“Digital” is perhaps one of the most over-hyped terms in the media today.
When we think about digital transformation, you can think of it in many different ways in terms of how digital changes the relationship with a customer.
Transformation is really this fundamental shift in how a firm delivers value to the customer, and therefore drives revenue.Nige Fenwick, VP and Principal Analyst from Forrester
In this webinar, we examined the challenges offline-first enterprises face in an increasingly digital world.
InfoTrust CMO, Michael Loban, and Forrester VP & Principal Analyst, Nigel Fenwick, first addressed the confusion around ‘digital’ and how understanding the relationship between digital and your customer equates to Customer Lifetime Value.
This is a key component to understanding the challenges and undertake a digital transformation for your own organization.
If you’re looking at your competitor and they’re ahead of you, you’re just chasing what the competitor’s doing”
Be Customer Obsessed, not competitor obsessed.Nigel Fenwick, VP and Principal Analyst from Forrester
Did you miss the webinar? Don’t worry! We have a recap available with you in mind.
After watching this webinar, you will:
Explain Digital Transformation
Be able to explain the concept of digital transformations, as well as the ‘what’ and ‘why’ of undertaking one
Understand the Benefits
Understand the benefits of well-implemented digital transformations and what should be carefully avoided
Have the Four Attributes to be Successful
Know which companies have been successful with digital transformations and the four attributes that make this possible
Hello everyone and welcome to our webinar. We are going to begin in just a few minutes. Thank you. Right, excellent. We’re going to begin. Thank you everyone for joining. I’m excited about today’s webinar, where we’re going to discuss the digital transformation and why some businesses fail, and the attributes that are needed to avoid the same fate and how to make your enterprise successful during the times of digital disruption. It’s an interesting time today. Every day on the news, I see yet another retailer is closing the stores, companies are going bankrupt, and it seems like Amazon is entering yet another vertical. Some organizations see opportunities and succeed while others fail.
Today we will take a look at how some organizations go through this process of digital transformation to optimize and rethink how they do business and how you can get started in this process as well.
About Your Presenters
My name is Michael Loban, and I work at Info Trust, where we provide marketing executives these analytical tools and insights to increase online revenue. We work with Fortune 500 companies, global brands, internet retailer 1,000 organizations such as L’Oreal, Legal Zoom, Men’s Warehouse, and Nestle.
Our guest speaker today is Nigel Fenwick from Forrester. Nigel serves digital business professionals working across the C suite to provide insight and guidance in the world disrupted by technology. He is recognized as a visionary with insight into emerging trends, and has published leading research on digital transformation, social media, business strategy, innovation, retail, and marketing. Nigel, welcome, and thank you for joining us today.
Thank you, Michael. It’s a pleasure to be with you today.
We are recording this webinar. Also, our last webinar has been featured in Forbes and Adweek. As a follow up to this webinar, we will send out the link to the recording and links to articles in these publications. In the Go to Meeting, there is a chat panel where you can ask questions. Please, throughout the presentation feel free to post questions. Some we will try to answer as we go through the presentation, others we will discuss towards the end of the presentation. We’ve specifically allocated about 10 minutes to answer questions. Thank you for those who send us their questions ahead of the webinar. We have a collection of about six questions that were submitted prior to the webinar about this topic.
What are we going to cover today? First, I think it’s important for us to get the definitions right. We’ll start with what is digital transformation, because we want to avoid yet using another term that is just thrown around without clear definition what it means, what it represents, and how your organization can think about that transformation. Then once we define the concepts, we will look at how do companies actually transform. What are the forming rules of business? Then we’ll have our time for Q and A.
What is Digital Transformation?
Nigel, in your opinion, what is digital transformation?
Well, thanks Michael. It’s really important we tackle this question upfront, because it does cause a lot of confusion. I mean, in fact digital is perhaps one of the most over-hyped terms in the media today. When we think about digital transformation, you can think of it in many different ways in terms of how digital changes the relationship with a customer. Transformation is really this fundamental shift in how a firm delivers value to the customer, and therefore drives revenue. It’s more than just adding a digital capability to the existing business model. If you really want to transform the relationship with the customer, you have to look at the journey from the customer’s perspective, see the business from the customer’s perspective, understand the outcome the customer’s trying to get to, and use that understanding to deliver a better outcome, often through digital experiences, and drive revenue.
To put this in context, what’s going on here is very important. When you think about the experiences we all have with our smartphones, for example, not so long ago, I think it was a couple years ago, I first stayed at a hotel, if I remember rightly it was in London, where I could actually open my hotel room door with my smart phone. That allowed me the convenience of not having to carry a key with me. That small change, that incremental change in that digital experience changed my expectations about maybe what’s possible. As I think about any time I might use a lock or a key, I might now think okay, it’s possible I can unlock this with my phone. These small changes in the digital experiences we have with any company reset our expectations about what’s possible across a whole variety of industries, a whole variety of products and services. It’s the degree to which these expectations are evolving that’s really changing the pace of change inside business.
For instance, you may not think about the change in hotel room as driving a need to change hotel. If you can now book a room using a blueprint of a hotel, which you can on some hotel chains, you can now … For business travelers, this is very important, right, being able to select a room that’s not next to the ice machine or the elevator, or overlooking the train station, for example, might well be a reason for choosing a particular hotel chain, because they offer that experience. These experiences can shape expectations, but they also can deliver immense value.
It’s the degree to which the experiences deliver outcomes that are valuable to the customer, that’s the important connection here, right? The experiences themselves shape expectations, but if you have experiences that deliver outcomes, they really start to shape the value perception of the customer. They shape how we think about did we get value from that experience. All of us are experiencing these changes in our expectations, sometimes without even being conscious of it. Your customers, everybody’s customers are having these experience changes.
Jeff Bezos highlighted in his earnings letter earlier this year this great quote here, “You want to be customer obsessed, not competitor obsessed. Customers are always dissatisfied, they’ll always want more.” In other words, their expectations are evolving. If competitor obsessed, you’re a leader, right? You see everybody behind you, and you slow down a bit. If you’re looking behind you at what your competitors are doing, and they’re not as fast as you, you get comfortable. If you’re looking at your competitor and they’re ahead of you, you’re just chasing what the competitor’s doing. If that competitor is looking at the customer expectations, they’re going to always be ahead of you because the customers pull you along, as Jeff Bezos says.
The Digital Dilemma
This is a really important thing to understand. Customer obsession is about letting the customers pull you along and set the level of service that you need to deliver to the customer. The way to think about this is if you put this in a mathematical formula, it’s perhaps easier to think about what’s going on and why you need to change experiences continuously. Here we have a formula that says experience over expectation equals perceived value. This is what I describe as a digital dilemma, because if you think about experience as a number, let’s call it 100, and expectation as a number, let’s call it 100, you have a perceived value of one. If the expectations are constantly changing, they’re going up, but the experience you deliver stays the same, then what happens is the perceived value go down. It is sort of diminished over time.
You have to constantly evolve the experience. Most businesses that we have designed today are not designed to evolve fast. They’re designed to evolve very slowly. Experience has to evolve at the speed of the customer expectations. We have to rethink the business model, we have to rethink the organizational structure, and how we deliver value to the customer in a way that is constantly evolving, constantly changing. Hence the push for greater agility. This is what lies at the heart of digital transformation, this need to constantly see the business from the outside, understand how do we create value in the mind of the customer, how do we deliver the outcomes that customers value. That’s true transformation of the business. It’s seeing the business from the outside in, creating value in new ways for the customer. Very different from just adding a mobile app to today’s business. It’s a big change going forward.
Focus On The Right Customers
Now as we go through this process, what’s really important is for us to focus on the right customers. A lot of times when we meet these organizations and we ask them, “What is important to you? What are you optimizing towards?” The answer is we optimize towards conversions. We optimize towards total revenue generated on a website or generated as a result of a specific campaign. If you think about the experience that we want to create for our customers, it is impossible and cost prohibits it to meet the expectations of all of your customers.
The question is who are your most influential and most profitable customers, or customer settings? How can you identify them and service them? In fact, the assumption that we discussed in our past webinar Peter Fader, Professor at the Wharton Business School, where they talked about the idea of customer lifetime value, and how do we look and think beyond the conversions, and how do they think beyond one time success metrics such as conversion or such as sale, and how they look at generating value towards customers that end up being our customers for the next 10, 15, 20 years.
You have to understand what your top clients are looking for. The best way to do so is by starting the unique path to becoming your customer, and that’s why you have digital analytics data. Then what they do as your customer, what they do as your customer can be on a website, can be inside your store, or it can be across any other touch point. The question always is if that data is sound, if your in-store data versus your web data versus your social data all exist across different platforms, then you will have a much greater time trying to combine that data set to understand what customers are interested in and how you can craft the experience that will meet their expectations.
If you can do so, if you can integrate those channels together and analyze them efficiently, then you will be able to determine where to invest your resources and how to properly allocate your advertising or experience budgets to make sure that your top clients are super profitable. How can you constantly create raving fans? Organizations that are able to understand and meet the expectations of their best customer segments are going to win.
Great Experiences Drive Impressive Returns
It’s interesting when you talk about creating lifetime value for customers, and focusing on the right customer segments. There’s a lot of questions come up, and a lot of our clients will ask us about the ROI of customer experience, and how do we show the return to the CFO, let’s say, of investing in customer experience and improving customer journeys. One of the best things that I think is a way of demonstrating the value of this sort of investment in customer service and improving the way we think about how to create value for customers is demonstrated by this graphic that was built actually by Watermark Consulting, who looked at the Forrester customer experience index and they created a portfolio, the customer experience index leaders in the Forrester customer experience index every year compared to the laggards.
They sort of made this pseudo portfolio to analyze the performance if you’d invested in these companies each year compared to, say, the S&P 500, or compared to the laggards, the people at the top of the index, the companies at the top of us, the companies at the bottom. What’s the difference? The graphic kind of tells a story that these leaders in customer experience consistently outperform the laggards, consistently outperform the S&P 500. You look at the difference between the leaders and the laggards, and it really tells a story of companies that were investing and putting their customers first versus those companies who were perhaps fast followers, or even just following, chasing the competitors like Jeff Bezos said in the quote earlier.
The companies that were not seeing a customer, and the value they created for customers as being all-important end up under-performing by a significant amount in terms of their stock value. This really does highlight this need to focus on the right kind of metrics across the business, and understand what’s important. You mentioned, Michael, about Peter’s reference to the lifetime value, customer lifetime value, and the focus on that metric. To me, customer lifetime value is probably the most important metric for people to think about is understanding the when we make a transactional sale to a customer, it’s not just that one sale that’s important, but it’s the experience they have after that, after that sale. How are they using the products? How are they getting satisfaction from that experience? Is it delivering the outcome that they expected?
It’s that old adage that salespeople often get trained … This was a story about sell me this drill, and they start talking about the features and benefits of the drill instead of focusing on the fact that this drill will allow you to produce the exact hole, the right dimensions that you want, because the outcome they want is the hole not the drill. This idea that when we sell something we’re helping a customer get to an outcome, and in order to be able to understand the value they create, we have to do things like measure lifetime value.
Things like acquisition rates are an indicator of that, right? Retention rates in particular, customer retention, because if we retain our customers and they buy again and again from us, then we know that we’re creating this continuous value for them. That’s one of the areas that we really try to help people focus on is understanding the right metrics that will lead to continuous revenue growth, because that’s such an important factor for most for-profit companies, is we want to go to revenue growth. Even in nonprofits like charities, for example, they want to retain people who are donating money. They want to help protect customer retention around that, because that’s going to source the funds. That’s one of the things that we see really important, Michael, is focusing on the right kind of metrics, and how you demonstrate the impact of customer experience. I’m curious as to what you’re seeing with your customers that way.
CLV Success Stories
Great question, Nigel. I think when we talk about customer experiences, and in the world of analytics, it also means that we have to do analysis around our customer, around our client. A lot of times when we talk with organizations and we start to understand that where does their digital analytics live and how it’s structured, you hear the terms such as well, “this department or this team is responsible for our website analytics.””This team is responsible for our store analytics.” “This team is responsible for our direct-mail campaigns.” At the end of the day, you ask, “Well, but you have potentially one customer that lives in the five different databases. Your experience is not really customer centric, it’s device centric, or it’s centered around a store or around different types of touch points. It’s not focused about one of your client and how you can create a wonderful experience and measure that experience across all of those channels holistically while increasing the revenue.”
One tip to share as a result of working through this model with one of our clients, what’s interesting about this case study, and unfortunately we cannot share the company name because they treat analytics as their competitive advantage, so do not want to go on the record and describe everything that was done for them or with them, and they were able to … What we did was we enabled to optimize their marketing channels and increase their revenue through vigorous customer segmentation program, where we can look at all of their customers instead of saying things like, “Well, our average value per customer, our average transaction.” We tried to stay away from the concept of averages and rather think about what are our customer groups, customer segments, and how do we tailor our experience to that specific segment. In the long run, how do we make that experience completely personalized? You want to avoid the idea of what is the average. There is no really such thing as average. In the world of statistics, averages tend to be very, very misleading.
We started out by studying customer patterns, and putting their customers into groups based on volume of purchases. Then we broke down the customer journey into a sequence of steps and began optimizing each one. As Nigel mentioned, one of the focuses is revenue growth, and here you can see as a result there was a four percent revenue growth without additional increase in advertising. Merely by combining several of the data sets into one, then focusing on our customer segmentation and being able to craft the proper experience for each customer segment, then we were able to optimize their marketing spend and increase their revenue without again spending more advertising dollars.
That’s interesting. One of the things that we see is a lot of clients are coming to us and saying they’re trying to get that segmentation down as small as possible, almost to a point, and I think a lot of marketers are trying to see this, how do we get to a segment of one, how do we identify an individual customer, be able to create a unique experience for that one customer based on what we know about that customer. It’s this idea of customer segments getting narrower and more focused is very important.
How do Companies Transform?
Absolutely. I would say more granular, more narrow you can become, easier it would be to create a personalized type of experience. As Nigel pointed out, if you can create experience that meets expectations of that one person, that’s your recipe for success. Case studies are obviously very good to showcase what the end result looks like, but the question might be right now our organization is not quite there yet, so how do we transform, how do companies that have done this successfully, how have they done it? Let’s take a look at how organizations actually transform.
There’s a lot of research we’ve done over the last four or five years, really focusing on looking at digital transformation, what companies are doing to change. Some work we did this year, we looked at all the things that we see going on, and it’s interesting, we pulled these, the things together that we perhaps hadn’t seen as a cohesive whole into these four new rules of business. Because what it looks like is that you have to be able to do all four of these things well in order to be able to drive success and transformation, it’s not just about say focusing on the digital experience. Let’s start with the digital experience, because this is kind of the foundational road. You have to be able to deliver these experiences that are easy, effective, and emotional.
That means that you’re improving the customer journey, making things easier. You’re actually looking at how to save customers time, because time is really valuable to them. Effective in as much as you are looking to make sure they can get the outcome they value. Is it helping them get to what’s important to them? And emotional, because fundamentally, we’re driven by desires. We’re human beings, we’re driven by emotional desires. We don’t choose to buy a product because of all of it’s features. We actually associate very much with brands because of emotional connections, the brand has emotional connections to something we personally relate to. That’s sort of at the heart of brand marketing. We have to look at the emotional connection we create through digital experiences.
That’s why so much of this is built into the customer experience index we measure every year across leading brands. We measure how easy, effective, and emotional those brand engagements are, those customer experiences are in order to be able to help companies get that improved experience. You have to look at the digital experience to understand what you need to do to create a personalized experience tailored into their moment of need. If you move to the next slide, Michael, the moment of need is very important, right? You can create personalized experiences because of what we know about the customer, and even to that the segmentation, if you get the segmentation narrow enough, you can make it very personal. Ideally, you segment down to an individual.
Understand the context. Understand the context of what the customer’s doing. Where they are, what they’re doing really makes a difference. For example, you look at airline apps now. The best airline apps will understand that when you’re at the boarding gate, you want to actually see your digital boarding pass, right? You don’t just want to see the app, which is not aware of where you’re at and what time it is. Because the app knows that you’re at the gate, because it’s got that location sensor. It knows what time your flight’s boarding, and it knows it’s half an hour before the flight departs, so you’re going to be boarding now. Yes, it should automatically pop up the boarding pass, because that’s what you’re going to need. That understanding of the context is so important to create personalized value. You can use journey mapping to uncover the gaps that you already have in the customer journey, where the substandard experiences occur, and the outcomes that customers are trying to get to.
Journey mapping is really a powerful tool to help you understand what the existing customer journey looks like, and understand all the different components that go in to create and support these touch points. It’s not just the digital experience we might build on a mobile phone or a tablet or a website, it’s all of the systems at the back end that are being used to pull data through for the customer. Even things like the network latency becomes important in terms of whether your experience is creating value for the customer, because as customers we’ve become really bad at being patient, right? The expectation is that our data, the Audible we were looking at on our phone, for example, is going to appear instantaneously. We have to wait for something to load, we might wait a second or two, but not much longer. Latency inside the network, routing, problems with network become important, how we access data from the back end becomes important. All these things are so important to understand as we look at the customer journey in order to be able to create value.
Traditional companies can really think about how do we transform that experience by looking at the business differently. An example I have here is Yorkshire Bank. They are a traditional bank in the UK. They looked at their customer experience, and they’re trying to figure out how do we reinvent that customer experience to create a great retail banking experience that delivers these experiences through a digital contact. What you see is this ability to create. They set up a sister bank, essentially, that allowed them to create this new brand experience around digital customer experience with these sort of transaction streams that were seamless, they flowed into each other, they help the customers get to the outcome.
It gave them powerful analysis on what the customers were doing and the context they were doing it to be able to create these great experiences. It’s all built on the same back end as the traditional bank. When you think about the experience from the customer perspective, and the outcomes they’re trying to get to, you can completely reinvent that experience to create more value for the customer. There’s opportunity here not just for the digital, sort of the new digital companies, the disruptors, but there’s opportunity for traditional companies to rethink and reimagine the business from the customer perspective. How do we create the outcome that the customer wants in a better way using digital as the enabler of that outcome? That all make sense, Michael?
It does. I really just want to highlight kind of what Nigel, what you were saying. Elevate the experience to create value. A lot of times, organizations tend to ask what is the value of that experience to us? If we invest in creating these types of experiences, if we build a more personalized experience for our customers, then how are we going to be able to explain this to the CFO? Where is the ROI on this? There are two metrics to really consider. High satisfaction drives repeat business, which means that it increases the customer lifetime value, and the referrals, right? If people are satisfied with your business, if people are satisfied with the experience that they have, they’re going to share that experience with other organizations. Hence, lower customer acquisition costs. Those are really two excellent ways to measure how well you’re doing at crafting this experience, personalized experience, that meets expectations of your clients, how well you’re crafting it, and then what is the value that your business is able to get from going on this journey.
I was just going to jump in and say the referrals one is really important, because a lot of people forget that there are very influential people in referrals, right? Some people will make a referral, and they don’t have a big network, and they may not be influential. Others who make a referral may be highly influential in terms of future customers and attracting customers. You can still segment people beyond their lifetime value. You can segment people based on their influence, right? You’ve got the level of influence somebody has in the customer ecosystem, if you like.
A lot of times we don’t necessarily pay that much attention in the referrals, especially if your business may be B2B, but have you ever seen a person who was excited, really psyched about seeing more advertising? Mostly everyone claims that they do not click on display ads. Obviously, we know that’s not the case, but people often say, “You know what? I’ve become immune to any of this advertising. There is just too much noise, and I do not react to the ads that are being shown to me, whatever the channel might be.” Referral, on the other hand, gives an opportunity to still approach, to still be in front of your potential customer, but not through the means necessarily of the traditional online advertising bot, but rather using your clients.
Then here’s another case that we wanted to share. In fact, the ROI of this project was so horrible that Google wrote a case study about this project and our work for Pelican Water Systems. To have them accomplish 130%, we did 130% advertising ROI, we had to focus on data integration and tie together website analytics data, [inaudible 00:32:15] data, and the CRM data platform. When we started working with our business client, their data lived across different systems. A lot of times, they would market to the same person based on the different data sets. What we did is we unified that data set into one and then we began optimizing that journey that each client or each potential client that was undergoing this Pelican Water Systems.
As the result, we were able one, to notice that 15% of all offline sales are actually influenced by Adwords. 21% of all sales started with Adwords. In the world of omni-channel marketing, the question of how do we measure the value of a digital or offline conversions, we were able to answer that question specifically. If people do place orders via call centers, then how does digital advertising help us generate those phone call sales? How do we continue to stay in touch with people online that completed the purchase offline?
It’s hugely important. A lot of people forget that advertising is a digital touch point. It’s a touch point that influences brand recognition. Even if they don’t click on an ad, they see the brand, they see the brand awareness there. It’s this ability to influence the customer journey in many different ways. That also speaks to the referral, right? A lot of times, people will be more comfortable referring a brand that they are aware of and know about because they’ve seen something about it. Understanding that the digital advertising influences offline sales is so important.
With that, as we’ve looked at the digital experience, let’s dive into the next digital business operations.
This digital operations is something we talked about in our research a few years ago, this focus on digital experience and operations going hand-in-hand. Really the operations chain, shift in operations, has been this focus on creating things that customers value, changing your business operations around the outcomes that customers value. For 30 years, we’ve been looking at using technology to improve operational efficiency. It’s not that efficiency goes out of the window, but what is so important is understanding that you have to create the business agility inside the company to keep up with those evolving expectations.
You also have to look at changing the business operations, the capabilities of the business, to really reinforce the ability to deliver an outcome the customer values. When you look at where companies are currently investing in digital transformation, there’s some data points to share with you here that shows you when we ask executives where are they investing for digital transformation, you see numbers like this. For example, in retail you’ve got a lot of investment around customer service and sales and marketing, and the IT operations and supply chain, which is where you’d expect those investments to go. It’s spread across the spectrum.
If you’re looking at transformation, you can’t just focus on marketing. You have to look at the entire set of operations that sit behind the customer journey. In media and leisure, you see that high focus on marketing, sales, customer service, and then product design and the IT operational process, right? Very much focused on the things across the board that support the customer experience, the customer journey. Financial services and insurance, which are increasingly sort of B to C, they are companies that are constantly delivering value to end customers, consumers, you again see this sort of great focus on marketing, sales, customer service. Look at the number around IT processes. The ability to use technology to fundamentally create value for customers is really come to the fore in financial services and insurance because they understand how much technology can really influence the outcome of being able to, say, create wealth for a customer, or de-risk an insurance population. Data and analytics is becoming hugely important in these kind of companies to understand the customer and how to create value better and differently.
You have this operational focus, and then a lot of companies ask us, “How do we change our operational structure?” You move from this silo model where you see these functions, silo functions inside organizations, that are really built to create efficiency. They’re built to drive operational efficiency inside an organization, because if we put all of our capabilities together around, say, account management or design or consulting, they’re all clustered, and we can become much more efficient. What we’ve seen is this model’s been replaced what we described as a persona model, which is really you take those capabilities and you cluster them into these groups that focus on the outcomes the customer wants rather than the operational silos. We start clustering these groups together, bringing expertise from all of these different segments of the business to create this set of capabilities around delivering an outcome, or set of customer desires.
That allows us to change the focus of the business from operational efficiency to customer outcome. How do we create that and deliver that better outcome? Obviously, technology can help that a great deal, but it requires a change in culture, it requires a change in how you measure the teams. All of these things go to change the business operations. This is why we focus on this real focus on improving, using digital to improve the operations, and focus on things that customers value. That’s what we mean by the operations side. When you look at the percentage of companies that are changing, I think you’ve got some data. Michael had talked about the silo changes in organizations.
Absolutely. I sort of assessed statistics recently, and it’s easy to say that silo seems to not work, but often it seems like there’s no proof, right? Here’s great data that I would encourage you to share within your organization that talks about silo teams and how silo teams are really positioned to fail. When you look at the persona model that Nigel is sharing with us, then we can actually see the statistics that demonstrate that persona model is really the way for us to go forward, because if we stick to silos, whether it’s silos within the organization or even silos within your data about your customers, ultimately that’s not a sustainable process. Most likely, it’s going to end up failing, or even if it does not fail, it’s probably not going to be as successful as the persona model.
When we talk about digital transformation, it by definition can’t be done in just one digital department. It needs to happen across the organization. For instance, Nestle has centralized their digital service unit that was responsible for a wide catalog of digital services, including the commerce platforms, digital marketing, social media, consumer relations, mobile, commerce, search optimization, digital analytics, and that department, or digital services, the whole organization. The transformation really is happening across the whole company versus just in one department or within one team.
What’s interesting about that, can I just add, is they bring people from around the enterprise. Nestle is a huge organization, right? They bring people from around the enterprise, all the different parts of the enterprise, to work in that digital center of excellence to gain that digital expertise, and then they go back now into those different business units and spread that capability, but they still maintain those connections back to that digital center of excellence. There’s ways of trying to not just centralize everything in one place, but also dissipate it across the enterprise as well so that you’re creating this unified approach across the business to digital transformation.
Absolutely. I agree. Lately, I think last year Nestle even established digital innovation outposts in San Francisco where they can partner with the start ups and bring their innovative technology into their organization. If you’re one of the leaders that has your eye on the prize and want to make the success within the organization, it’s about connecting the analytics and the digital capabilities across the enterprise. It’s bringing these capabilities to the whole company.
The Nestle example in San Francisco just goes nicely into the next rule, which is digital ecosystems. How do you leverage these ecosystems? We’re seeing these connected, interconnected groups of companies with different capabilities coming together as we describe as a digital ecosystem. Some companies are building platforms to scale an experience and collect companies around those platforms, and really learning how to accelerate and scale those outcomes for customers. This is a third rule of business, is understanding how to leverage digital ecosystems, even to the point of building an innovation center in, say Silicon Valley, because you want to leverage that ecosystem of innovation around the Valley. It becomes a key way of thinking about ecosystems.
A few things to think about in terms of ecosystems, right? There are many different ecosystems. There’s customer ecosystems, there’s supplier ecosystems, there’s … What I describe in a lot of my research is a personal ecosystem of value, which is really the set of digital tools and assets that each individual person has, what they collect and collate to themselves. You’ve got to understand all these different kinds of ecosystems. They’re essentially one big digital ecosystem, what you might describe as the digital business ecosystem, that plays into itself, or feeds into itself. The whole idea of an ecosystem is everything is interdependent.
When you think about innovation, it’s important to understand that every firm needs some co-innovation partners. We’re no longer in an era where you can do everything inside the company. You need to get that inspiration from outside the company. A lot of executives will come and ask me about what their competitors are doing in different industries, or in their industry rather, and my response is always, “That’s the wrong question to ask. You need to ask what are people doing in other industries that I can learn from and apply to my industry.” Bringing outsider expertise can often accelerate innovation and help change the perspective that you have on the business. Co-innovation partners becomes a very important part of this ecosystem.
When you understand that, then you understand how you manage your partners, how you think about them in terms of your own business strategy, and the ability to create outcomes for customers becomes a critical skill in a digital world. We have to build capabilities inside the organization to incubate these partnerships, and help them grow and mature where there’s a high degree of trust, because you need to be able to share the intimate details of the company and how you create value for customers with these partners and work together to create a better outcome for the customer. The really advanced firms want to understand how to build a digital platform that will create an ecosystem around it. You look at what Apple has done for healthcare, for example, what GE is doing with the [inaudible 00:44:45] platform. There’s examples all over the place of these platforms that are used to drive and bring value to customers. Amazon is using its retail capabilities as a platform to help other retailers sell their products. The ability to use that digital platform to create value for customers is very important.
Firms in the future are going to gravitate towards the ecosystems that are growing fastest, that have the momentum, because that’s where their customers are going to be, and that’s where other suppliers that they can tap into are going to be. If you’re looking at building a platform business, which is the most mature business strategy, then you have to understand, you have to think about how do we scale our platform very quickly, because those ecosystems are going to have the greatest momentum. Michael, what are you seeing around the innovation ecosystem, if you like, the ability to drive innovation through the ecosystem?
You know, one thing that you’ve mentioned just a few minutes ago was around looking at what other industries are doing. What I find interesting here is we work with a number of Fortune 50 global CPG companies, so consumer-packaged goods, and very often as we think about their digital strategy or digital analytics strategy, the question is not around what is being done in the CPG space, the question is what the retailers are doing, right? Because now as we see this fundamental shift in how consumers are buying, and consumers expecting basically instant delivery of all products, how everything is shifting to companies like Amazon, that the question is not around let’s see what somebody else in the vertical is doing, because they can be doing something a little bit better or a little bit worse, but it’s incremental difference. Where they want to see show us top retailer so e-commerce organizations are doing because we want to be 10 times better. Because the reality is that things that got us here, to where we are right now in the market, are not going to be where they need to be over the next five to 10 years.
The other item, measure that you’ve mentioned is around building an internal network, or building internal capabilities. A lot of times organization, when they think about digital capabilities, the question is well can we do this in-house. Many organizations do build this in-house, but a number of organizations decide not to build this in-house because they just do not have enough analysts to handle this work, to handle the demand. They partner with us, and in that partnership we are able to bring the capabilities to them and infuse our knowledge across doing this work for hundreds of organizations into our relationship with them. This type of partnership, through this type of partnership, we are able to innovate together, we are able to define what digital capabilities are going to look like within the next few years, and then we end up building them together.
That’s an example of how an organization can build this ecosystem internally. It’s a lot of times just a matter of partnering with different companies so you can hear different voices, or new voices, somebody who is a little bit detached from your company culture, who does not yet know all the intricacies of how your business does business, that type of new voice might be very beneficial. Because again, they will bring you the view and the ideas that are being done across other organizations, across other industries. Then you can adopt them and win.
Really important. It’s straight on, innovation kind of comes into this next rule, which is about digital innovation. It’s closely tied to ecosystems, but being able to innovate at the intersection of experiences and operations. This whole notion that we have to be able to innovate, when you look at the business through the lens of the customer, you’ve got there’s a customer perspective, the customer journey, and you’ve got this massive set of operations that go on behind the scenes. When you look at where the investment is around innovation and the opportunity around innovation, you see about 20% of the spend going around the customer ecosystem, the customer touching ecosystem. About 80% of the spend, 80% of the opportunity is around the enterprise operational ecosystem, changing operations to support the customer experience. If you flip to this next slide, Mike, sort of this notion of looking at where the digital experiences intersect with the digital operations is really where a lot of the innovation gets focused, right?
This intersection of experience and operations is where you can create some radical changes in the perception of value for customers. You look at, say, an example of retail and say Rebecca Minkoff is a small fashion retailer in New York, high-end fashion. They are expanding their ability to do digital changing rooms, dressing rooms, into their stores around the world. They are experimenting with these high-value experiences, being able to put a digital mirror in a dressing room with screens to show. You know automatically what a customer’s brought into that dressing room, and can populate the screens with what other things, accessories go with those items. The customer can select if they want a different size, and an associate will bring that to them in the dressing room. All these things are focused on improving that experience for the customer and being more engaging, more entertaining, but also saving them time in the long run.
At the same time, you have to understand that in order to be able to deliver that capability, there’s masses of changes inside the operational side of the business to be able to do that. Even just to the extent of putting things like RFID tags onto every item that’s in the store, that has to be done typically by the supplier, and you’ve got to pull that all the way through to the supply chain. Then those RFID tags can be leveraged inside the distribution centers, et cetera, to understand where products are and how they’re moving. There’s massive innovation changes that can happen inside the business operations to enable these high-value customer experiences. This is what we mean by digital innovation, and innovating at the intersection of experiences and operations. So important for companies to understand this all through a business, and how to accelerate it, how to fuel it through these partnerships inside the digital ecosystem.
What’s interesting, Nigel, is somehow we’ve learned this term, many companies have adopted it, if we fail, we want to fail fast. The question is not about failing. The question is how do we position our company to learn fast. Certainly, it’s going to be impossible to create every single product that is going to be successful and that is going to generate a hundred million dollars in incremental revenue, but the question is how can we use information available to us, research, our own data about our customers, and how we can create the experience or build hypothesis so we can learn fast about what our clients like, how we can meet their expectations even better.
Another example is Burberry. Burberry stores are becoming even more digitalized as you try, for example, different products on you can see in the mirror information about those trench coats, about those products. There’s quite a bit of AI that is now becoming present in those stores. Now what we often see as normal, what we expect from stores, if you look at four or five, six, 10 years ago that was somebody just wanted you to try, want you to learn if that’s going to work or not. The whole idea of working their way from a [inaudible 00:53:16] mentality to persona first, putting together all of your data in such a way that you can leverage it is so that you can design these types of experiments, and you can learn fast about what will work with your clients and what might not work.
Questions That Matter: Digital Innovation
You know, when I was in retail we used to talk about flagship stores. The flagship stores will always be the stores where you put the latest product, and you try the latest displays. The experience was always the latest experience, the in-store experience. Now, what I think retailers really need to focus on is those flagship stores are really a prototype store. They’re about being able to experiment with this intersection between physical and digital to understand how can we create more value, deliver better outcomes for customers. The ability for store operations to work very closely with the technology group and the marketing group to create these great customer experiences, and understand and look at the data that you’re being able to pull back from those prototype stores to understand how to improve the customer journey becomes so valuable.
When we talk about this type of experimentation, there is always a question about how do we innovate. Certainly, there is a model of innovation where you put everyone in the room and you come up or you brainstorm different ideas for what can be the next product, or what can be the next flagship experience. That’s one way of doing that. Another way is to look at your data and begin asking yourself questions. What am I not seeing about what people expect or want? The type of experience that people want from my organization, from my business, why and how are my customers finding me online, or maybe why they are not finding me online? What are they doing on the website that contributes to the conversion, or on the other hand contributes and creates friction? At the end of the day, we end up losing the customers. What do we need to fix this? What opportunities are we not seeing? What is our competition doing?
As Nigel pointed out in the earlier slides, not just what our competition is doing, but what do other industries do. Because you often can learn quite a bit from another industry that has not even been adopted in your industry, and that could have been a standard for another organization or for another industry now for years. Really being able to look outside or beyond just your boardroom, and seeing what else is going on with our customers, with our prospective customers, with our competitors, and these organizations that exist in a parallel way. We do not maybe interact with them, but again, maybe we can learn from them because they’re very innovative in how they build their partner networks or how they just innovate period.
Metrics That Matter: Digital Innovation
Now, as we look at this model of how do we innovate using data, using analysis, the question that we have to ask ourselves is how long does it actually take for us to get access to the data. Here we can see interesting statistics. 84% of organizations report frustrations accessing a variety of data sources and formats. That means that it often takes us way too long to access the information that we need, or to have that information available to us when we need it. If you really want to innovate, if you want to lead the marketplace, this is unacceptable. People that want to have access to information to make better decisions for our companies should not be reporting this type or this level of dissatisfaction. This is just the amount of time it takes to access your reports, not even analysis of those reports.
Here’s another business statistic, the time it takes to uncover your insights and apply them. More than 70% of people say it takes many days, weeks, or simply it’s not soon enough to get the information they need to make the decisions. Clearly, there is a vast gap in terms of our ability to collect information. It seems like over the past few years, with everyone talking about data, big data analytics, we became very good at collecting the information, but we still have quite a bit to go in terms of being able to combine that information, integrate our data, and be able to leverage it on a daily basis.
Because data that is simply stored in your data warehouse is not going to help you, no one has the time to go through a warehouse and search for data. The question is whatever decisions I have to make today, what type of data do I need to have available to make those decisions? Otherwise, if the data is not available, if the information is not accurate or flawed, if information cannot be trusted or it takes way too long to access, people are going to end up making the decisions based on their gut feel. More likely than not, it’s not going to produce a positive ROI for your business.
What we describe as building systems of insight as going beyond data is creating the insight from the data. You need to focus on the insight that you can create to help people make better decisions.
The New Rules Of Business
With that, Nigel, we looked at four different rules of business. We looked at experiences, operations, data systems, and innovation. As we’re approaching the end of the webinar, how would you maybe summarize what we covered today? Some of the key things that people can or should implement starting today.
Understanding these four rules is very important. Where do you start? You definitely start with the low-hanging fruit, which is around the customer journey, understanding the customer journey from the outside in, looking at the metrics that you can collect from today’s customer journey, especially from those digital signals to understand the experience that you’re delivering to the customer, then the outcomes that you’re creating from them. Then the other three rules really come into play into how to improve that when you’re going forward. That’s really start with that customer journey, understand the outcome, and work from there. That’s really what I recommend in terms of where to go.
Fantastic. I know we are almost out of time. I have this one question that was submitted to us. Nigel, understanding the impact of long-term digital investment on brand awareness, do you have any tips on how to do this or how to think through the process?
The long-term impact on brand awareness is ultimately going to come back to lifetime value, right? That’s why customer lifetime value is so important to measure. When you’re looking at creating a digital experience, you’re going to feature a representation of an outcome through the brand. Your brand has to engage with customers in a way that they can relate where the outcome that is being delivered is associated to the brand, and that the brand affinity to the individual customer is high. You have to look at the emotions that are created along the journey through those brand touchpoints, and how they deliver the outcome that the customer really desires. I think it’s so important from brand value perspective to look at desire and not just how that brand satisfies a set of needs. The more you can understand and look at the signals that are coming out of digital experiences to point to what is the underlying desire of the customer will help you refine the brand messaging to improve brand value long term. Hopefully that answers the question.
One other thing also to keep in mind, we were looking at the data about Amazon Echo, the device that you talk to. What’s interesting is more and more, people when they try to order the products, they would say, “I need batteries.” They will not even say the brand name. Then Amazon will send them probably Amazon batteries, right? They’re not going to maybe even send them US cell batteries or the batteries of that specific brand. As we move towards this AI-free, or zero-AI it’s often called, world that’s so voice-driven, that’s something to really keep in mind. If I simply forget what brand I buy, or what brand I’m interested in, and I simply ask for the product, a lot of times the brand will end up being irrelevant. [crosstalk 01:02:27]
To an extent, maybe, because bear in mind Amazon’s looking at different outcome of customer values. If I’m demonstrated a preference for buying a particular brand in the past, because they’ve got my purchase history and I say, “Buy batteries,” I expect them to send me the brand I’ve bought in the past, not to send a substitute brand, right? If they send a substitute brand, be it their own or somebody else’s that they’re being paid for, I may have a diminished sense of value because now that trust I have in them is being used up because they’re essentially saying, “We want you to try this brand instead of the one that you’ve already been trying.” Depending on the personality, that may be fine. If somebody has strong brand loyalty, you can erode trust very quickly by doing that. Companies have to be very careful how they play that game.
That again speaks to that brand trust and brand loyalty, right? You want to build that, otherwise those investments that we see, that will have a massive impact in the future. Nigel, we have one more question. What ways to use to return customer if they use your service only once in one or two years? As I understand the question, if somebody only uses your service once in two years, how do you retain them? How do you bring them back?
This is the great thing about the potential for digital to create an engaged, ongoing experience, right? Yes, you may sell a product to a customer, a service to a customer once every two years, but the ability to create an engaging experience that understands how that customer is using that product or service, understanding whether they’re continuing to get the outcome that they value, and to keep the brand engaged with the customer, between those two critical touch points where they use that service maybe every couple of years, understanding how to create that connection and keep that connection sustained is important, because that creates that brand awareness and brand loyalty. You can use digital experiences to help do that, often by extending the current service. You look at the existing service and say, “How can we extend that by looking at the customer’s personal value ecosystem? How can we potentially create value inside that ecosystem?” It’s a lot more complicated than I can answer in 60 seconds, but there’s a way of doing this using digital experiences to create a more engaged brand between those two over those two-year periods.
Fantastic. Nigel, thank you everyone. Thank you, all the attendees. We will send out the slide deck after the webinar. We look forward to seeing everyone at our next webinar in September. If you would like to contact us, here’s the contact information. Thank you, everyone. Nigel, again thank you for joining.
Thank you, Michael. It was a pleasure joining you today. Appreciate it.