Digital Transformation — Part 1
Like a caterpillar transforming into a butterfly, established companies are keen to change. Every job posting, client pitch, earnings call or investor presentation, contains that word — transformation. I’ve had an occasion to ask a senior leader what is intended by that — and it ends up with some combination of cheaper, faster decision making, time to market, and being more customer focused. It’s sort of like being a caterpillar, seeing a butterfly, and saying you want to be like that. The gap tends to be not knowing exactly how to make that transition.
The Internet did this, Really
While the Internet was born almost 30 years ago, it continues to create change and new possibilities. The ability to seamlessly communicate, both between people and between systems, has enabled companies to provide services to other companies and consumers in a manner that’s seamless to the buyer. When an e-commerce retailer ships something, they provide the tracking number and you can go to UPS/FedEx to find out where your shipment is. Using an external recruiter doesn’t feel very different from using an internal one — since both use the same systems, can be contacted the same way, and can be expected to have similar knowledge about how your company works. Leveraging the Snowflake Data Cloud and the data made available by a third-party data provider doesn’t feel very different from getting a file and loading it yourself into your own database. I work in financial services and certainly it’s become a lot easier to exchange information — just as easily with vendors and partners who are geared up for this as with other internal groups who may have multiple priorities. To put it simply, the boundaries of what is internal and what is external can go away (risk and strategy aside), which brings the question about where to draw the boundaries in the first place.
Being in the Customer’s Shoes
This section will seem self-evident, and yet it’s extremely difficult to look at this differently, hence I bring it up. The customer has been hiring your successful company to do a certain job for them for a while. Yet, you may start to see challenges in growth, even in maintaining revenue and keeping customers. The question to be asked is did the customer stop needing to do that job, or are they choosing someone else and why. Often, the customer still has to satisfy the need you were serving, but they are going about it differently. Expectations have changed — faster delivery, more turn-key, a more wholistic solution, greater flexibility, more customization, and lower cost. Examples include aircraft leasing + maintenance, pay-as-you-go cloud computing, and growth of the RIAs in the financial advisory market to provide more personalized service. Taking a look at this from the customer’s view likely means you can be doing more for the customer than you did in the past, but you’ll need to step into a new paradigm, which can be challenging in the face of needing to manage a steady quarterly report card for shareholders. It could impact margins, reduce upfront revenue vs. recurring revenue, require you to look at vendors in the space differently. These are hard decisions — to explain to the company’s board and shareholders of an uncertain path ahead — but to keep your job with the customer, change is required.
Strategy
As the frameworks for customer decision making are changing with their expectations, re-establishing or at least re-confirming the strategy is especially important. First of all, what exactly is a strategy? As well-articulated in this Harvard Business Review video (https://www.youtube.com/watch?v=iuYlGRnC7J8 ) — a strategy needs to establish how a firm is uniquely positioned in its space with its customers. Examples would be Walmart as always low prices or First Republic as high-touch banking. These are positions in customers’ minds that drive their decision making, almost as a shortcut from deeper analysis on every decision. The strategy is informed by the unique strengths and weaknesses the company currently has. Remember that a weakness can turn into a strength (ex. not having distribution infrastructure forced Amazon to look at delivery differently). Also note that a strategy is not a plan and strategic planning isn’t the same as establishing a strategy. Often, the strategy is communicated through the goals, objectives, and plans the company has — these come after establishing a clear strategy.
Revising the company strategy sets the stage for creating clarity in decision making — what steps will enable our strategy and which are not material to it. How can we create a positive loop of marketing establishing a position and sales validating that position. What capabilities need to be developed such that it becomes a tougher decision for others to enter the space and develop the same sets of capabilities? Given the winner take all and wide distribution the internet enables, it’s less likely that there will be numerous competitors that develop — a few winners get to own the space (ex. there will likely only be a few Shopify look-alikes), hence speed to market is paramount.
Management consultants can help with the research to establish the strategy and with sorting out some of the near-term moves; they can’t transform you in a lasting manner. The company is ultimately a reflection of the hundreds of decisions that get made each day by people, and if people haven’t shifted their thinking, then no “skip to Go” card from a consultancy can keep the momentum.
To be continued… read part 2 here.
