For years you’ve been told to avoid technology for technology’s sake – yet the same trap is catching CIOs pushing for digital transformation because everyone else is doing it. Like any IT initiative, digital transformation only makes sense if it supports your organization’s overall strategy.
Don’t do it simply because everyone else is doing it
It’s undeniable that the digital revolution is here and, just like during the industrial revolution 200 years ago, the business landscape will change dramatically. The vast majority of business transactions are going to take place via bits and bytes. Face to face, phone, and paper transactions will become a vague memory to look back on beside your electronic fireplace. Soon enough, robots will be buying services from other robots over the internet.
All organizations will need to adapt as we move forward. But not everyone needs to completely refocus on the digital journey; many firms will maintain the same strategies, with the same operations, and do fine. It’s yet another iteration of the cart and the horse. And here’s a hint: digital transformation is not the horse.
Imagine a financial services company catering to high-net-worth individuals. Customers are loyal to the firm because of the relationship and shared history between them. So how would they react if the firm goes all-digital and closes the office? In this case, a sweeping digital transformation does not align with customer needs. Aligning to customer needs is what the overall strategy is all about. A different digital transformation approach is more appropriate: perhaps real-time notifications and new mobile communication channels with a familiar rep could boost the customer intimacy goals of the firm.
The point of digital transformation should be to support the overall strategy, not turn the company on its ear and take it in a whole new direction.
Align your digital program with the organization’s strategy type
Let’s look at three basic strategy types and how digital transformation can support them:
1. Cost leadership
Here, digital transformation is all about automation and cutting costs. As a cost leader, innovation is not usually the highest priority. It’s easier and less risky to replicate what worked for your innovative competitors and avoid what didn’t. The second mouse gets the cheese.
Instead of innovating net-new services, focus on streamlining, simplifying, and consolidating internal processes: Why is your firm still paying expensive server maintenance and support costs, when cloud service providers can do it better and cheaper? How much time, paper, and toner could be saved if you digitized your internal sales order archives, instead of making CSRs maintain physical files in loud metal cabinets? Is business data easily shared across functional areas, or have different departments wound up with siloed non-standard data stores?
2. Product/service leadership
With this strategy, there is already an R&D focus, most of which should be digital. Digital transformation here should aim to boost revenue. It could simply be additional upsell opportunities. (Think: “Customers who bought X also bought Y and Z.”) The data will show what past customers wanted, making it easier to predict what new customers will want. Put those predictions in front of them, and good things will happen. Invest in a new data mining function within the IT organization to figure out what problems current customers are having and adjust your products to fix them. The firms with the data are winning the race.
3. Customer intimacy
Follow the voice of your customer. If your customers want digital interactions, go for it. But don’t lose touch with them and turn into a faceless automaton, relying solely on web forms and robotic customer service menus.
For example, if a customer calls to schedule a maintenance appointment at your dealership, follow up with a confirmation email listing the details. It doesn’t really change anything, but makes the customer feel that there is a commitment, and that they are cared for.
Battling for survival
No strategy can insulate a company from the digital age. And no industry will be safe from disruptive players. Take your Ubers, Lyfts, and AirBnBs, and look what they’re forcing industry mainstays to do (massive lobbying efforts, hefty mergers) all to hang on in a changing marketplace. How many households have a cable subscription today vs. how many have ‘cut the cord’ and now rely on Netflix, Hulu, and HBO Go?
Companies must select a strategy that can steer them through a major industry shake-up and align any digital transformation efforts accordingly.
Capitalizing on changes to the landscape
Other marketplaces are metamorphosing without a clear, disruptive, new entrant changing the game. Sometimes opportunities are created out of shifting customer preferences, or even the regulatory context.
For example, the cost to manufacture solar panels has been steadily decreasing, leading to more and more houses sporting rooftop panels each year. On the legislative side, deregulation in Texas allowed consumers to choose the retail electric provider they wish to use. As of 2014, 16 US states have allowed consumers the same choice. As far back as 1980, Idaho pioneered the concept of net metering, requiring utilities to buy back surplus electricity. In February 2018, the Residential Renewable Energy Tax Credit was reinstated, giving consumers a credit of up to 30% of the cost of electricity generation systems. Consumer power coupled with state and national legislature is pushing electricity generation in new directions, even without one major competitor disrupting the marketplace.
These trends present an opportunity for energy companies to adjust their strategy—and the successful players will make sure any digital transformations support the new strategy, not the other way around.
Start with strategy
Every firm will end up changing to meet the challenges of a new landscape. To ease the transition, and maybe even come out ahead, align your transformation efforts to support your company strategy.
Much like strategy execution, a firm’s transition into the digital age is internal. It doesn’t have to radically change your direction. Nor is it a synonym for innovation – even companies that are not on the bleeding edge can and will adapt to survive in the digital age.
Remember: digital transformation is not a standalone goal. More often than not, leading with technology will weaken the strategy. Keep the digital transformation program aligned with the strategy through appropriate governance, measurement, and management.