Using digital transformation to hook a disloyal customer

José Esteves. Professor. IE Business School

28 February 2017

Technology has transformed our lives. Traditional experiences don’t cut it with new consumers, and companies have to redesign their business models in order to adapt to the new environment. 

Digital transformation is here and is no longer optional for business organizations. Technology has transformed the way we live and traditional experiences don’t cut it with new consumers. In addition to adapting to this change, managers have to rethink and redesign their organizations.

The digital environment has implications in companies, as well as having a major impact on customers and employees. Managers have to view digital realities not from an increasingly connected user’s perspective but rather than from a professional viewpoint, because if the idea is to be wherever the client may be, the majority of companies are lagging behind when it comes to adopting technologies. It’s not a problem of not having information but more of being able to filter it. Take Zara’s website, for example, which has an outlet section. Outlet is a term which permits the firm to avoid the obsolete Spanish law that establishes fixed periods for sales, the same law that also overlooks online operations that offer discounts throughout the year.

As consumers we are increasingly connected, more informed, and more disloyal to brands. Consider what happens when we travel and book a hotel room. The majority of clients have a favorite chain, but they often make bookings using a site that is not the hotel’s own site, but rather a search site which offers a better service. This is where the digital world is changing our firms. It’s not that the client doesn’t like the product, but rather that they don’t like the way the product is being offered, which means that it’s time to stop thinking about products and start thinking about services. Another factor to take into consideration is that customers are paying increasingly less attention and have less patience, something that is particularly noticeable when it comes to television commercials, given that the consumer simply zones out when faced with a barrage of adverts.

Four major forces

There are four major forces that are changing the environment and brining added weight to all things digital. Apart from the transformation of clients and employees, we are experiencing a new cultural way, a new philosophy in which technology is increasingly developed, more obvious, and something we like. When people buy a new smartphone, they don’t ask about its features, they just want to be able to take selfies and like the status of having the latest model. The third factor to take into account is that if your company is not doing it, its competitors might be. Take the Amazon effect and what happened to a large number of SMEs. If a company enters the market and it is much more mature than yours, and the client likes it, you will lose market share very fast. This happens often, which is why you mustn’t wait to see what happens, but rather you have to keep an eye on your competitor. Lastly, it is essential to remember how important laws are. In order to increase transparency and traceability and reduce fraud, governments are forcing companies to implement new technologies.

The big changes that any company or manager have to have on their agenda are in areas that include social media, smartphones, analysis, and finally the cloud, in order to optimize costs and increase efficiency. The so-called SMAC is not the future, it’s the present, and unfortunately many companies do not have a strategy for it at a corporate level. A recent study by IDC revealed that in Europe only 25 % of banks have a formal corporate digital strategy in place. There are many islands, a lot of innovation, but very few integrated and consolidated plans, except for offices in several different countries, which are actually something different. SMAC is a new combination that brings many challenges, but it also brings a raft of opportunities, because the customers are already there – what is sometimes not there is the company.

It’s clear that the traditional and digital worlds exist alongside each other and their integration is what is going to create value for the business and increase levels of satisfaction. This is because 20 % of customers are older and are never going to buy online, while 20 % are nerds and hipsters that only buy online, but around 60 % of customers buy either online or in a physical outlet depending on what they see as convenient. This obliges businesses to have a multichannel strategy to cater for all three segments, which also makes it necessary to have a multi-client vision. I also believe that traditional clients are not going to disappear anytime soon given that not everyone will buy online.

This evolution is unstoppable, because this is what society wants and it likes it more and more. The four biggest companies in the world in terms of capitalization are Google, Apple, Microsoft and Amazon. None of them are from the banking or oil sector. Another thing to remember is that the world does not need permission to render your business obsolete. In order to take this on board you only need to take a look at what is happening to taxi drivers and the Uber model, or what happened to Blockbuster. In the year 2000, when Blockbuster started to feel under threat, it launched a report in which it said that there was no need for investors to be worried because technology posed no threat to its business model. One year later they were offered Netflix for a million euros, but they saw them as kids, start-uppers or nerds.

It’s a long-term strategy. You have to think about today, but you also have to keep an eye on what is coming. Ten years ago Nokia made up 4 % of Finland’s GDP. It was a technology firm that sold smartphones, but it was eaten up by Apple despite spending 40 billion dollars on research in the ten years leading up to its disappearance.

I feel that it’s time to move away from computer gurus, and I believe that big data does not matter if you don’t manage to work out how it can be used to solve a business problem.

Digital Darwinism

Digital transformation does not come cheap, but money does not guarantee success. There has to be more. Only the most successful companies are going to survive, it’s a question of what we call “digital Darwinism.”  Will those companies be the ones that adapt to change, the ones that adopt partial solutions, or those that redesign their business? It is not enough to change. You also have to rethink the organization from top to bottom, because processes are still designed for a traditional, paper-based world. You have to go beyond a change in mentality. We still reason have a pre-digitalization mindset and we have to think in the full life-cycle.

Digital transformation is a practice that aims to adapt to changing digital needs, to what is happening in our environment driven by the digital world. But this has to be done by always putting the needs and interests of customers and stakeholders first, and rethinking processes between the different players in order to generate value for the firm.

The most important thing is to always think of the customer, but that does not mean that getting the marketing and sales departments involved is enough. In the end the consumer is important in different business areas. Change does not only happen within single departments. It requires a vision of how processes work.

A digital transformation process hinges on three key aims: improving the customer experience by getting to know them better and optimizing contact channels; increasing back-office processes, being more efficient, reducing costs and integrating all systems; and finally, rethinking the business model by opening up new avenues.

Re-imagining the business

Before thinking about technology, it is necessary to re-imagine the business with new products, services, models, and client segments. You could perhaps discover that you have more types of clients that connect at different times of the day using different platforms, more distribution channels and new processes and operations. You also have to take notice of employees. Ángela Ahrendts is a brilliant example of this. She is currently vice chairman of Apple, a multinational that in terms of turnover now sells the second highest number of watches in the world. From 2006 until joining Apple in 2014, Ángela was the CEO of Burberry, which under her leadership managed to strengthen its business and regain its brand image. The first thing she did was to center on people, hiring employees with digital skills and restructuring the workforce and introducing new channels. Aware that she knew more about fashion and business than she did about technology, Ángela made the IT manager report directly to her, when it is far more typical for an IT manager to report to the financial controller. Here it is important to point out that only three Ibex companies have an IT Director among their senior management, when in the US, the percentage is 90%. This means a cultural change.

Ahrendts’s second initiative was to center on processes, standardizing projects and improving integration and client orientation. In the field of marketing, she did something amazing in 2008, which was to attract millennial clients by hiring Emma Watson, the actress from the Harry Potter films, for advertising campaigns. This was clearly focused on young people, who approached the brand thanks to the influencer, rather than its clothes. It is clear that adults mimic young people, the opposite practically never occurs, and social trends are a massive influence, hence the importance of social media. Burberry’s Chairman’s latest move is to integrate technology to have a unique vision of the client and to set up an omnichannel strategy. The client is the same, but uses different channels.

It seems clear that there is no need to reinvent the business, but rather to repair it by using a simpler basic technology. Also, in the face of digital transformation the first thing a manager should do is to request an audit of the IT department, given that 35 % of maintenance spending is related to integration problems. And the amount of spending on maintenance is incredible.

Sometimes users do not want complications – they are not interested in your solution, only in their own problems

How can this be implemented?

The first thing you need to do is to define what you want to do and prepare a business strategy. Then you need to focus your objectives, because not everything is possible and resources are limited. The following step is to commit to change, and, finally, keep up the commitment, because it is has to be constant. It is also necessary to understand the impact of the digital world, see what is happening in business organizations, and then gauge the level of digital maturity in each sector, with your sights set firmly on developing a strategy.

I believe that you have to move away from IT gurus and that big data does not matter that much if you are not able to work out how it can help a business problem. The first thing you have to do is focus on a problem. For example, if your customer service is not working, you need to see what kind of technology is available to help with this. This has to be the way you look at it – not the other way round. The Internet of Things is currently in fashion, but why do you need it if you don’t know who your customers are? Innovation laboratories are springing up, consisting of a group of nerds who come up with a new product within a month, but the problem is that such products are not client centric. The consumer sometimes doesn’t want anything too complicated. And they are not interested in your solutions, but rather in their own problems. 

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