“Digital transformation is accelerating, due to so many people working from home”
Mary Meeker, Trends Report 2020
Similar to most business owners & entrepreneurs, I have been busy the last weeks to manage the business implications of Covid19 on our businesses. The range was from scaling up or down to building (or at least trying to build) new capabilities and reducing to closing non-performing business arms.On top of these micro challenges, most countries have introduced a strict stay-at-home policy and social distancing measures with significant implications for a number of industries and individuals alike. (P.S.: you can find my lessons learned and best practices for working-from-home here)
In one of my WhatsApp board member groups, a fellow board member posted the following:
This was one of the few ‘entertaining’ news I received in regards to Covid19. But satire aside, it made me think and realise that indeed a lot of companies are now forced to accelerate their digital transformation activities. I decided to use the next couple of weeks (and potentially months) to write more about Digital Transformation topics ranging from strategy, practical tools/frameworks for implementation and lessons learned of executing (incl. best-practices and examples) of digital transformation projects. I will partner with some of the best-in-class institutions and practitioners in their respective fields. Feel free to contact me in case you have an idea to co-author one of the next articles in the Digital Transformation journey series with me.
Let’s start from the beginning and define Digital Transformation before diving into a high-level toolkit that you can use to kick-off your digital transformation journey: a Digital Strategy Framework and its first step “framing the opportunity”.
Definition of Digital Transformation
There are numerous definitions of digital transformation in the business world. And speaking to a business vs. a technical leader, you will receive different explanations (and viewpoints) of digital transformation.
To simplify the definition (and especially to align the understanding with all stakeholders), I suggest the basic definition spearheaded by Prof. Nathan Furr and Prof. Andrew Shipilov from INSEAD:
“Digital Transformation means
Doing things differently
i.e. transforming core activities with digital
Doing different things
i.e. discovering new business opportunities”
A number of business and technical leaders think that digital transformation is the same as using or applying new technologies (only) but there is definitely more to it to improve your business performance.
Digital Transformation is a strategy choice
With technology advancing (from virtual reality/augmented reality to big data) and consumer needs changing (from offline to online and especially now accelerated with the Covid19 crises that forces consumers to stay at home and limit their outside activities), most industries are going through a digital transformation push with new business models and digital solutions either driven by consumers (external) or driven by cost/optimisation factors (internal). The boundaries between your offline and digital business are slowly diminishing and elements of both your internal and external activities are getting more and more connected.
Most business leaders start their decision-making process with what new technologies or solutions they can implement. Fundamentally though, I would start your assessment by raising the basic question of competitive advantage before evaluating any new technology or digital solution:
Is this new initiative, technology or business model
helping me to lower my (resource) cost
helping me to increase the willingness-to-pay of my customers or
will this be a new type of customer that I am able to discover
It sounds simple but I have seen numerous times that teams are jumping right away into technological solutions (e.g. recently a blockchain solution for an event organiser) without asking the basic questions of competitive advantage. So think about the 3 questions above before you implement any new technological solution.
Start to Frame the Opportunity
I recently finished the INSEAD Executive Management Course Building Digital Partnerships and Ecosystems. As part of the Action Learning Project (ALP) we had to deliver a structured approach to innovate on a digital business model. I am using the same steps from my ALP assignment to walk you through a digital transformation journey:
Once you have asked yourself the basic questions of competitive advantage you can map your initiatives on the Digital Strategy Framework to better understand whether it is a (1) market-driven (external focus), (2) cost-driven (internal focus) or a (3) new digital business model altogether (strategic growth). This is the first step of framing the opportunity.
Applying the Digital Strategy Framework
I took the liberty to create a digital strategy framework inspired by the research work of Prof. Nathan Furr & Prof. Andrew Shipilov (both INSEAD) and by the digital strategy work for the automotive industry produced by Accenture. This framework can (hopefully) help you to define and frame the opportunity:
Digital Strategy Framework to frame your digital transformation opportunity
(1) Digital Customer Experience (DCE)
DCE is used if you want to increase the willingness to pay of your customers. The focus of your digital transformation activities is to digitise the customer experience.
Examples: digitising your loyalty/CRM activities (from offline to online) to drive omni-channel purchases or adding a new digital revenue stream (e.g. for F&Bs adding online/food delivery as a distribution channel)
(2) Digital Enterprise (DE)
DE is used if you want to improve your productivity i.e. decrease your cost. The focus of your digital transformation activities is to digitise part of your operations.
Examples: digitising of your support functions (e.g. digitising your finance/accounting activities with a cloud software such as XERO, implementing a digital application tracking system that is integrated with all your job postings (such as podio))
(3) Digital Business (DB)
DB is used if you want to digitise your existing business model or develop a new digital business model to increase the willingness to pay or attract a new type of customer
Example: Companies that start to develop new digital initiatives and business models outside of their core business (such as Axiata with boost in Malaysia)
Digital Transformation is not about inventing the wheel but to form alliances, partnerships and adaptive ecosystems
Another common thinking is that companies “have to build their own technical solutions”. I have had the painful experience that a number of traditional businesses decided to build their own CRM system (“to individualise it”) ending with a 1-2 year project that ended nowhere – apart from high development cost and frustration for all parties involved. Without going too much into detail on how to evaluate potential partner I wanted to end this article with the key insight that all new technologies do require deep expertise but at the same time it will be needed to closely collaborate with others.
The success of any digital transformation project will depend on the strategic fit and alignment of your alliances, partnerships and the type of ecosystem that you want to develop. I will write about alliances, partnerships and tools that you can use in one of my next articles for the “toolkit for your digital transformation journey” series.
The author uses concepts, approaches and strategies that have been applied and used by a variety of industries, companies and/or practitioners. This article makes descriptive references to trademarks that may be owned by others.