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The Nine Elements of Digital Transformation

Jun 24, 2020 | Business Intelligence, Digitalization Trends, Organization Effectiveness

In-depth research with executives at a wide range of companies shows how  managers can use technology to redefine their businesses.

Digital transformation  —  the use of technology to radically improve performance or reach of  enterprises — is a hot topic for companies across the globe. Executives  in all industries are using digital advances such as analytics,  mobility, social media and smart embedded devices as well as improving  their use of traditional technologies such as ERP to change customer  relationships, internal processes and value propositions. Other  executives, seeing how fast digital technology disrupted media  industries in the past decade, know they need to pay attention to  changes in their industries now.

Where can you look for digital transformation opportunities? We  interviewed 157 executives in 50 companies to find out. These companies  are large — typically $1 billion or more in annual sales — and spanned  15 countries. To provide balanced perspectives, approximately half of  the interviewees were business leaders such as CEOs, line of business  managers, marketing heads or COOs, while the other half were IT and  technology leaders.

The companies we interviewed are moving forward with digital  transformation at varying paces and experiencing varying levels of  success. Some are transforming many parts of their organizations while  others are still doing only the basics. Others are encountering  organizational issues or other challenges that prevent them from  transforming successfully.

But one thing we found was clear. The best companies — those we call  Digirati — combine digital activity with strong leadership to turn  technology into transformation. This is what we call Digital Maturity.  Companies vary in their digital maturity, and those that are more mature outperform those that are not.

Leading digital change requires managers to have a vision of how to  transform their company for a digital world. So, where can you look?  What digital activities represent good opportunities for your business?

Analysis of the interviews shows clear patterns. Executives are  digitally transforming three key areas of their enterprises: customer  experience, operational processes and business models. And each of these  three pillars has three different elements that are changing. These  nine elements form a set of building blocks for digital transformation.

Currently, no company in our sample has fully transformed all nine  elements. Rather, executives are selecting among these building blocks  to move forward in the manner that they believe is right for their  organizations. In this article, we highlight some of the ways that  companies we studied are changing these nine areas.

Transforming Customer Experience

The three major building blocks with which companies are digitally  transforming customer experience are customer understanding, top-line  growth and customer touch points.

Customer Understanding

Companies are starting to take advantage of previous investments in  systems to gain an in-depth understanding of specific geographies and  market segments. Some are exploring social media to understand what  makes customers happy — and what leads to customer dissatisfaction.

In addition, companies are learning to promote their brands more  effectively through digital media. Companies are also building new  online communities to advise and build loyalty with clients in medical,  real estate or financial services products. Others are building products  that improve branding in lifestyle communities.

Many organizations are building analytics capability to understand  customers in more detail. Some insurance companies, for example, are  improving their portfolios and cost structures through analytics-based  underwriting and pricing. Other companies are conducting analytics-based  experiments to drive customer behavior. In one case, a restaurant  company is actively conducting experiments in pricing and promotion  across a set of franchised stores. The experiment dynamically adjusts  product prices in response to demand, weather, inventory levels and  proximity to closing time.

Top-Line Growth

Companies are using technology to enhance in-person sales  conversations. For example, financial services companies are using  tablet-based presentations instead of paper-based slide decks to make  sales pitches. Insurance firms are introducing mobile tools to help  sales people and customers engage in analytics-based planning. A medical  device sales force is replacing in-person interactions with digital  interactions. When visiting a doctor’s office, a salesperson leaves an  iPad with video and other information on new products. The aim is to get  the doctor’s attention — without inconveniencing the physician or  impacting busy office schedules — in order to obtain a 10-minute  conversation when the salesperson returns to retrieve the iPad.

Better understanding helps businesses to transform the sales  experience. Companies are integrating customer purchasing data to  provide more personalized sales and customer service or even to offer  customized product packages. A hospitality company engaged in  location-based marketing uses analytics to send personalized mobile  coupons to customers as they near a facility; the company can then track  uptake in real time. A mortgage company is setting up a CRM strategy to  link customers to local real estate references. This system proposes  new offers in real time via the Internet.

Other businesses are using concept stores as flagships for their  digital selling innovations. For instance, a mortgage company offers  investors an integrated process combining real estate and bank services  with external services — and showcases the overall process in a concept  megastore.

Some companies try to make life easier for the customer, simplifying  their processes through a digital plug-in. One retailer automatically  loads a customer’s last online shopping list into its e-commerce site.  This streamlines the shopping process, allowing customers extra time to  look at other products. Customers can then decide whether to use home  delivery or a drive-through service with a specific pick-up time.

Customer Touch Points

Customer service can be enhanced significantly by digital  initiatives. For example, a bank established a Twitter account to answer  client complaints quickly, helping customers avoid going physically to a  branch. This digital initiative also leveraged an expert community,  allowing crowdsourcing with several employees and other customers.

Companies with multiple channels to the customer are experiencing  pressure to provide an integrated experience. Multichannel services  require envisioning and implementing change across customer experience  and internal operational processes. Many retailers now offer home  shopping with the option to receive products by mail or in a store.  However, one retail executive described customers being angry that  customer service representatives in a store could not access online  order history.

Several companies in our study are offering self-service via digital  tools. These tools allow the customer to save time, while saving the  company money. Many companies are now offering customer apps to enhance  customer touch points. In one hospitality company, smartphone apps are  linked to the customer’s profile, enabling integration across SMS, apps  and social media efforts. A media company offers apps with  geo-localization and augmented reality to help customers find  interesting places to visit and provide special offers via vouchers and  e-couponing.

Transforming Operational Processes

Although transformed customer experiences are the most visible — and  arguably the most exciting — aspects of transformation, companies are  also realizing very strong benefits from transforming internal processes  through process digitization, worker enablement and performance  management.

Process Digitization

Automation can enable companies to refocus their people on more  strategic tasks. A manufacturer has begun to centralize the HR function,  allowing economies of scale through self-service while freeing HR  people to “focus on enlarging manager skills, rather than counting days  off.” A specialty materials company has automated many R&D  processes. Automation allows researchers to focus on innovation and  creativity rather than repetitive efforts. It also creates streams of  data that can be useful in later data mining efforts.

One paint manufacturer has created fully automated plants that  significantly reduce labor requirements, improve product quality and  enhance environmental, health and safety performance. An apparel company  has moved to digital design processes when collaborating with  manufacturing partners. Going digital eliminates most need to ship  physical prototypes back and forth, reducing the product development  lifecycle by 30%.

Worker Enablement

Individual-level work has, in essence, been virtualized — separating  the work process from the location of the work. A financial services  business rearranged its headquarters so that nobody had an assigned  desk, even the CEO. Employees now work from home one or two days per  week and, when they are in the office, sit near people with whom they  are temporarily collaborating. Meanwhile, the company’s collaboration  and networking tools allow employees to talk with anyone in the  organization from wherever they are sitting. This is setting the stage  for further changes related to globalization.

The tools that virtualize individual work, while implemented for cost  reasons, have become powerful enablers for knowledge sharing.  Salespeople and frontline employees, for example, are beginning to  benefit from collaborative tools in which they can identify experts and  get questions answered in real time. They are also increasingly gaining  access to a single, global view of the company’s interactions with a  customer.

Performance Management

Transactional systems give executives deeper insights into products,  regions and customers, allowing decisions to be made on real data and  not on assumptions. This is happening in both internal processes and  customer-facing processes. The level of detail is also increasing,  allowing managers to compare status across sites or reallocate product  manufacturing capacity in ways they could not do before.

Beyond being better informed, digital transformation is actually  changing the process of strategic decision-making. Top executives in a  medical device manufacturer used the company’s existing collaboration  tools to extend strategic planning sessions from 12 people to more than  300 of the business’s top managers. This enabled better input into the  process and better uptake of the vision after decisions were made.

Transforming Business Models

Companies are not only changing how their functions work, but also  redefining how functions interact and even evolving the boundaries and  activities of the firm.

The three building blocks of this transformation are digital  modifications to the business, the creation of new digital businesses,  and digital globalization.

Digitally Modified Businesses

One media executive said: “We’ve realized that if we don’t transform  the way we do business, we’re going to die. It’s not about changing the  way we do technology but changing the way we do business.” The company  is finding ways to augment physical with digital offerings and to use  digital to share content across organizational silos.

A grocery company is staying true to its traditional business but  using digital to transform a new growth business. As one executive  reported, “After two years, our e-commerce platform is bringing us 20%  of our new clients and our traditional clients are consuming 13% more on  average.”

Other businesses are building digital or service wrappers around  traditional products. A national post office is creating a free digital  mailbox attached to each physical mail address that companies can use as  a substitute for a person’s physical mailbox. A business credit company  is developing a digital business for some credit products that requires  less involvement than their traditional high-touch offerings.

New Digital Businesses

Companies are also introducing digital products that complement  traditional products. For example, a sports apparel manufacturer started  selling GPS and other digital devices that can track and report on a  customer’s workout. Other companies are changing business models by  reshaping their boundaries through digital. A mortgage company is moving  from being a link in the value chain to being a global assembler of  investment products. An airport authority is aiming to become the owner  of a traveler’s end-to-end process by providing an integrated  multichannel experience, including information on airplane traffic and  reservations, duty-free shopping promotions and other benefits.

Digital Globalization

Companies are increasingly transforming from multinational to truly  global operations. Digital technology coupled with integrated  information is allowing businesses to gain global synergies while  remaining locally responsive. These companies benefit from global shared  services for finance, HR and even core capabilities like manufacturing  and design. Global shared services promote efficiency and reduce risk.  They even promote global flexibility. One manufacturer can shift  production around the globe with only a few days’ notice in response to  interruptions or excess demand.

The Take-Away

Digital transformation requires strong leadership to drive change.  But it also requires a vision for what parts of the company you want to  transform. Companies in all industries and regions are experimenting  with — and benefiting from — digital transformation. Whether it is in  the way individuals work and collaborate, the way business processes are  executed within and across organizational boundaries, or in the way a  company understands and serves customers, digital technology provides a  wealth of opportunity.

Focus is important; no company we studied is transforming all nine  areas at once. But the best-managed firms are constantly identifying new  ways to redefine the way they work in the new digital era.

 

 

 

 

Original Article: MIT Center for Digital Business/ George Westerman, Didier Bonnet, and Andrew McAfee/ 2018

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