Why a ‘digital first’ strategy can destroy value

A point of view from   boxwood_logo


Overview
Many organisations are busy grappling with ‘digital strategies’, creating ‘digital roadmaps’ and building ‘digital capability’. All laudable stuff you might think, given the opportunity that new technology presents for commerce.

Unfortunately, many of the digital projects being pursued are ill-conceived and value destroying. The proverbial ‘tail wags the dog’ when technologists’ over-enthusiastic digital plans triumph over customer needs and business common sense.  The result is value destruction as customer expectations around personalisation and convenience are raised and the cost to serve goes up, without any sign of an associated price rise. Margin is destroyed and the cycle grinds on until only those with the deepest pockets are left. Of course, ignoring the technology revolution and hoping that it all passes you by is also not an option. Eventually, you pay the price, either your business will die as customers flock to a more relevant competitor, or you will have to invest heavily to catch up.

There is a smarter way. Instead of a ‘digital strategy’, technology investments should be driven by your ‘customer engagement’ strategy or your ‘productivity programme’. Fundamentally, with the exception of essential IT spend to deliver essential services, any technology investment should be closely aligned to your value proposition and must help to deliver a sustainable competitive advantage.

This viewpoint sets out the reasons why leaders are often seduced by technology. It then provides a framework for making good decisions on technology investment. Finally, it provides some tips on how best to make this happen. Enjoy.
The most common challenge is how to adapt the value proposition and operating model to embrace the benefits of technology and drive customer loyalty without losing money.

So, let’s begin by exploring some of the hype.

Why technology is so alluring…

1. Clever people say it is important
“The web changes everything.  (Everything = Everything) Embrace it. Totally. Or else” …Tom Peters

Management gurus, consultants and technology companies have a vested interest in this topic. It is no surprise that every conference you go to and every white paper you read bombards you with the need to ‘digitise’ your business.  There is, of course, a great deal of truth in this. However, spotting the difference between a genuinely innovative idea that will enhance your customers’ experience and something that someone wants to sell you because they have built it in a software factory in India is increasingly difficult.

Unfortunately, tech-savvy execs within many companies are seduced by the hype and use it to justify increased budgets, enhance CVs and generally do exciting work. As a result, many leaders find it difficult to maintain a balanced perspective. It is very easy to be persuaded when you are subjected to well crafted, technology driven arguments about why you must invest or die.

2. Technology is advancing at a scary pace
We all know about smartphones and tablets. The speed of adoption for new devices is accelerating exponentially. The number of mobile phones in the world exceeded the number of people in 2012. Gartner estimate that the number of tablets will rise from 120m at the end of 2012 to 665m by 2016. The next thing is wearable devices that claim to be your ‘life assistant’.

Google glass is a pair of spectacles weighing 45g containing sensors, a camera, a microphone and a prism for beaming data directly into your eye. It has more computing power than the Cray-1 super computer that cost $8.8m to build. It guides you through busy streets, receives your personalised offers in stores and allows you to communicate with your friends at the touch of an ear lobe.

It’s not just hardware of course.  A dizzying array of social media platforms have sprung up. In addition to the usual suspects of Facebook, Twitter, YouTube and Google there are newer arrivals: Pinterest, Tumblr, Foursquare, Flickr, Instagram, VK and many many more. There are now 10m photos uploaded on Facebook every hour, 3bn ‘likes’ or comments every day, a billion tweets every 2 days. The result is that every day the internet expands by half the size of the whole web back in 2005.

These innovations offer an unprecedented opportunity to engage your customers in new ways and create a more meaningful and valuable relationship. They also offer a great way to rapidly destroy your cash reserves and your brand if you make a mistake.

3. (Most) consumers are adopting technology and new shopping behaviour
‘Generation C’ is the latest demographic segment.  ‘C’ stands for ‘connected’. This generation is not defined by age but by behaviour, enabled by technology. Here’s how they think…

‘I trust my friends, not companies/brands’

‘I want a personalised, relevant experience’

‘I will share my data, but I want something back’

And most importantly – ‘I am in charge’

This generation has overcome the ‘big data is watching you’ barrier and plunged into a world where their data is everywhere. IBM estimates that 90% of the data in the world has been created in the last 2 years, largely driven by social media.

This major behavioural shift in consumer behaviour is a serious challenge for consumer facing companies. The customer is increasingly in control, well informed and willing to use their power. It is tougher than ever to win trust and easier than ever to destroy it.
Let’s not forget however, that not all customers are ‘Gen C’. 95% of grocery shopping is still done in a store. Ignoring these customers is a very bad idea. This is an ‘and’ game not either/or.

So, as always, it is a balancing act. Ignoring the impact of technology is as bad a response as over-reacting. Many companies have adopted a ‘spray and pray’ approach (sometimes labelled as ‘agile’). Deploying technology at an alarming rate without thinking it through wastes a great deal of money and can damage your value proposition rather than enhance it. Reacting quickly is important in the digital world but not at the expense of intelligent choices and managing execution risk.

Tips on how to make it happen…
The new world out there requires some new thinking inside your company to ensure success:

1. Adopt a new model of decision making.

2. Agile.

3. Engage, educate, eradicate.

Conclusion
‘Digital first’ is not a retail strategy, customer centricity is. However, ignoring the impact technology can have on your business is also not an option. Creating the right environment where you can make very deliberate decisions on what key technology investments will accelerate your business’ performance is critical. This, rather than the technology itself, is the number one challenge.

Of course, this challenge will fall predominantly on the shoulders of the leadership team. Embrace it. Commit to it. Enjoy it.

Remember, as Steve Jobs said ‘The journey is the reward’.

Matt Clark, Director, Boxwood Consulting   boxwood_logo

 

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