Your company will face an extinction event in the next 10 years. And while you may see it coming, you may not have enough time to save your company. Business leaders don't instinctively think of digital as central to their business because in the past, it hasn't been. But soon your customers, your products, your business operations, and your competitors will be fundamentally digital. And while 74% of business executives say their company has a digital strategy, only 15% believe that their company has the skills and capabilities to execute on that strategy.
For the past few years companies have been bolting "digital" on to their existing business like teens paint go-fast stripes on their cars. Painting stripes doesn't turn an old banger into a sports car, and bolting on digital doesn't make your traditional business a digital business. What's worse is that digital technologies often expose the dirty underbelly of the business all too quickly – just like lifting the hood on the car to realise the engine isn't really turbocharged. However, traditional businesses can use digital transformation to generate the business agility needed to defend against more nimble digital startups.
Value chains give way to dynamic ecosystems of value
Driving the need for agility is a significant change in business dynamics; a shift from a linear value chain model toward a dynamic ecosystem of value created by customers, not companies. To succeed in the future businesses must learn to create value within such ecosystems by delivering a superior digital customer experience and driving digital operational excellence. Bolt-on strategies won't take your business far enough.
In the new digital economy you must transform your business by applying digital thinking across everything you do — how you win, serve, and retain customers; how you operate your internal processes; and how you source business services. In short, you must become a digital business. Digital businesses continuously exploit digital technologies to both create new sources of value for customers and increase operational agility in service of customers. Not every company is making the shift to a digital business yet, but companies like Burberry, GE and USAA are already transforming themselves into digital businesses. But no matter what industry you are in, the chances are your competitors are already rethinking their business as a digital business.
Master digital customer experience and digital operational excellence
Many firms proudly point to their mobile app and proclaim "Hey, we're digital!" While they may be driving incremental revenue at best, all they have done is bolt on another touchpoint to their existing business model. Beneath the surface the business remains the same. Digital transformation requires the integration of both digital customer experience (DCX) and digital operational excellence (DOX) (below).
Digital businesses understand that if they are to win in the age of the customer, customer experience is their only differentiator. Success means investing in customer experience as a discipline within your organisation. Your customers' interactions with your products, your services, and your digital touchpoints are now part of an experience ecosystem that defines customer value. Rather than treating digital as a channel, focus on delivering digitally enhanced experiences that add value in the context of the customer's needs across all channels.
At the same time, digital businesses don't just focus on customer touchpoints, they also use digital to drive operational agility in service of customers. Firms like British Airways are experimenting with digital technologies deep inside their operations in the service of the customer. When British Airways began experimenting with RFID tags on first class luggage they expected operational improvements, but they also discovered ways to improve the value they deliver inside the customer's dynamic value ecosystem.
Your business survival plan: digital business strategy
Given the coming extinction event, your firm needs a survival plan in the shape of a digital business transformation strategy. This isn't the typical priority list of digital projects. It's not a new app. It's not a new marketing campaign. It's a plan to create new sources of customer value in the future by turning your business into bits and bytes and augmenting digital with products and services.
Ecosystems of value will change the business landscape. Companies must learn to support customer ecosystems and to build their own ecosystems through APIs. Technology management must align technology investment to these ecosystems of value in order to win, serve and retain customers - what Forrester calls Business Technology.
Data integration is essential to the creation of outstanding digital customer experiences. We've probably all experienced the mobile app that works great right up to the point that it needs data from a system of record, then the experience goes downhill. Without integration of data across the business, and in particular data analytics, digital customer experience will fail to meet rising customer expectations. And digital experiences expose underlying data holes quickly – resulting in sub-par experiences for customers. I experienced this recently when using an airline app. I could see my reservation but when I clicked the button to check in I was passed to the website where none of my information was carried over. I needed the record locator but had no way to easily retrieve it. Not a great experience.
Digital businesses learn to create trusted machines to scale digital customer experiences. Netflix created a trusted recommendations engine, Mercedes created a trusted car that avoids accidents, Uber created a trusted machine that connects customers to drivers at scale. Technology management must learn to create and harness trusted machines in order to drive future customer value at scale.
Success will require CIOs and CMOs to partner and develop a transformation strategy to deliver digital customer experiences and digital operational excellence in support of customers. But transformation is neither quick nor easy. And this transformation requires a thorough understanding of customer experience as a business discipline – something that is lacking in many traditional IT organisations. At the same time, marketers must understand how digital operations can transform perceptions of value for customers within their ecosystems.
Above all, digital operational excellence requires a shift in technology investment. The majority of change requests coming to IT involve improving operational efficiency. These requests soak up scarce technology management resources and funds while producing very little in the way of improvement in customer experience. CIOs must help CEOs and other executives apply technology investments to optimise customer experience and at the same time simplify the underlying technology portfolio in support of generic business capabilities.
Building digital as a marketing add-on to the business will act as an anchor, slowing the business down in the long run and opening up opportunities for more nimble and integrated digital disruptors. But by implementing a more comprehensive digital business strategy, your firm can avoid the coming extinction event.
Nigel Fenwick is a vice president and principal analyst at Forrester Research