Firms Must View Digital as a Never-Ending EffortBy Guest Author
Firms Must View Digital as a Never-Ending Effort
By Suketu Gandhi
It’s no longer a topic for debate because everyone agrees: Digital matters greatly to today’s businesses. It is, in fact, one of only a few truly top-line growth tools executives have left.
During the first decade of digital disruption, businesses have had success with digital mostly through a series of one-off efforts, primarily focused on interactions outside the organization. They have, for example, developed apps and introduced multichannel marketing to more easily connect with consumers. And they have implemented narrowly focused programs to evaluate projects such as inventory turnovers, or call center performance against lifetime customer interactions.
But each effort, while successful in itself, has had an underlying central belief that digital is a one-time effort. This belief is wrong, and it significantly limits any attempt to transform a company into a digital organization.
It is wrong because digital—rather than being a one-and-done effort—is ongoing. So, instead of trying to figure out the digital endgame, executives must understand that the digital game never ends. It won’t end because the evolution of both digital tools (with their rapidly shrinking half-life) and technologies (with their always-widening breadth) is not going to stop. Therefore, the model will never be complete.
Furthermore, the behavior of the customer and the environment in which the product is used will keep evolving. Finally, the business benefits derived so far are but a small fraction of what lies ahead.
The ability to access this large potential requires a change in mindset—from looking at digital as a one-and-done effort to seeing it as iterative and ongoing—and calls for a different way of thinking about digital and how it fits into the business. Executives need to understand, for example, that digital must be explored not just at the macro level, but at the micro level, where ever-more-granular information offers increasing benefits for companies capable of harvesting value from the details. They also need to realize that digital is not its own entity or department; it's a core component that must be incorporated into every aspect of the business.
With this understanding, executives will have to react to digital by changing many aspects of how they do business—beginning with the following:
· Adopting a balance between a venture capital and a private equity approach to funding both moonshots and optimization. This funding should be an integral component of capital allocation.
· Mapping the digital efforts under way onto the classic S-curve to show where they fall on the curve’s phases of market testing, rapid growth and maturity, so they can allocate the appropriate financial and human resources.
· Changing the skill sets of their employees and how these workers are organized, because the skills needed to handle digital as a one-and-done effort are dramatically different from those needed to manage an iterative effort.
Changing to a New Operating Model
A key implication of this never-ending digital game is that executives need to change their company’s current operating model. With the historical model, they discovered a need in the market, estimated how big that need was in terms of number of widgets and their features and functionality, and then aligned all their processes to that static, set-in-stone model.
Now, as they move into the second decade of digital disruption, they need to discard this static, project-based model, replacing it with one created and factually informed by what is actually happening in the field. And they should realign their marketing, operations, distribution, product development and other processes with the new dynamic model in mind.
Firms Must View Digital as a Never-Ending Effort
This factually informed model provides a realistic, ever-changing view of markets, products and customers. With it, a company can react to an always-updating, never-ending view of these key business elements because it provides field-based factual information gathered in near-real time from social media, the internet of things (IoT), product sensors and devices.
For example, using the IoT and customer input, a company which had modeled that its new product would run for 500,000 hours without failure now knows that the product fails in real life in about 450,000 hours. It knows further what is happening in near-real time with the product and whether its new assumptions about the product’s performance are accurate.
In addition, companies can react by building products to meet accurate usage specifications. Product manufacturers, for instance, can sell their products by use and alert customers before replacements are needed. They also can recommend service and substitutions.
In the domain of customer engagement, companies that use the granular details provided by the new factually informed model can stop using macro-level views of the marketplace. They can stop dividing the market into extremely large customer segments and promoting their products to the “average” customer in those segments.
Now, they can slice their market segments into narrower and narrower models—in some cases, even down to the individual model that describes John, Jane or Javier. By doing this, they can create, in effect, a model that no longer relies on the “average”—a consumer for whom their products do not really fit—but instead enables the customer to buy specifically what meets his or her wants and needs.
If they are to grow their business efficiently, executives no longer have a choice—they must accept the fact that digital is an iterative, ongoing effort and is becoming more granular. To meet this new imperative, each executive will have to address the following three questions:
· What are the underlying models driving the growth and operations of the business? For example, what are the assumptions in customer acquisitions, supply chain or and manufacturing?
· Are the company’s financial allocations and governance built for this digital challenge?
· How do we evolve our organizational model to respond to this digital opportunity?
The answers to these questions will guide the executives’ reactions and determine whether their business will survive in the coming second decade of digital disruption.
Suketu Gandhi is a partner in A.T. Kearney’s Digital Transformation Practice.