Identify what changes digitization requires of your company. Established companies should feel a “sense of urgency” about the changes they face. Because digitization builds on itself to produce rapid, fundamental change, firms who ignore its challenges will be left behind.
“Industry boundaries belonged to the old economy, and the digital revolution has swept them away.”
To spur strategic thinking, identify your primary assets, the directions you need to move in and the obstacles to change. Start with the big questions, like how your competition responds to these challenges, what new possibilities digital technologies offer in your industry and what “new profit pools” they generate. These questions lead firms to reconsider digitization at the operational level, where they must focus on “business architecture.” This should lead businesses to their foundational “organizational frameworks.”
“A CDO with reach and authority – a Steve Jobs for every company – can help to break down the functional silos, and shape the journey toward digitization as a permanent disruptor.”
Create a plan to lead your firm to its place in the digitized world. Use the plan to set priorities. Optimize your current departmental operations and identify your strengths. Develop a “twin-track IT structure”: one to keep daily operations moving, and another to go in new directions. To overcome “mental barriers” among your organization’s leaders, the CEO must lead the way.
Some firms hold hackathons to jump-start their digital ventures. Set employees to work identifying weaknesses in the company and determining necessary changes. Some firms may need entirely new business models. Others may be able to modify an existing model or to target specific changes in their value chain. Some businesses that operate mainly on a B2B level may have a stable business model that needs only “targeted additions.” Think about “future markets” by considering how technological innovation powers your competition. Determine if your current business model can rise to the challenge.
Competing in the Digital Age
“Connectivity” is increasingly important. People expect to shift smoothly between the virtual and physical worlds. Applying “advanced analytics” to personalize service, as Amazon does, assists this process. As digitization moves through industries, the larger question is: Whose platform and standards will prevail?
“The digital age demands new skills: Companies that want to be successful in their industries and the emerging ecosystems must get their functions and processes in shape for the new era.”
Successful digital companies focus on customer needs, and their business architecture emphasizes the customer. Businesses must identify the technology they need and use it to gather customer experiences. This focus incorporates the “omnichannel” concept in which customer sales and contacts occur across all channels. This approach started with retail, but it has spread, reaching even to heavy industry like steel. Consider omnichannel’s challenge and opportunities in the context of your target audience’s changing demographics. For instance, within five years millennials will be the “strongest consumer group.” They grew up in a digital environment, spend hours online daily and use smartphones to shop.
To understand the customer experience, organizations need data. They need to become “customer-centric” and to apply dynamic pricing, which can follow two distinct models. One model compares prices among competitors. The other tailors prices to individual consumers based on what they shop for and which digital tools they use to shop. Using algorithms to adjust prices lets companies continually learn through the sales process. Technology enables businesses to tailor messages to work well within specific communication channels. Such corporate communications must be authentic, relevant and interactive, and should offer continuity across channels. Monitor how customers respond to your messages, and adapt accordingly
The “digital innovation process” uses customer feedback to guide “open development.” Lego and Apple both provide strong examples of “open innovation.” To succeed in this realm, your company’s innovation efforts need clear goals. As you innovate, take advantage of your relationships with everyone in your value chain.
“New ecosystems are emerging, and all market players want to be at the center where the value added is greatest, rather than at the periphery and feeding off scraps.”
The software development process demonstrates that generating “rapid improvement” is better than allowing products to have a long “life cycle.” Think in terms of “feature-based design,” and gradually improve your products. Get customers to co-develop products with you and incorporate their data to adapt development “in real time.”
“The aim is simple: Companies need to offer their customers a consistent experience across all channels and across all contact points.”
Use “virtualization” to speed product development and make training cheaper and faster. Digital tools can increase your transparency and make product development more efficient. Digital tools can create a “more flexible” and faster “Supply Chain 4.0.” Algorithms can calculate improved, quicker delivery routes. Autonomous cars can use as much as 15% less fuel. With 3D printers, companies can print the parts they need rather than waiting for manufacturing and delivery.
“The battle for young, highly qualified, tech-savvy talent – the digital natives – has already begun.”
Digitization transforms office work. Commercially available software writes reports, and robots automate humans’ tasks. Emerging “cognitive computing” will take in data, learn from them and solve problems. This frees people to focus on the interpersonal and creative aspects of work.
Companies can build on their existing skills and practices, create something new, or acquire skills from the outside, perhaps by “acqui-hiring,” in which an organization buys another firm mostly in order to acquire its talent. Give sufficient technical capacity, companies can apply “advanced analytics” to big data. Such capacity also enables them to serve their customers better and to feed into the emerging power of artificial intelligence.
The digital economy is vulnerable to theft, disruption and dishonesty, so companies need increased security. Businesses must protect themselves from cyberattacks, and develop resilience so they can recover from such attacks. Follow the lead of banks and insurance companies, and identify which information is most crucial. Rather than leaving security in the hands of specialists, build security into your IT architecture and involve managers from all departments. See this resilience as an element of “risk management.” Don’t wait passively, hoping your security withstands attacks; instead, test your systems on an ongoing basis.
Chief Digital Officer
Organizations need people with the right skills to guide digitization. Digital companies may already have these people, but older firms may need a targeted hiring campaign. Evaluate possible acquisitions and create the culture and “conditions that digital talent expects,” like collaboration, a restructured reward system and integrated communication. Companies need a new executive position, the chief digital officer (CDO). The CDO oversees the digitization process, disrupting existing silos and developing processes for developing new talent internally.
Digital organizations are agile. They eschew a rigid hierarchy and continually evolve to meet challenges. They are highly interactive, and use ongoing “cross-functional teams” to develop new products. Employees regularly take on new responsibilities. These companies value digital talent, and seek to attract and retain it. This might mean using “predictive analytics” to identify which employees are considering leaving and stepping in to resolve the situation.
“The term digital natives doesn’t necessarily apply only to people, but can also refer to companies that were born digital.”
Smart digital organizations don’t limit their focus to their own formal boundaries. They form partnerships with the best companies, creating networks for mutual benefit. This happens in part because digital technology dissolves older markets: Construction and medicine used to be distinct, but may find themselves sharing technology, software or data. Despite intense competition in the digital world, collaboration is growing increasingly attractive.
“Advanced analytics and machine learning are playing an ever-greater role in development departments, generating a level of data transparency never seen before.”
As companies digitize, they need a plan for transformation. Start by recognizing some core principles. Digital organizations and their managers function differently from older organizations. They follow a path of “test, fail, learn, profit.”
In stage one, create a plan for digitizing the entire company, dissolving silos and shifting focus to the customer. This plan must be “holistic” and should address all aspects of your business. Identify your priorities based on “value contribution.” Stage two is implementation. Firms with previously developed two-tiered IT systems shift to the faster, fully digital model, usually by expanding their tech team. Make sure “critical processes” operate at maximum efficiency. Identify and fix weaker aspects of your business.
“By the end of the transformation process, digitization will have touched and changed every aspect of the business.”
Move through your entire customer interaction, reviewing each touchpoint to determine what customers expect and what happens when things go wrong. As you develop new products, identify a “minimum viable product” – the least-developed form you can functionally bring to market. Improve this product according to market response. Annual business plans are too slow for the digital market, so navigate “by milestones.” Set and monitor specific “measurable targets.” This means establishing key performance indicators (KPIs) for all company functions, continually monitoring business activity to determine performance and adjusting accordingly.
A “New Digital Business Unit”
As the company develops, shape a new digital business unit. The new digital organization will be more fluid and collaborative. Teams will have more responsibility. Managers will function as coaches. Base budgets around products, and develop them according to product success. Create a “digital competence center” to serve your business units, helping them identify the technology they need and coaching them on implementation.
“Test, fail, learn, profit: the digital company operates very differently from its analog predecessors.”
As your organization integrates new technology, it may need to change its culture to become a more flexible workplace that adapts to the needs of the digital world. Workers should have a sense of ownership over their projects, feel empowered to act, and gain strength from workplace teams and structures. Managers should lead interactively and by example. The CDO should be part of a steering committee that guides this transformation. Develop a unified communication plan, including social media.
The final stage is implementing digitization for the entire organization. This involves plunging “into the unknown.” To guide this journey, set milestones for the entire process, as you did for individual projects. Borrow the “build-operate-transfer” model from the auto industry, in which suppliers install and operate machinery in their plants.
“The digital revolution is here, and no industry is immune from its impact.”
The specific form of your digitization varies by organization. Some digital companies outsource parts of their digital work. Learn from other firms that are already digital. Study high-profile companies like Google, or form partnerships with start-ups. Collaborating with new businesses can add energy to older firms and provide new ideas.