Digital is about to transform or destroy your business model
Are you ready for digital transformation?
For a long time, the world of retail-commerce has been dominated by what I would call ‘retail dinosaurs’. The words online and digital were dirty to some of these folks. In their eyes, IT is synonymous with those weird people stuck in the basement that no one ever talks to. For them, the TV series The IT Crowd accurately reflects where these technology folks should exist in their business – in the basement!
What has changed?
Succinctly put, Software is eating the world. To put it another way, IDC foresees that every industry will be transformed by application of mobile, cloud computing and social media technologies). The IT guys in the basement have now moved to the top floor. During the last few years, no business sector has been left unscathed by the wind of change brought by the advent of digital technology and new software. Netflix has superseded Blockbuster; Spotify has rewritten the rules around music ownership and the power of the music industry — and these are but just two examples.
This wind of change is redrawing lines in retail today. Bricks and mortar retail experience, or solid managerial experience without a digital background used to encapsulate the leadership team of most retail organisations. Nowadays, the competencies that define the leadership team of the digital operating model are solid expertise in all things digital, and a sprinkling of programming skills.
Altimeter recently defined digital transformation as a “formal effort to renovate business vision, models and investment for a new digital economy.” Another definition is, “the realignment of, or new investment in, technology and business models to more effectively engage digital customers at every touchpoint in the customer experience lifecycle.”
The report suggests that digital transformation isn’t a trend owned by a particular role, nor a discipline that belongs to one department alone. It is, however, a significant movement where daring business leaders venture into tomorrow’s markets, today. You know digital has truly arrived in the boardroom when Laura Wade-Gery was promoted and assumed responsibility for UK Retail in addition to her M&S.com remit.
Why is tomorrow’s market important today?
The consumers that will drive retail growth tomorrow are just 14 years old now. Generation Z, as they are described, are “digital natives”. The customer experience and customer journey paradigm we take as a given today may not be how Generation Z and their kids will interact with retailers tomorrow.
In Dinah Wisenberg Brin’s article: Why Gen Z may mean trouble for retailers, she quotes Jamie Gutfreud, the chief marketing officer for Noise, a full-service marketing and branding agency focused on young consumers. Gutfreud says, “As consumers, they’re much more careful about how they spend their money, and they’re incredibly research-oriented.” Brin continues by adding, “They’re also growing up with the sharing economy, and don’t necessarily feel the need to show status through ownership—a development that Gutfreund said is affecting traditional retailers. Consumers can post the things they like on Pinterest or Instagram, and to them, that’s very close to owning the item. You don’t have to actually buy things to demonstrate what you like that she said.”
What are the key elements of digital transformation?
Certain characteristics define a digital first operating model:
- Agility: The ability for business users, creative and developers to quickly deliver innovation and new features early, with room to incrementally add more. Spotify, Netflix, Zappos and Amazon are great examples of companies that are starting to operate this new model. Netflix, in particular, transformed itself from a video rental company to a digital-first business that understands customers wherever and however they choose to interact with their platform. Using the data insight acquired from viewing habits, they’re able to introduce new offerings quickly and create a new Blue Ocean Strategy, which separates them from their competitors. Netflix uses technology, proposition and great content to differentiate itself. For example, the Netflix original production House of Cards was created based on insight into what customers wanted.
- Smaller teams: Smaller cross-functional teams are more nimble and able to make changes faster. The competencies in these teams must cut across online digital into customer insight, supply chain management, range merchandising, social and in-store customer experience. They bring consistency to the journey and experience across all channels. A cross-functional digital centre of excellence, as some retailers are choosing to set them up, should be highly aligned, meaning the strategy and goals for the entire business are clear, specific and broadly understood. They are also loosely coupled. Meaning a lot of trust, fewer overlaps in capabilities, with an absolute focus on goals and organisation strategy.
- Zero customer experience Silo: Silos disappear in a digital-first organisation. Online and offline insight into the customer drives how the business is set up to engage. The days of multiple lines of businesses with data and customer experience silos; trying to engage with the customer in their own way; with competing technology capabilities, bought by different silo leadership teams; will simply not suffice. Secondly, the digital operating model requires all lines of business as much as possible to use the same system of record where possible, for example, product, orders, inventory, price, etc. In an international context, this may be different. However, the commerce platforms running each line of business can be different. For example, different platforms for consumption and orchestration of the experience and journey can be rendered into whatever channel appropriate for that customer context.
Figure 1: Generation Z predicted non-linear customer journey and interaction with a wearable
With the increased explosion in the number of channels that customers can interact with, the paradigm that will drive user experience tomorrow is limitless. Therefore, it is imperative retailers think carefully about how user experience can be exploited. The next phase of user experience is starting to emerge. Wearables, such as smart watches and Google Glass, will take off at some point in the near future. The experience that users will come to expect will be far removed from the ones we have today. Responsive and adaptive design may be superseded. The user experience may range from voice recognition, gesture, thought and augmented reality. For example, eBay has recently launched the Red Laser shopping App for Google Glass; a barcode scanning application that helps consumers shop in a multichannel world without the use of a smartphone or computer.
The level of granularity of the services that will drive these user experiences will be contextual and fine grained. For example, a delivery alteration notification on a wearable device or in car smart OS will need to be a discrete service, with awareness of the customer’s geolocation, alternate addresses and profile preferences. This notification may trigger another event on behalf of the customer, without them browsing a site as they do today.
This is different from today’s passive experience driven by the customer. More importantly, the business user experience is critical. With the explosion of new form factors, retailers must not let developers run away and create new tools for locking them out of being in charge of their own destiny. When planning for a new digital operating model, it is imperative to put the business user at the heart of driving the customer experience forward. The insight available from the various stages of the customer journey will help drive how business users determine how to engage with the customer — regardless of the channel they use for interaction.
Figure 2: Digital first contextual commerce architecture