The rapid adoption of digital technologies by customers and competitors is disrupting every industry and creating value at an accelerated pace. Advances in technology and marketing science have armed businesses with an expanded palette of powerful digital platforms and tools with the potential to create new value, disrupt the competition, and delight customers.
These highly scalable technology platforms are changing the way businesses connect with and create value for customers. They have catalyzed a wave of digital innovation by both new digital “natives” start-ups like Waze and Blue Apron and legacy businesses like GE and Hilton who are using them to adapt their products, channels, and business models. These digital innovators are creating hundreds of millions of dollars of value in a matter of months with product, channel, and business model innovations that exploit the rapid adoption of these digital technology platforms and changes in customer behavior.
The pace of digital innovation is accelerating. CEOs no longer have the luxury of time to manage secular decline of their core business, develop strategic plans, or pursue late adopter strategies. As a result, 90% of global businesses have initiated a formal digital transformation initiative of some form, according to a survey of 573 global business leaders by Forbes Insights entitled How to Win at Digital Transformation.
There is a significant amount of skepticism in board rooms about the impact digital transformation will have on legacy businesses, as well as the nature and speed of digital threats. Many executives feel “unicorn” business models, like Uber, are not realistic for their businesses. Others are gun shy about undertaking major transformation programs without the skills, financial support, investment model, incentives, patience and culture to succeed.
But despite these justifiable concerns, responsible CEOs need to be aware of, and vested in, digital innovation in their capacity as stewards of their enterprise. The demonstrated success of digital business models and a growing body of research about changing customer behavior provide three legitimate reasons CEOs need to focus energy, leadership and capital on these efforts.
- The fear of losing access to digitally enabled customers. Seventy one percent of executives’ view understanding the impact of digital technology will have on their customer’s behavior and preferences as their top digital transformation challenge according to the Altimeter Group. Most digital transformation efforts are focused on developing ways to more effectively engage customers in traditional channels and meet their rising expectations. For example, the French telecommunications company Orange has a goal of conducting at least half of customer interactions across more than 250 million consumers and B2B clients in digital channels by 2018.
- The fear of disruption by digital competitors. The new reality is that disruptive digital business models are being successfully implemented across industries as diverse as telecommunications, recycling, investment banking, flooring, mattresses and mortgages. Threats can come from both new “digital native” competitors and existing suppliers, partners or competitors who use digital to augment, dis intermediate or disrupt the traditional value chain. 78% of business leaders believe digital start-ups pose a threat to their organization now or in the near future according to a survey of 4,000 business leaders by Dell. 62% have seen new competitors enter the market as a result of the emergence of digital technology.
- The struggle to find new growth in new markets and channels. New revenue growth is cited as a top reason for investing in digital transformation by 46% of the executives in the Forbes study because without new digital products, channels and business models it will be very difficult to achieve their growth goals. Over half are actively developing products and services that leverage digital and cloud based platforms. 37% are developing new customer-facing digital channels as part of their digital transformation journey to reach new customers in new ways.
As a direct result of these pressures, digital innovation has emerged as a top strategic priority according to the Forbes Insights survey. The vast majority of business leaders are trying to incorporate digital platforms into their business model to stay relevant to their customers, stave off digital competitors, and grow the equity value of their businesses. These programs vary in scope and purpose. But according to Futurum Research they are generally accompanied by a significant investment in a growing array of digital platforms, including but not limited to: big data, cloud computing, cognitive computing (artificial intelligence), mobility, the Internet of Things (IoT), and virtualization.
While almost every company is pursuing digital transformation to some degree, the Forbes survey found most still do not have CEO engagement in the initiative or an organization-wide strategy and execution plan in place. Less than a third have significant executive level sponsorship, and in most of those cases, that leadership comes from the Chief Technology Officer. As a direct consequence, recent estimates from Forbes indicate the majority (84%) of these programs have failed to generate the desired results so far.
According to Malcolm Frank, Chief Strategy Officer, Cognizant, “Digital transformation does not work when it’s technology-led, when companies try to blindly emulate what they see out there among the FANG gang (Facebook, Amazon, Netflix, Google), saying ‘let’s be the Amazon of our space, let’s be the Uber of our space,’ while not knowing how it’s applicable to their business.”
A CEO needs to be aware and vested in digital innovation for these strategies to “future proof” and grow the value of their business assets with intelligent innovation investment and purposeful action. Their leadership is necessary to separate and prioritize the critical tasks of establishing a digital innovation vision, strategy, and investment portfolio from the “noise” of digital tactics, trends and technologies.
Under the leadership of CEO Francisco Gonzalez the Spanish bank BBVA is aggressively leading the digital transformation of the banking industry from within – building a real time digital banking infrastructure and investing $150 million into financial technology startups through an active venture capital arm. For now, digitally oriented CEOs like Mr. Gonzalez remain in the minority.
As a starting point, every CEO needs to ask and answer five questions if they are going to effectively lead the digital transformation. The questions aren’t easy to answer. But attempting to answer them will help your organization better understand and manage the impact of digital technologies, disruptive threats, and changing customer behavior on your business.
- Are you playing offense, defense, or sitting on the sidelines? Most organizations only get serious about digital transformation in direct response to start-ups that threaten their business models with new digitally enhanced ways of doing business. Playing offense has several advantages. It provides learnings and insights from intelligent experimentation (few innovations are born on spreadsheets). It can effectively “future proof” your business by building a moat of digital initiatives around your core business before digital disruption can happen.
- Are you disrupting or being disrupted in digital channels? Whether you decide to take action, play defense, or wait on the sidelines, it’s important to assess and quantify the size, nature and timing of the potential threats to your business and opportunities to create value. Lack of vision is not a sin. Nobody can accurately predict the future. But the lack of diligence and foresight is irresponsible in today’s rapidly changing digital world.
- Do you know what your customers are thinking and doing? One of the biggest traps organizations fall into is to confuse digital innovation with technology. It’s important to remember digital transformation is primarily about finding new ways to engage, delight, and deliver value to customers. This means it is critical to take an “insights-first” approach. This begins by establishing a strong understanding of customer behavior as a baseline for digital strategy development, experimentation, and the reallocation of capital to digital business models.
- How sensational is your customer experience? The most successful digital innovators are using design thinking to leverage the broad palette of digital platforms and tools in clever combinations to develop customer experiences that are functional, but also fun, relaxing, memorable or inspiring. The benefits of embracing design thinking are myriad. Design thinking provides a disciplined way to break down the large pallet of digital, analytics, virtualization and mobile tools – and then mix them together to create customer experiences that engage, delight and add value to customers. It’s also an effective way to focus investment on the highest impact and most attainable opportunities. The approach makes it easy to extract the perspective, talent and ideas from across many business functions in your company in a relatively painless way. And design thinking naturally achieves consensus and organically evolves the culture towards a digital and customer focused mindset.
- Are you evolving as fast as your customers and competition? The most successful digital innovators like Mondalez, Intuit, and American Express have put in place agile processes for conducting experiments that allow them to do more testing, faster, at lower cost with customers. This allows them to learn fast, fail fast and build an intelligent portfolio of innovation investments with limited capital and risk.
This article was written by Stephen Diorio from Forbes and was legally licensed through the NewsCred publisher network.