Digital capability can transform every business function from customer-facing to operations to head office. The trouble is how to approach the opportunity. Any company getting started is faced with a dizzying array of options and perspectives and examples of how other companies have gone digital.
What I have done (or tried to) is wrestle the options into a strategy outlining the goals and major stages on the digital journey.
First, lets look at customer-facing functions like sales, marketing, fulfilment, and customer service.
Here the main goals of using digital technology are to increase revenue, loyalty, and agility through personalisation, building communities, reducing friction points, gathering data, untethering your customers with mobile options, increasing the value for your customers, and enabling ongoing development and improvement.
The three stages companies go through in digitising their customer functions are:
- First grow revenue by selling and interacting with customers online. Companies set up online stores, use digital marketing, analyse data to improve user experience, optimise for mobile, and initiate a social media presence. Sales and marketing teams become more effective supported by systems like Salesforce and Marketo. This stage is now so well developed, much of it has been automated. WordPress and BigCommerce make it easy to set up a website or online store; eBay, Etsy, and Amazon sell global channels and fulfilment capability; and Google and others are increasingly automating online advertising.
- Next companies deepen their relationship with customers by integrating across their online channels and more sophisticated use of data and social media. Online interactions are personalised by curating ‘people also bought’ or ‘you might also like’ recommendations, offers are more targeted, and online customer acquisition becomes more sophisticated and effective. Social media becomes more strategic, and also becomes an important customer service channel.
- The third stage is truly strategic, when digital penetrates beyond the ‘skin’ of the organisation, and changes what is sold and how the company operates, and even the company’s business model. Companies might turn products into services (e.g. via rental or micro-ownership), build and offer platform services, or embed social media into how they do business. Menulog – a mobile app in Australia – is ostensibly a takeaway ordering service so individual businesses don’t have to build their own, but as a platform, the true value is also as a promotional tool and channel to market.
Next, lets look at operational functions that support the front-office, like manufacturing, supply chain and logistics, and distribution.
Here, the main goals of digital are reduce cost and increase agility through simplifying, speeding up processes and reducing waste, building capability to quickly respond to customers and competitors, better leveraging suppliers, continuous improvement, and gathering data.
The three stages of digitisation are:
- First are efficiency gains driven by implementing an ERP system. This system might connect any of forecasting, manufacturing, supply chain, and finance but it’s expensive to change, proving a problem over time.
- The second stage is generally a cost play and varies depending on industry. Manufacturing companies might deepen and expand relationships with suppliers, and services companies may outsource functions, supported by digital technology enabling greater transparency, service monitoring and reporting.
- The third strategic stage is improving the customer value proposition by deeply integrating customer-facing and operational functions. Zara, a stand-out example, created a virtuous circle through an integrated design-to-store value chain, which invented fast fashion and enabled fashion trends to be feed back from the street by retail staff into design and manufacturing.
The third and final part of the business are head office functions, which either support the company rather than customers, or which are shared across functions, like finance, property, investor relations, procurement, legal, HR, and IT.
The key goals of digitisation are to reduce costs and increase flexibility through simplifying, standardising, and becoming more open. The three stages are:
- First is basic automation with stand-alone systems for different functions, and selective integration into ERP systems.
- Second is to reduce cost and improve focus by simplifying and standardising functions that do not contribute to competitive differentiation, like using cloud computing instead of buying IT infrastructure. In a previous post, I discussed using this stage to redeploy staff into customer-facing functions.
- Third is strategic digitisation, particularly for HR and IT. New HR models are starting to emerge, which are quite different from industrial era employment practises. Freelancer and oDesk enable greater use of freelancers for specialised tasks. Cloud computing and software-as-a-service will mark the end of the IT department as we know it. The network and infrastructure guys will work for cloud providers. Marketing will have a stronger voice in IT, and there will be a lot more data scientists analysing data and getting it to the right people to influence business decisions.
If we look at all the third stages together, a clear thread running though all is a greater focus on customers throughout the entire business, whereas the early phases – where most businesses are right now – tend to be fairly straightforward revenue or cost plays.
In those early stages, many companies have been able, sometimes through powerful market positions, to pay lip service to being customer-oriented. In the future, the threat from new competitors and existing competitors who digitise first, will force companies to be much more insightful and responsive to customers than ever before…