We are in the middle of a kind of digital perfect storm, where several major IT trends, - e.g., mobile, cloud, social, big data, - are each gathering speed while interacting with and amplifying each other. Every day brings new stories about the transformative impact of digital technologies on companies in just about every industry. Adapting to the ongoing digitization of the economy, and of society in general, is arguably the most challenging transformation every business is facing.
A few weeks ago, Altimeter, - a research and advisory firm, - released an excellent report on the subject: Digital Transformation - Why and How Companies are Investing in New Business Models to Lead Digital Customer Experiences. Rather than looking at the enterprise-wide impact of digitization, the report analyzes how companies are tackling their digital transformation through a more focused lens: the customer experience.
A company can differentiate itself from competitors in one of two key ways: by providing a superior customer experience or by offering the lowest prices. For companies that prefer the former, - and want to avoid the relentless low price pressures of the latter, - digital technologies are the best means of engaging with customers and providing them a superior experience at affordable costs. As the Altimeter report succinctly observes: “Digital transformation represents the quest to understand how disruptive technology affects the customer experience.”
High quality and competitive costs are the key objectives of good products. But services are all about people, as consumers and/or providers of the service. In addition to high quality and competitive costs, achieving a superior customer experience is a top objective of good services. Thus, given the growth of services throughout the economy, providing a superior customer experience is a rising priority for business.
But, providing such a superior experience to their increasingly empowered, - and fickle, - digital customers, is getting harder. New offerings are hitting the market faster than ever, brand loyalty keeps decreasing, and the increased competition is continuing to shift power from institutions to individuals. Consumers have more choices than ever in virtually every category of products and services as well as in the channels used to acquire them. Customers are taking advantage of all the information they can now access to search for the best possible values.
This increased choice and transparency adds to the pressures on business. A few leading edge companies are able to keep up, but the vast majority of more traditional firms are lagging behind. Companies are working harder than ever to achieve greater efficiencies and predictability. But many keep trying to fit new technologies and practices into old business models. This is a holdover strategy that worked well in the relatively stable business environments of the industrial economy but falls short in our fast changing digital economy. To better keep up with their increasingly digital customers, companies must pay more attention to their own digital transformation.
“Customer is king,” says the Altimeter report in its Executive Summary. “Yet, in an era of Digital Darwinism where technology, society, and business models rapidly evolve, customer experience is often elusive. Businesses are beginning to realize that, throughout their evolution, they must invest in change to keep up with and ultimately lead a new era of connected markets. As a result, businesses are now entering an era of digital transformation to integrate and improve the customer experience.”
“To do so begins with noting the considerable differences between traditional customer strategies and those required to engage and nurture relationships with digital customers. We found that understanding the digital customer experience is one of the primary catalysts for businesses placing substantial investment in digital transformation.”
Altimeter recommends a transformational journey encompassing three key elements.
Vision and Leadership
“Digital transformation begins with a vision where business value and customer experience convene to deliver mutual benefits.” While digital transformation is gaining momentum and becoming a priority for leading organizations, it’s all still in the early stages. As a result, even in those companies that acknowledge its importance, the desire for change will often exceed their ability to do so. Education and communications are very important. The benefits of digital should be presented with as detailed a business case as possible, given the available information.
But, you also need to develop a compelling story and a unifying vision that the whole company can rally around. “Digital transformation can’t happen without a leader who stirs the pot and rallies stakeholders toward action.” In general, transformational change does not come from the top down. In most cases, a few change agents rise up to the challenge and make the case for what they passionately believe the company must do, - or else. It’s their job to “spark a burning sense of urgency, gain support, and pave the way for a more formal, collaborative approach to change.”
But ultimately, success requires the strong and visible support of the CEO and other senior executives. “The extent and ultimate impact of digital transformation is completely dependent on the level and breadth of executive support.”
Digital Customer Experience
“To truly deliver a 360-degree customer experience, businesses must integrate the data in marketing and CRM systems to connect the dots between touchpoint, business units, and customer expectations.” Given all the technology customers now have access to, they will deal with the business in whatever way they prefer, rather than what’s most convenient for the business. Companies must thus be flexible and align their various touch points to better match the preferences of each individual customer.
“Digital transformation changes how people work, opening the door for collaboration and data sharing to unite the customer experience in each moment of truth.” But, doing so effectively requires a holistic, company wide strategy, something that’s not so easy. Each department will often want to do things its own way, and such silos prevent the collaboration necessary for a successful company-wide transformation. It’s important to also keep in mind that disruptive innovations can be threatening to those in the organization who prefer to continue doing things the way they always have, and will thus fight the change one way or another.
“Digital transformation is most effective when Digital Customer Experience (DCX) becomes a shared effort, and least effective when confined to any one given silo. . . Businesses that study customer behavior and make investments based on that research will design a digital customer experience that naturally meets or exceeds expectations of digital and traditional customers. In the end, digital transformation is really about putting people and relationships back into focus. It elicits a more customer-centric philosophy where DCX contributes to the development of more meaningful customer engagement and relationships at every step of both the digital and real-world journey.”
The Digital Transformation Team
“Who owns the customer experience? The answer is everyone.” This is perhaps the most challenging aspect of a company’s digital transformation, because its impact is felt by the whole company. Firms must now embrace knowledge-age organizational structures to help them reach out, absorb and integrate all the expertise and talent out there, including employees, partners and clients.
“Budgets and resources are not officially allocated to digital transformation, requiring change agents to make the case for support.” In most companies, budgets and resources reside within the existing departments. In its early days, the company-wide transformation team is typically a small virtual team with few resources. Often, the new team has to convince the executives of the existing businesses, - who may well be struggling with their own operational pressures and declining budgets, - to support their efforts. Even though everyone understands the need to change, the existing departments are not likely to willingly support the new initiatives, especially in the early stages where such support is most badly needed, but making the business case is hardest.
In the end, companies have to deal with the growing mismatch between their legacy organizations, processes and practices and those required to succeed in the emerging digital economy. As the Altimeter report observes in its Summary:
“While early in its evolution, digital transformation represents the next big thing in customer experience and, ultimately, how business is done. Those companies that get it and invest more in learning about their digital customers’ behaviors, preferences, and expectations will carry a significant competitive advantage over those that figure it out later (if at all).”
“In its own way, digital transformation is making businesses more human. As such, digital transformation is not a destination. Instead, it’s a journey that continually seeks out how to use technology in ways that improve customer experiences and relationships. Digital transformation also represents an effort that introduces new models for business and, equally, creates a way of staying in business as customers become increasingly digital.”