Perhaps you have heard the phrase “digital transformation”. What does it really mean and how do you apply it to your business?
- Transformation is a thorough or dramatic change, like a sports car changing to a robot.
- Digital represents software and data leveraging computing, networking, and data storage technology.
Combined together, digital transformation, in the context of business, is a thorough or dramatic change with software and data as the enabler.
Netflix digitally transformed the way we acquire and consume movies by using software and the internet to distribute movies to consumers. This digital transformation put Blockbuster out of business.
Amazon digitally transformed the way we shop, seriously crippling major retailers who have been in business for generations.
Three out of the top five S&P companies gained their position by digitally transforming entire markets. You know them as Alphabet (Google), Amazon, and Facebook. The other two in the top five just happen to be technology companies that transformed their industries with digital technology pre-internet (Apple and Microsoft).
With each digital success story, there is a tragedy. Old companies, hiding behind perceived barriers to entry, continuing to “do what they always do” until they cannot afford to do it any longer.
No Industry is Safe
- Uber: Taxi industry
- AirBnB: Hotels
- AOL/email: Postal System
- Facebook: Tabloid magazines/advertising
- Amazon: Retail
Digital technology has significantly reduced the barrier to entry into traditional industries that once seemed locked down by large 80-year-old companies.
What position is your company taking? Are you operating with a false sense of security? What are you doing to prevent a disruptive technology from putting you out of business?
Navigating a Business Transformation
There is a huge opportunity available to companies willing to step out of their comfort zone. The good news is that a transformation does not have to be earth shattering like some of the examples
above. Even these transformational examples took time. One guarantee, no transformation will occur without effort.
Your effort should start with what you do. Do you provide a service, make and sell, or perhaps a combination? What supporting processes are involved? Take an inventory of how you can be more efficient with every task and every exchange required to support what you do. Include in your inventory how you can provide a better consumer experience, not only when they consume your product or service but during the acquisition process and when they need support.
Phase 1 in your Digital Transformation Journey
Find quick wins. Look for ways to automate the processes in your inventory with software (digitally transform). Start by reducing tasks, then look at eliminating manual exchanges of information, finally look at eliminating entire processes altogether.
Now listen up: Do not limit your thinking to what you feel is possible.
Remember, you are in a competition. Always look for ways to provide a better experience for the consumer but as a backup, you must be prepared to lower your prices. This is where operational efficiency through digital transformation becomes your “ace in the hole” if you are forced to lower pricing.
Phase 2 is a Disruptive Transformation
Now, with success under your belt, go see your accountants (or read their reports). From them you will find an inventory of your current assets and the cost to hold them. Equipment, property, workforce skills, and IP are examples. More importantly, but harder to find, look at the ecosystem that exists outside your company in the form of partnerships and networks.
Digital transformations that have reshaped industries in the 21st century did not happen without a 20th century concept known as “synergy”. Uber, Facebook, Google, AirBnB, and Amazon have all provided a better consumer experience. They have also significantly reduced their fixed asset costs and in many cases their COGS through synergistic partnerships with operators, consumers, and sellers, allowing them to compete on price as well as user experience.
Facebook did not need to hire writers, you are their writer and you write about your favorite subject, you! Uber did not invest in a fleet of cars; their operators bring the car so Uber only pays for cars in use. Amazon did not invest in real estate to open their store nor did they have to carry a large inventory of products. Their suppliers carried the inventory. Their stores are virtual. (Of course, now Amazon has the scale to carry inventory strategically so that they can ship quickly which they do better than anyone else in close partnership with UPS).
Phase 2 is hard, that is why the reward is so significant. You are now looking for ways to reduce fixed asset costs as well as COGS. At the same time, it is critical that you provide the same or better consumer experience at the same or better consumer price. Follow the logic of the “new money” companies. Leverage software in a unique way. Effectively collaborate with an entity outside your company and eliminate your need to carry a fixed asset or pay for an idle asset. Assets being equipment, property, workforce skills, and IP.
Viola! You are now on the path to digital transformation.
This is only half the story. What do you know about software let alone software development? Do you have enough software development work to prevent assets (i.e., software development workforce) from being idle? Remember, idle assets limit your ability to compete.
You have options for acquiring software:
- Create a workforce competency and custom develop internally
- Custom develop with a 3rd party service firm
- Purchase or subscribe to a commercial solution
My next blog will provide a make versus buy perspective by looking into these options more deeply. Until then, feel free to contact me directly to discuss use cases and potential approaches for digitally transforming your business.