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Business leaders of established companies have come to understand that digital technologies are upending traditional business models. Once you have surrendered to that reality, it’s time to define a business strategy that is inspired by the capabilities of digital technologies.
That won’t be easy. Digital strategies must tackle two questions that are shrouded in uncertainty: What can data and digital technologies do to help us solve customer problems? What solutions will customers find valuable?
Digital technologies are game-changing in helping solve customer problems because they deliver three critical capabilities: ubiquitous data, unlimited connectivity, and massive automation. Those capabilities make possible entirely new revenue streams. Digital companies generate revenue from digital offerings — information-enriched solutions wrapped in a seamless, personalized experience. Thus, every company must learn what solutions are possible.
But not every solution is valuable. Talk to a lot of wannabe digital entrepreneurs and you quickly learn that many solutions that digital technologies make possible aren’t of interest to anyone. Customers don’t see the problem being solved, or they have ingrained habits they don’t want to change, or they just aren’t comfortable buying a given offering. Thus, every company must learn what interests their customers.
It’s only when leaders wrestle with these questions that a digital strategy will emerge. Yes, digital technologies change not only an organization’s customer offerings — they change how the organization goes about defining strategy. That’s why we call digital technologies game-changing.
To play in this competitive environment, you must adopt two habits. First, you need to create a portfolio of business experiments. Second, you need to engage with customers to gain deep insights into their problems and potential solutions. These habits will help find the point of intersection between what’s possible and what’s desired. That intersection is where a business will succeed digitally.
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Create a Portfolio of Experiments
Evolving a digital value proposition involves funding many small experiments to maximize learning. Funding experiments isn’t hard. Companies encourage widespread experimentation through internal competition events, special funding opportunities like an internal Kickstarter or Shark Tank proposal review process, and organizational units such as innovation labs and digital business units. The idea is to produce a pipeline of new ideas from many parts of the organization, particularly from people who interact regularly with customers.
Of course, such widespread innovation could potentially waste resources on pointless experiments. Companies can counter that risk by insisting on small experiments that rapidly produce measurable outcomes. Any experiment that doesn’t quickly generate customer enthusiasm can be abandoned, while those with the most potential can grow. Leaders can also target particular goals that focus experiments on a particular set of outcomes. Targeting specific outcomes helps distinguish winners from losers.
It’s true that some major technological innovations will take time to develop. Autonomous vehicles fall into this category: They require long, sustained investments. Go ahead and create a lab that serves as its own Google X. That’s a big bet — but it’s a big bet on something that simply helps the company do better at something it already does (such as building vehicles that move people from one location to another). If you are accustomed to long product-development processes, this kind of effort won’t scare you.
But one or more big bets on traditional products will not help you learn how to develop new digital offerings. To do that, you’ll need to target new value propositions. For instance, approximately eight years into its digital transformation, DBS Bank in Singapore is today conducting about 1,000 experiments. DBS encourages experiments through mechanisms such as internal crowdsourcing, customer experience labs, hackathons, external partnering, nurturing of fintech startups, and technology scanning. Some of the experiments are quickly abandoned. Others evolve into digital offerings or features for customers.
When DBS initiated its digital efforts in 2010, the company targeted first-class customer experience. As part of that effort, the company established multiple organizational units to teach most of its 22,000 people test-and-learn concepts, design thinking, and customer journey analysis. Subsequently, DBS started capturing data from sensors on customer touchpoints so that employees could analyze customer habits and needs. Leaders then established a goal of eliminating 100 million wasted customer hours and empowered people to innovate to achieve that goal.
The company’s digital strategy has evolved as DBS learned from its experiments. In 2014, DBS restated its strategy as “making banking invisible.” Today, the company’s strategy is “making banking joyful,” with the branding position “Live more, Bank less.” DBS’s digital strategy initially led to simple apps that enhanced the customer experience, but by 2016, the company had introduced an entirely digital bank in India. In 2017 and 2018, it began offering car, property, and electricity marketplaces on the DBS website.
Engage With Customers to Gain Deep Insights
Steve Jobs famously declared that he didn’t ask customers what they wanted because he knew better than they did. He was right: Customers couldn’t imagine an iPhone until they had one. This was true for Airbnb, Facebook, and Groupon, too. Few people can articulate a need for a concept that doesn’t exist, and digital companies often sell solutions to problems that people didn’t know they had. For this to work, though, you need to know what your customers do now and what they are willing to do differently. Deep customer insights are essential to digital success.
Successful companies identify successful digital offerings by testing their ideas with customers early on. For example, French conglomerate Schneider Electric is pursuing a digital strategy of intelligent energy management solutions, built on a long history of manufacturing and selling electrical equipment. (I have coauthored with Cynthia M. Beath and Kate Moloney a case study of Schneider’s digital evolution.) Schneider’s strategy involves leveraging public cloud services, internet of things, analytics, and artificial intelligence. Its intelligent energy-management solutions can solve customers’ needs for reliable, cost-effective energy. Certainly, this is a digital strategy with great potential.
However, sometimes seemingly great ideas don’t find immediate buyers. Schneider customers have entrenched habits around buying electrical equipment and managing energy. Most can’t easily shift to Schneider’s new value proposition — a subscription service instead of a product. Buying Schneider’s digital offering involves a very different relationship. The company’s customers don’t think of Schneider as a solution provider and the customers’ organizational processes, not to mention their politics, aren’t designed to rely on an external provider of energy management solutions. What appears to be a solid digital strategy has required intensive engagements with Schneider’s top customers to learn the intersection between what Schneider, armed with digital technologies, can do and what customers might value.
Schneider addresses this need to engage with customers in two ways. First, it is training new salespeople who can provide customers with expertise on energy management to explore their needs. And second, it engages customers in the design and delivery of new offerings so that they reflect what each customer can use.
‘Act Like a Startup’ Means ‘Embrace Experimentation’
Leaders in many established companies are declaring that they are going to become digital by “acting like a startup.” It’s important to recognize that acting like a startup means allowing a few people to experiment with an idea to learn what’s possible and then testing it with potential customers to learn what they want. It’s about starting small and growing an idea as it takes hold.
Note that acting like a startup is not about losing money. Companies that are on a roll with their digital strategies consistently report that their solutions quickly become profitable. However, those profits are also a tiny percent of the whole. This could be distressing to both executives under pressure to deliver quarterly results and investors demanding those results.
Companies looking to thrive in the digital economy will need to borrow a page (or at least a sentence) from Jeff Bezos, who with every Amazon annual report republishes his 1997 letter to shareholders, which stated at the top: “It’s all about the long term.” To meet short-term financial targets, most established companies must sustain their traditional value propositions, but to succeed long term in the digital economy, they must develop digital offerings. They will evolve their strategies by experimenting with small offerings and learning what their customers value. Eventually, big companies will become successful digital companies because they know how to scale successful experiments.