Digital Transformation is becoming a business mandate.
Because in our evolving world, successful digital transformation will be the difference whether a business survives or wilts in the modern economy. Consequently, Professor Sidaoui and I felt it was critical that we prepare our University of San Francisco students for a world where digital transformation was the business norm. We sought to train our students – tomorrow’s business leaders – to embrace the “Big Data MBA” concepts in creating digital transformation-based business models.
To support this training, we created a methodology that guided the students through a digital transformation exercise. Two important digital transformation foundations surfaced as we created, tested, and refined the methodology, which are:
- Economics, which is the branch of knowledge focused on the production, consumption, and transfer of wealth (see the blog “Is 2018 the Tipping Point in Digital Transformation?” for more details).
- Customer Journey, which is the (see the blog “Don’t Follow the Money; Follow the Customer!” for more details on the critical importance of understanding your customers).
Let’s review these foundational concepts of Digital Economics and Customer Journey in more detail, before we walk through the “Customer Journey Digital Transformation” methodology.
Key Digital Economic Concepts
The first foundational concept to a successful Digital Transformation is to understand digital economic basics. The McKinsey article ” Why Digital Strategies Fail ” highlights how the role of technology in our economy has expanded. Additionally, the article highlights incumbent businesses that are struggling to embrace new innovations out of fear of upsetting profit streams, cannibalizing existing business lines, and disrupting established management structures.
“Most digital strategies don’t reflect how digital is changing economic fundamentals, industry dynamics, or what it means to compete.”
Digital transformation is disrupting traditional business models by changing the economics of the business. That is, transforming the sources of wealth creation and wealth transfer. There are some key economic concepts that we need to understand in order to prepare ourselves for digital transformation.
- Economic Rent is any payment to an owner or factor of production in excess of the amount required by the owner to proceed with the transaction. Economic rent would not exist if markets were perfect, since competitive pressures and perfect access to market information would stabilize supply and demand. Closely related to Economic Rent, Economic Surplus is the monetary gain obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay.
- Economies of Scale occur when a proportionate saving in costs, market access, distribution, and brand name recognition is gained via increased levels of production. In a digital world, the first mover advantage is not usually a single advantage, but rather a set of advantages that a company obtains by being first to develop and market a product. For example, digital renders distribution intermediaries obsolete (with limitless choice and price transparency). Digital offerings can be reproduced almost freely, instantly, and perfectly, shifting value to hyper-scale players, while driving marginal costs to zero and compressing prices.
- Supply and Demand is the amount of a commodity, product, or service available and the desire of buyers for it, considered as factors regulating its price. Supply and demand fundamentals are upended by digital strategies. With a digitally transformed business model, companies have the scale to reach a nearly limitless customer base, use “artificial intelligence” to engineer superior levels of service, and benefit from frictionless supply chains. A digitally transformed business model can monetize their customers across traditional industry boundaries. Customer insights, less than products and content, become sources of wealth creation. Facebook and Google are major marketing players while producing no content. Uber and Airbnb sell global mobility and lodging without owning a single car or hotel.
- Network Effect (or Metcalfe’s Law) states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2). Metcalfe’s Law when applied to digital is driving winner-takes-all economics. Just as sobering as the shift of profit pools to customers, is when scale and network effects dominate markets, economic value rises to the top. It’s no longer distributed across the usual (large) number of participants. (Think about how Amazon’s market capitalization towers above that of other retailers, or how the iPhone regularly captures over 90 percent of smartphone industry profits.) This means that a company whose strategic goal is to maintain share relative to peers could be doomed-unless the company is already the market leader.
Understanding the Customer Journey Mapping
The second foundational concept to a successful Digital Transformation is to understand the customer journey. If the customer is the source of wealth creation, then your Digital Transformation must be driven from the perspective of the customer. It is critical to focus on the customer perspective regardless of artificial industry borders.
There are several design thinking concepts and techniques to employ to help us passionately focus on the customer journey. For example, Customer Journey Mapping provides a step-by-step guide to putting the customer you serve at the center of your design process, and to come up with new answers to difficult customer problems and challenges .
A customer journey map depicts the stages customers go through when interacting with a company, from buying products online to accessing customer service on the phone, to airing grievances on social media. One of my favorite customer journey maps comes from ” The Art of Opportunity ” (see Figure 3).
Creating the Customer Journey Digital Transformation Workbook
Building upon digital economics and the customer journey mapping, the Customer Journey Digital Transformation worksheet helps organizations identify where and how to apply their digital assets to digitally transform their key business and operational processes, products, and assets to improve efficiency, enhance customer value, manage risk, and uncover new monetization opportunities.
The worksheet takes participants through the following steps:
- Capture the Customer Event and the Customer’s Objectives for that Event. Customer Events could include planning a vacation, buying a house, or purchasing insurance. In the business-to-business (B2B) space, Customer Events could include launching new IOT-connected devices, selling customer retention solutions, or developing new healthcare services.
- Captures “What Does Success Look Like?” from the customer perspective. When the event is completed, what does the customer want to have accomplished, and how should the customer feel about the Event.
- Brainstorm and capture the customer’s “Impediments to Success.” What are the situations, events, or constraints that might impact the success of the event?
- Identify the major “Value Chain Stages” that comprise that Customer Objective. See the blog “Big Data MBA: Course 101A – Unit III” for a quick refresher on Michael Porter Value Chain Analysis process.
- What are the Decisions or Tasks that comprise each of the Value Chain stages? What needs to be accomplished within each of the Value Chain stages (and we are not focused on how that is being done at this point)?
- What are the Metrics or Key Performance Indicators (KPIs) against which progress and successful tasks in that value chain stage will be measured?
- What are the Recommendations we want to deliver to the customer in the execution of their key decisions or tasks? This is the stage where we start to identify how predictive and prescriptive analytics around customer, product and/or operational insights might improve the execution of the customer’s key Decisions or Tasks.
- Identify the key Business Entities around which we want to uncover and leverage analytic insights.
- Create a more compelling, differentiated “smart” User Experience. Think “smart” entities or “things” (insurance policies, travel itineraries, financial accounts, job resumes, college transcripts, tax returns, credit cards, medical records, passports, drivers licenses, work visas) built using modern application development techniques (i.e., Minimum Viable Products) to integrate, learn, and continuously become more relevant by virtue of each customer interaction.
Figure 4 shows the Customer Journey Digital Transformation worksheet (Appendix A contains the Customer Journey Digital Transformation worksheet template).
Let’s walk through an example.
Customer Journey Digital Transformation Example: Taking a Vacation
Our first assignment was to apply the Customer Journey Digital Transformation to customers who are trying to “Take a Vacation.” We want to capture the following with respect to “Taking a Vacation” from the vacationer’s perspective:
- Customer “Taking a Vacation” Objectives
- What Does “Taking a Vacation” Success Look or Feel Like (a surprisingly interesting and effective exercise)
- Impediments to “Taking a Vacation” Success
Next we identify the value chain stages that comprise the “Taking a Vacation” event. For our classroom exercise, we came up with the following “Taking a Vacation” stages:
- Plan Vacation
- Prepare for Vacation
- Enjoy Vacation
- Return from Vacation
- Vacation Afterglow
Then for each of these stages, we brainstormed to identify the following:
- What are the key decisions or tasks that comprise each “Taking a Vacation” stage?
- What are the metrics against which we will measure progress and success of the “Taking a Vacation” decisions or tasks?
- What are the recommendations (predictions) that we would like to provide in support of the “Taking a Vacation” decisions or tasks?
- What data might you need to make those “Taking a Vacation” recommendations (predictions)?
- Finally, what are “Taking a Vacation” customer experience or entities through which recommendations and associated learnings be rendered to the Vacationer?
See Figure 5 and Appendix B for more details on the “Taking A Vacation” Customer Journey Digital Transformation.
Customer Journey Digital Transformation Summary
We gave our University of San Francisco (USF) students an assignment to help the university embrace digital transformation. By digitally transforming its operational and educational models, the university will be better prepared to serve the holistic lifetime educational needs of its customers (students).
In a future blog, I will share the results of that exercise. Needless to say, the students’ blew me away with their creativity.
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