Driving Digital Transformation – Key Learnings from the World’s Best Brands

In this article, I want to talk about how you can drive Digital Transformation regardless of the industry or sector you are in. If you look around, you’ll notice a lot of discussion on the leading tech companies like Amazon, Google, Apple etc. In fact I myself have written extensively about these companies in my blogs. What I want to highlight here is that these are less than 10% of the overall economy however, and there is little discussion about the other 90%. Those companies that are driving the rest of the world economy? Many of these companies have been or are my clients and I can tell you that the ones that have done digital well, are at least 25% more profitable within their industries than the ones that have not, and that says a lot. In some industries, a 25% increase in overall profitability can be the difference between staying in business or closing shop.

The time to start your digital transformation process is now. If you remain the way you are and think going digital is just a buzzword, I can assure you there will always be some company out there in your industry that will beat you, outsmart you and eventually take up most of your market share.

The key here is to understand that technology is driving business today and if you are a company that cannot embrace and integrate tech within your business model from your supply chain, marketing & sales automation, customer service, ecommerce and logistics management, then you are at a severe disadvantage.

Legacy industries with larger more legacy corporations have the hardest time understanding, adopting and going digital. For example, legacy institutions in sectors like pharma, manufacturing, insurance and construction.

There are companies even within these industries however that have done very well with transforming themselves into digital powerhouses and I want to tell you about them, what and how they do it.

The Trailblazers

I call them the Trailblazers but I will tell you there are not many of them out there. So what do these Trailblazers do that is so different? For starters they have governance, management, resolve, financing and assets dedicated towards going digital that is part and parcel of the central core value of the organization. As a result, they enjoy an overall increase in performance across all areas – finance, customer satisfaction and sales. These are companies having great conversations with and are in tune with their customers’ best interests 24x7. Companies such as Nike or Starbucks for example or the Indian paint manufacturer Asian Paints that has done wonders with implementing digital technology to streamline its operations.

So what do these trailblazers do that is so different?

Well the first thing is Digital Competence - investing in pure digital itself – the stuff that drives social, SEO, web analytics, automated learning, sensors and smart tech. I mean this is the bread and butter of any digital transformation, so this needs to be in place first.

However, the Trailblazers also get the process right – the how part – in other words how they do it is unique and extremely efficient. It comes from developing leadership that’s completely clued into the digital mindset, are key sponsors of it and drive it, instead of just hiding behind the tech and hoping the automation works. Technology replicates and automates good strategy, so if the operational strategy or customer experience is sub-standard, the technology enabling it will be sub-standard too. So the trailblazers develop the leadership competence to drive digital transformation. These are leaders that are able to foresee or visualize what they’d like their future to look like, and then work tirelessly towards it. This is equally vital as spending money on tech. Infact I’d say that leadership and management is perhaps the most important aspect of digital transformation as its drives the overall culture of an organization towards embracing a future that’s in tune with the times.

The Novices

On the other end of the spectrum are the Novices, the rookies that for one reason or another have been slow to adopt or shy of doing much at all with digital. Some hide behind culture and tradition, some hide behind regulations. Many just want to observe which way the wind blows before moving a certain way. They adopt the mindset of letting the other company take the risk and make mistakes, and they’d rather be a follower than a leader. A risky strategy in my opinion.

The Trendsetters

Then you have the Trendsetters, the ones that want to implement every new gadget that hits the markets. These are the companies that want to look cool and totally in synch with the times. They invest on a whim and are up there with the first adopters. Companies that sell products and services directly to consumers are usually in this category – companies like retail banking for example that are all moving towards a mobile-app experience except that some of them can have multiple apps in different parts of the world doing essentially the same thing, but using different platforms implemented by different vendors. The problem here is many of these companies have jumped into the Digital fray without considering what exactly it is that they want out of it – what’s the final expectation from all this investment, is there a vision behind going digital or is it being done just because “that’s where the customers are”? These Trendsetters are just that – they like following what’s trendy but lack the management foresight behind the digital initiatives.

The Traditionalists

You then have your Traditionalists – those companies that implement digital quite well but only within a limited part of the company such as in supply chain or marketing, mastering these sub sectors before considering extending to the rest of the functions. The Indian paints manufacturer Asian Paints is a good example of a traditionalist. Pharma companies are also part of this category – they are usually bogged down by regulation or think they won’t be able to surpass regulatory scrutiny so usually never pursue anything bold. This also is the reason many such companies never get the buy-in of executive management making it even harder to move in a new direction.

So these were the four types of companies undergoing digital transformation –

1.    The Trailblazers

2.    The Novices

3.    The Trendsetters

4.    The Traditionalists

So the question is how much digital transformation varies by industry and how stark that difference is, and also if a company does digital right, do they generate more revenue as a result? Always comes down to economics.

So digital obviously varies considerably by industry in that industries like construction that are not as tech heavy as say a computer manufacturer will be less digitally developed, and the revenues will be different as well. However, what’s interesting is that every industry no matter how traditional it is, will have digital Trailblazers, those few companies that are the digital outliers leading the pack, gaining tremendous momentum and performance improvement. These are also usually the companies generating the most revenue or realizing higher than expected profits.

This in itself ought to be a good enough reason for any company to go all-digital as opposed to being gun shy and not taking a shot. I mean what better reason than the fact that companies that are leading digital initiatives as trailblazers, are enjoying more financial gain and more satisfied customers. In other words, Trailblazers that develop Digital Competence by investing in SEO, mobile, social etc. enjoy substantially higher sell through rate and sales efficiency with their existing workforce – double digits in many cases. Even the Trendsetters, those companies that are not leading the pack, but try out every latest gizmo that comes out, are experiencing single digit revenue gains.

But that’s revenue. Real profit gains are enjoyed by companies that have company wide buy-in of their executive management and that are driven top down in terms of digital strategy and overall vision. These trailblazers enjoy 25%+ average gains in revenue and profits compared with the Traditionalists that may implement digital in one part of the company while retaining skepticism in the other divisions. A 25% gain is a pretty remarkable increment. Now I am not saying that all this gain came solely from digital initiatives only. I mean it’s likely that the best operated companies also happen to be the ones that are going all out in terms of digital transformation. Point is they are realizing significant financial gains and it is worth understanding what it is that they are doing right.

Lessons from the Trailblazers

So what are these digital trailblazers doing really well? Well, four things really.

1. Customer Experience
2. Operations
3. Business Model
4. Leadership

Let's go through each of these components one by one.

1.    Customer Experience

First, they are refitting the entire customer experience based on the data they are collecting and redesigning how their customers interact with all touch points between the customer and the company, be they apps, mobile, desktop, Facebook, Snapchat, or any other social platform, making it exceptionally user friendly and kind of a “no brainer” really. Most companies are doing this.

2.    Operations

Second, a subset of these companies are going a step further and attempting to digitize their operations. Now, there are three steps to going about digitizing your operations.

Business Process Digitization - The first step is digitizing the business processes such as finance, accounting, human resources, marketing etc. What is interesting is that there are thousands of companies out there especially at the divisional level, that continue to use paper-based processes for conducting day to day business such as having employees fill in and submit expenses or approving their expense reports. Businesses that enjoy visible gains in efficiency are those that are digitizing their operational processes.

Employee Empowerment - The second step in operations digitization is that of employee empowerment to enable them to interact, connect and communicate better no matter where in the world they might be in or which department or time zone they might be residing in. Employee empowerment via a shared digital platform is fundamentally changing the modus operandi of how employees work and exchange ideas.

Data Management and Analysis - The third and final step in operations digitization is that of data management. Here the rubber really hits the road because this phase is all about improving performance and through transparency, helping the company understand how their customers come, what they do, and how they buy.

Do note that Digital trailblazers understand everything about who their customer really is – their actions, aspirations, research and buying patterns, their likes, and dislikes, and of course what segments they belong to – millennials, baby boomers etc. The companies that invest in customer facing technology without really understanding their customers do not really gain from the investment.

Brands like Burberry and Starbucks have mastered this aspect of digitization by offering app experiences that are focused around your individual preferences thus allowing them to target specific messaging to you based on information that you desire. Burberry tries to bring the in-store retail, color, design and runway experience to their customers inside of their App. In fact Burberry is the first retail brand to broadcast their fashion show inside of an App and on AppleTV besides offering music videos, makeup tutorials, fashion guides and other content.

Starbucks’ Mobile Order & Pay program is equally popular. It lets customers order and pay for beverages in advance and pick them up without waiting in the cashier line. The coffee purveyor is now also testing delivery of coffee and other food items through the app in partnership with Postmates. It’s fascinating to see that Starbucks and not Google or Apple became a trailblazer in mobile payments and that’s because of governance and complete management buy-in from the top, as I had mentioned earlier. Back in 2011 when Google was trying to get consumers to use cumbersome mobile payment options involving new phones and refurbished in-store terminals, Starbucks released its app with simple QR codes even offering rewards to its customers for using the app which now accounts for a quarter of all sales in Starbuck’s company-owned U.S. stores. The extra transactions that have come in through the app are the key to Starbuck’s growth despite being half the size now than it was a decade ago. In fact I recently read a report that Starbuck's mobile ordering has been so popular this year that the company has been having a hard time filling those orders thus leading to longer lines at the stores. Although the internet is bent out of shape over this, I am confident Starbucks will take all the orders it can get and work to streamline the fulfillment in a manner efficient enough that no preorder customer need wait. The answer is not to go back to the old ways but to embrace the inevitable and deal with it head on.

The next aspect of digitization is personalization and targeting – and that comes from an analysis of customer data – collecting and harnessing lots of data followed by lots of analysis. I will try to explain this using the the hotel and hospitality industry as an example. Hotels are starting to use insights from big data analysis to create innovative offers and personalized service. Personalization is not easy to do. It’s an art driven by data science, and has evolved into an entirely new approach to consumer marketing. Hotels are starting to use the collected data, but very few are actually extracting its full potential.

Starwood Hotels for example are conducting advanced analytics on customer, weather and property specific data, to figure out what price and incentive to offer a guest that is just right enough for the guest to book the room. They also use the data to determine the length of promotion and the amenities or services that might be of most interest to a particular guest, so they are offered to the guest at check-in. Starwood constantly tests and revises these offers thus creating packages that may be the most attractive for each segment of their hotel guests. It is worth noting that the hotel chain realized a 4.4% increase in revenue per available room from these efforts.

Besides rooms, hotels also have spas, restaurants or other services that they aspire to fill and that’s where data comes in yet again. Not too long ago the CMO’s office would create a broadly defined monthly marketing offer that would then be disseminated by hotel staff across the properties. This one size fits all method obviously missed the vital component of whether the offer would be attractive enough for a particular guest based on the customer segment. Let’s take Hyatt Hotels as an example that enjoyed a 60% increase in non-room revenue over the course of a year by using data analytics to arm their front desk staff with upgrade and service offers that were specific to a particular guest checking in. The in-person guest specific offers are now also being made available via reservation confirmation emails. Other hotels are using data to offer favorite foods, beer or spirit varieties or even a choice of favorite shampoos where possible. There is no limit to how personalized this can get and the more personalized it is the higher the transaction volume.

The final aspect of operational digitization is bringing legacy and the future together in a way that works. Going digital and chasing a future while ignoring the past is an ineffective strategy, but one that many CXOs still utilize. They think they can simply let go of the past and pursue a new future bereft of legacy baggage. I can tell you that is a recipe for disaster. If you are a retailer, consider doing augmented reality for example where you offer a variety of alternative colors and material for an item that may only have one piece on display at the physical store. A blend of virtual with physical, future with legacy. It enhances customer experience and helps you transact faster.

Unlike in the past, there is now no restriction on location, time or access to information anymore – I mean people can work from pretty much anywhere really. In the past, either you homogenized to the disadvantage of empowering people, or regulated away so there was no innovation left, or even became the mad conductor of your own opera killing your team’s creativity. With digitization you can go the next step and with automation, homogenize, regulate and empower all at the same time. For instance digitizing the sales ops department in a large company where manual processes would all move onto a cloud based SAAS platform, and employees would then receive a different kind of training to extract, analyze and report on key insights from the resulting numbers. Stores like Duane Reade and CVS in Manhattan that can empower their store managers with data on what to put on display at what time and where or how to lay out the shelving. All this leads to enhanced productivity, increased efficiency, greater transaction volume and more engaged employees.

3.    Business Model

Now let’s talk about business model. The reality is it’s really impossible for a company to claim that its business model is to use digital technology, and achieve any real success pursuing it simply because the company would first need to master its customer experience and ops before even attempting to adjust its business model. Having said that the digital transformation landscape can be broke down into five business models:

Redesign Industry – AirBnB, Uber - where the companies essentially disrupt and completely redesign an existing industry.

Redesign Product – United States Post Office - where the companies face a rapidly dying product and are forced to digitize the product experience for their customers.

New Digital Ecosystem – Amazon, Apple, Nike – where the companies are inventing new business ecosystems where sub markets can coexist hinged to the parent ecosystem – think Apple and its market of app developers or Amazon and its marketplace of third party sellers.

Recreate Path to Customer – Lemonade.com the insurance disruptor – here companies are dissociated from their customers by an intermediary that they are dependent on so are figuring out ways to reach that customer but without jeopardizing their existing distribution channel.

Change Value Proposition – e.g. Rideshare insurance – think GEICO & Farmers – where their new offerings not only cover standard personal automobile use based on monthly premiums but also add spot insurance coverage for the time that the insured driver is signed in to a commercial ridesharing app like Uber. Think individual insurance coverage for a skier while she is riding the slopes.

The important thing to remember here is to not get hung up about business models but instead to constantly keep moving and innovating because if you are not doing it then somebody else in your industry definitely is.

So we just discussed the three constituents of a successful digital transformation that the all Digital Trailblazers have mastered – the customer experience, operations and business model. However they one more component that is their secret weapon separating them from everybody else. And this is an important one. It’s called Leadership.

4. Leadership

The fourth and most important component of going digital is effective leadership and acceptance of digital as a core value driver within the company. Digital transformation is not about innovating on the periphery – or creating a digital department hiring millennials to work for you with the intent of reaching other millennials via mobile devices on snapchat and Instagram or about conducting bold disruptive experiments in the hope that they work out. In fact in all the companies that I have dealt with over the past 15 years, the best digital trailblazers have done none of that. What they all have had is fantastic top down leadership with consistent messaging around digital not being this cool thing on the edge, but instead being a core focus of the organization. When the executive leadership messages a certain way, the rest of the divisions eventually start to fall in place.

True digital transformation only comes with robust and resilient leadership at the top disseminating a message of vision, involvement, governance and acceptance as the drivers of the future.

i. Vision

ii. Participation

iii. Governance

iv. Acceptance

Let’s discuss each of these as the core components of digital leadership:

i. Vision

There are three constituents of a sound vision coming from executive leadership.

Core Asset

When designing a digital transformation plan consider your core asset – the one that pushes product for you. Everybody knows Google. But think about Yellow Pages for a moment, yes the paper phone directory guys. They considered their thousands of sales people as their core asset and reoriented them from selling paper ads to selling digital services to their small business customers through YP.com, a site that now receives nearly 55 million consumers each month. YP sales people bring American small businesses into the YP family of sites and apps with a variety of online marketing services aimed at persuading customers that the small business is worth a longer look, with tailored solutions that includes business profile development, review management, mobile and SEO friendly website development, centralized listing management on top search sites, apps and social networks, all from one dashboard, as well as helping the businesses highlight their best qualities with a professionally-produced video. All this from what used to be a phone book company.

Core Statement

Also consider a core vision that is not a slogan but instead is transformative and that your organization can internalize much like what GE has done with its Industrial Internet concept bringing together brilliant machines, advanced analytics, and people at work – a network of a multitude of devices connected by communications technologies resulting in systems that can monitor, collect, exchange, analyze, and deliver valuable new insight that can then help drive smarter, faster business decisions.

Core Resolve & Result

Digital leadership is also about defining a pure resolve and result, in other words what it is that the company stands for or intends to do and what impact the leadership expects from the effort. Think what Burberry did almost a decade ago when then CEO Angela Ahrendts declared a vision of wanting to be the brand that would be the first all digital luxury fashion house. Today digital is at the heart of Burberry harvesting the loots in a cohort that has infamously trailed digital savoir-faire. In the case of Burberry it all came from the CEO’s vision of being an all digital brand.

ii. Participation

Participation doesn’t have to do with digital as such, it’s that if a company wants to transform, it needs to actively involve its employees and with all the unified communications tools and collaboration software as well as video conferencing etc. available today (recall my note above on employee empowerment) staff participation can be carried out at global scale. There are three ways that staff can be encouraged to participate and accept the digital transformation:

Platform – give employees a platform to voice their opinions and the listen to them

Acceptance – leadership needs to actively participate in the platform and lead the path so that employees can espouse and embrace the digital changes. From my experience of dealing with millennials and the new generation of employees, they do not accept something just because it comes from above. Leaders need to show the value proposition, the business case behind their request for staff acceptance.

Scale – Once the above two components are in place, the company can scale the participation to all its employees.

I will add here that active employee participation is essential to the process of successful digital transformation. If you do not involve your staff and if they do not accept the change, you are destined to fail. 

iii. Governance

This is not that exciting I admit but I will assure you that if you are a somewhat large company, you will need your executive management to drive the project home otherwise you will end up with multiple apps developed through multiple vendors all doing more or less the same thing at different parts of the organization. Believe me this is usually where organizations with sloppy governance, end up at. We all know that getting different departments to communicate with one another, let alone coordinate and synchronize projects with each other, does not come naturally, which means somebody from the top needs to get it done with just the right amount of pressure. In other words sound governance breeds consistency, prevents repetition and is the single most important contributor to the overall success of a digital transformation project. Although, organizations have put committees in place for coordination and governance however it has been my experience that the best form of governance comes right from the top and the decision to have a Chief Digital Officer may thus be a prudent one in that regard.

Thank you for reading. CXOTalk recently interviewed me on the subject of Digital Transformation. I am grateful and humbled that its video on YouTube embedded below, has become one of the most watched videos on the subject.

If you 'd like to learn more about how the world's leading brands have done digital transformation and how you can do it too, then may I further direct you to my book "Going Digital" that recently published, and is available in hardcover and kindle on Amazon.