business and society will top $100 trillion by 2025.

I think many CEOs are not fully aware of the increasing velocity of digitization, evolving consumer behavioral preferences, the technologies steering it, and the size or speed of disruption that could be bearing down on their organization. VC backed companies such as Uber, Spotify and Airbnb reimagined and reinvented their industries by addressing consumer needs in a completely new and different way. And, just as it’s helpful to give some tips on strategies such as BCG does:

  • “Prototype your strategy
  • Disrupt your business (before others do)
  • Digitize your core business
  • Create value from data
  • Position your business in the broader ecosystem”  

It can be equally as helpful to look at some of the mistakes and painful, expensive, and time-consuming lessons organizations have made on both the business and technology aspects of the transformation to digital. They can be hard because it means changing both cultures and infrastructure within an organization. Forbes contributor Kurt Cagle wrote a technical analysis of some of the database and Data Management challenges with digital transformations.  McKinsey & Company has an interesting report of some the digital strategy pitfalls.  

1. Lack of a Clear Understanding of What Digital Means

Some executives might think digital transformation means, upgrading what their IT departments do. Other CEOs may think of it as enhancing digital marketing or sales functions. But not everyone looks at it from a truly wide and holistic view of becoming digital and connected. IT technologists might see digital as the instantaneous, and smooth ability to connect devices, people and physical things virtually everywhere. Many legacy companies have too much of their data siloed in different systems.  According to Gartner research: by 2020, there will be over 20 billion connected devices, which is almost triple the amount of people in the world.

Forbes contributor, Bernard Marr, states that “over the last two years alone, 90 percent of the data in the world was generated.” Companies that use advanced analytics models and machine learning to mine this data, put themselves in a position to better predict and automate more decisions and business processes. Companies such as Progressive Auto Insurance, according to CNBC, leverage AI and Machine Learning algorithms with their Snapshot app, where it encourages its customers to drive safer and save by installing an IOT sensor in their vehicle, which collects and tracks all kinds of telematic driving data, which it uses for predictive analytics to derive usage-based insurance pricing models. Enterprise level transformations are not easy, but if your company does not have a concise definition of what is digital, then it will not allow your business to align digital strategies with corporate business goals. Furthermore, it makes it harder to define where to begin, what are the end results, and not getting lost in the weeds of adopting new technologies and change. GE made some mistakes, that can be read hereMobile is eating the world, don’t get left behind.   

2. Not Having a Solid Grasp on the Economics of Digital Business Competition

The economic realities of competition in digital markets is slightly different than how traditional market competition works. Digital business sectors can include multi-sided markets, platform and ecosystem-based business models. Network effects and economies of scale tend to make competition issues even more complex. Digital competition can shrink value, where consumers win, and companies lose. Think; should I use Lyft or Uber, or buy from Ebay or Amazon? Also, products can become obsolete, Smartphones basically wiped out GPS systems like Garmin and buying special cameras unless you are professional photographer. In digital, the first mover advantage can be crucial.

Basically, the old term “economic rent” where a business could earn a profit that exceeded its cost of capital or labor, has been turned upside in the digital economy, where consumers have more choices, and a company’s product or service offering is not as unique or exclusive. Digital shifts pricing competition and margins where large scale players win such as Amazon. Think about how the internet has made travel, and insurance agents less necessary. Cloud storage providers such as Amazon and Google have really driven down the costs for companies who used to have to invest millions in enterprise data storage hardware centers. It’s about creating value for your customer now more than ever.

In digital, the market share pie is changing rapidly; look at how Amazon is worth more than any other retail organization. Despite the recent China headlines, Apple still ships the most and captures the most profit on smartphone revenue. In certain industries such as technology and media, enterprises have built up ecosystems, where they use their scale and leverage large amounts customer data to both find potential competitor threats and buy them like Facebook did with Instagram; or like Oracle, which finds companies to partner with to make their value chain or tech ecosystem stronger and more integrated. Despite all the negative headlines about Elon Musk and Tesla; Audi, BMW and Porsche are all racing to launch their own luxury electric vehicle, which shows that first mover advantage still holds some value and weight with technology innovations. 

3. Not Understanding the Power that Technology Brings to Connected Platforms, Stacks and Ecosystems

Besides understanding how economics works in the digital world, companies will also need to understand that paying attention to your industry competitors will not be enough, where many digital technology platform corporations are starting to move across sectors and launch new business models in completely different verticals. An example, with Amazon acquiring online pharmacy startup PillPack, and jumping into the healthcare sector by planning to launch 3,000 “cashierless” stores by 2021, should threaten CVS and Walgreens–if they don’t adjust and refocus they could end up like the Toys ‘R Us, RadioShack, and Blockbuster of the world.

Walgreens is actually going on the offense; according to Seeking Alpha, by successfully integrating an app and digital platform with their stores, partnering with Fedex to make next-day prescription deliveries and launching a pilot partnership with UnitedHealth Group’s MedExpress urgent care centers into their stores to evolve from only retail sales into patient-focused value-based care. Banks have to think about strategies of dealing with Apple Pay and other mobile payment digital wallet platforms.

Aaron Levie, founder of Box sees the future of work and how his company will survive, by understanding that trends are moving away from the 90s and 2000s where only 1 or 2 vendors control the enterprise technology architecture stack. He says:

“We also are very cognizant that it’s not just going to be Box that is a part of that future of work. We know that companies are going to use Slack. They’re going to use Facebook Workplace. They’re going to use Okta. They’re going to use Office 365. They’re going to use Google Docs.”

It’s about building your company’s place inside of or integrating with a plethora of software ecosystems. If you look at 7 out the top 10 largest market cap companies (Apple, Facebook, Google, Alibaba, Amazon, Microsoft and Tencent, they are all digital ecosystem leaders. Think about how Airbnb and Uber’s ecosystem marketplaces command such dominant use and revenue without owning any real estate or vehicles. Digital marketplaces have power.  

4. Thinking That You Only Have to Worry About the VC Funded Tech Startup Darlings

So yes, the media loves to write about all the innovative tech unicorn startups (some are publicly traded now), Wework, Facebook, Dropbox, Netflix, Warby, Airbnb, Uber, Warby Parker etc, that are disrupting industries and finding great success creating new business models, but they are not the only types of companies to be worried about. Legacy companies have been catching on and investing heavily into technologies, innovation labs, digitization and recruiting top talent.

Zelle is good example, when the large legacy banks saw the threat of online payment apps like PayPal, Venmo, Square, and others. The three large banks: JP Morgan, Wells Fargo and B of A, teamed up on a global digital payment solution for people to transfer money easily by connecting their phone number or email. According to Techcrunch, in January 2018,  Zelle is processing twice the amount of money as Paypal’s Venmo. Disruption and innovation can come from anywhere, incumbents can reinvent themselves to shift and adapt to changing consumer behaviors and marketplace trends, so you need to be paying attention to both startups and legacy company threats. 

Conclusion

There is no one size fits all way of going about transforming your business, but to stay relevant going forward it’s crucial that you define the purpose of your digital business model. You don’t have to have separate strategies for the cloud, mobile, social, blockchain or other new interesting techs.  Develop a comprehensive strategy for thriving in this new ever evolving digital economy (where online and offline blur together in different ways) – a point that leverages your unique capabilities and value propositions and further can respond to shifting market opportunities. Then you incorporate every new technology that will help get you there. 

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