CAP. 10 Flashcards
Definition of digital transformation
Definition of digital transformation is contentious: some confusion that comes from opposing worldviews about what transforming means in the context of digital. Interpretation depends on how they view the significance of an intervention in an organisation. The key perspective is context.
Digital transformation: all of the changes when digital is applied to any human endeavour. Lankshear and Knobel (2008): 3° stage in a journey that society or a community must make.
MIT’s Center for Digital Business (2011): digital transformation is marked by a level of intensity of application and implementation of digitally driven projects, and by the way an organisation manages change to take advantage of digital. Clear sense that true digital transformation is about transforming whole organisations rather than working on isolated, individual digital projects.
Definitions of digital business transformation.
The definition of ‘digital business transformation’ has evolved and continues to as the notion of what ‘digital’ is changes.
Global Center for Digital Business Transformation: digital business transformation as a journey where businesses ‘adopt digital technologies and business models to improve performance’. Many businesses adopt technology without necessarily changing – businesses need to adapt to digital technologies rather than just adopt them – yet they as an organisation also go on to say ‘Digital business transformation is organisational change through use of digital technologies and business models to improve performance’.
Forrester (2015): digital business alone as exploiting ‘digital technologies to create new sources of value for customers and increase operational agility in service of customers’.
Why is digital business transformation not just about IT?
This question comes from the assumption that digital is simply about technology, and is linked to the difference between ‘adopting’ technology and ‘adapting to’ technology. An organisation’s IT resources are inevitably going to be linked to any digital business transformation effort.
L. The applications portfolio – a precursor to digital business transformation
Ward and Peppard (2002): understand the role of IT in the organisation, allowing to understand the significance of technology investment. They break these technology investments into 4 specific types that allow an understanding of the role they’re supposed to play. They don’t refer to these items as software, programs or IT but as ‘business applications’.
Ward and Peppard’s view of applications: they could be extremely large and complex business processes that contain many IT hardware and software elements, along with designed elements of data, info and knowledge flows. Business applications in this context are whole business process and each application is defined by the role it plays in the organisation.
1. High-potential applications. Developed from within. Configuration of process will almost always be unique to that business. Many of skills and competences associated with digital opportunity may not exist within the organisation and so these skills develop at the same time as the project.
Business needs to know when to shut down high-potential applications. If an application in this quadrant can’t demonstrate its value or potential within a given period, it needs to be closed.
If a high-potential produce evidence of revenue or value generation or cost benefits, business give consideration as to whether invest in the application and make it a strategic application.
High-potential applications: currently don’t provide value to the organisation, but may provide a value at some point. The purpose of high-potential applications is to validate the need and value of a specific aspect of the application as well as the application as a whole.
A small area of the business may have been chosen to develop a high-potential application and use it for a short period.
2. What makes something a strategic application? One of the most important features is the need for constant and permanent improvement. Strategic applications need to remain innovative to avoid a competitor copying the process. Constant innovation and testing of new improvement maintains the strategic advantage and strategic dimension of the application. The danger of a competitor imitating the application would immediately remove its strategic nature. This danger can come when the skills and competencies embodied by the staff associated with a key operational application leave the business and those staff go on to work within a competitor organisation. When strategic advantage on an application disappears 2 routes for the application to follow – the application becomes key operational or it becomes a support application.
Strategic applications are those where the organisation finds that it provides some kind of strategic advantage. For a commercial organisation, this advantage may come in the form of a cost saving, the provision of a service or the development of value for customers that competitors can’t apply or provide. Any digital opportunity within the application is likely to be developed within the business. The skills and competencies associated with the digital opportunity are unique to the organisation, and the business has to give significant thought to retaining those skills. Other digital aspects of the strategic application may be imported from external sources but only where these are available elsewhere and where there’s no specific advantage in developing these from within.
3. Becoming a key operational application. Key operational applications are result of significant testing around known business and industry needs. All the operators within the sector need to rely on a service without which they’ll be at disadvantage. There’s a large pool of talent well acquainted with provision of skills and competence within a specific sector. Problems: when demand for staff outstrips supply, or when potential staff move to more interesting or profitable skills and competences in other areas and industry sectors.
Key operational applications become known as legacy systems, so it can be important to monitor a marketplace for changes in business needs or the opportunity to spot a strategic application that could render an existing key operational application redundant. An organisation employs a key operational application to avoid disadvantage relative to competitors, suppliers or customers. Key operational applications are essential to the operation of the business within the sector it operates.
4. Support applications. Support applications: exists for mundane or legal purposes; to ensure the lowest-cost, long-term solution to a well-established business need. A support application may be easily outsourced to a specialist provider or bureau. A digital opportunity is often used to lower the cost of the support application.
If an application is mandated in a business by law, the business look for cheapest, long-term solution to that legal requirement. Application will be provided by an external specialised business.
Mini case study 10.1: The Google algorithm as a strategic application
Box 10.1: The data centre and key operational applications
Mini case study 10.2: If I am in a digitally transformed business, why am I still using Microsoft Office?
History of change and change management
Digital transformation and digital business transformation are descendants of the original ideas around the discipline of change management.
The first half of the 20th century brought great change, but this was to a great extent overshadowed by the two great wars of the period. Only in 1960s: evolution of the ideas of change management evolves. Early thinking came from the belief that ‘all change is bad’ and that the process of managing change allows people to accept change. This model of managing change is about how people are different to how they were 50 years ago, and how business is also very different.
Managing change has evolved through the experiences of organisations who made it their business to manage change in other organisations. Subsequent research and experience of these models and approaches to change management were heavily criticised as the change centred around changing the business while still not changing people.
The contemporary view of change management is that it’s about managing the change of people, perhaps more so than managing the change of business.
The two big current drivers of change in organisations are globalisation and technology innovation. Both are external motivators of change. It’s the position of the authors that what makes transformation in a digital business occur is the ability of new digital innovations to transform culture, structure and process. And so, digital takes a new position of strategic importance within the organisation.
The change in strategic position of digital versus technology
The evolution of ‘digital’ shows a distinctive journey from something that’s an expensive ‘add-on’ through the emergence of ‘IT management’ to the position of the contemporary digital enterprise where digital is at the heart of the organisation.
WWW in 1991: organisations really start to take digital to heart. Technology was a barrier to entry due to the costs of the technology. Technological innovation could occur with very little associated technology cost. Websites were cheap to design, build and host. Technology is no longer strategic.
‘Digital’ also encompasses cultures, the practices of being online and processes that have been and can be created online, the strategic nature is adapting to digital technology, culture, process and practice and not just adopting technology. Adapting to the technology might well be the easy part of the process. Adapting an organisation and its people to the cultures, practices and processes that those technologies have enabled is a more difficult job.
It’s the view of authors that digital business transformation and digital transformation can be viewed as one and the same thing, and that the process of digital transformation is about adapting to digital technology, culture, process and practice and not just adopting technology.
The need for digital transformation
Digital transformation is a more complex activity than the simple acquisition and implementation of technology. It combines all of the issues of contemporary change management with the complex issues of digital. In many cases it’s not a cheap thing to do, but it doesn’t necessarily become a ‘big bang’ expenditure issue either. Placing digital transformation at the heart of strategic thinking allow the organisation to set goals at the highest level and ensures that anything done to transform business is done with the purpose of achieving these goals.
Growth of roles in existing organisations at the highest level of leadership, where digital is the key factor in those roles. There’s some debate as to whether such roles should exist. Digital is important yet remains enigmatic to many stakeholders. The role has evolved into roles such as IT director and chief technology officer. Roles such as chief information officer, chief knowledge officer and even chief intelligence officer emerged. These roles don’t evoke or represent the holistic view of what digital is; they focus on the application and use of technology in pursuit of business. It’s the view of the authors that all of these roles risk losing focus on the full impact of digital technology, culture, practice and process.
Digital transformation allows to question the way the business operates, hence it has its strong routes in change management. It also explores the opportunities provided by digital technology. Those opportunities can be in the technology opportunities that arise through the adaptation of the business, opportunities provided by the way culture is affected or changed in the digital age, opportunities provided by new practices that emerge in the digital age or opportunities provided using new processes that have emerged.
The opportunities provided by digital
3 significant themes that highlight where the main impacts and opportunities for success exist:
M. Customer service and service design;
N. Business and organisational process;
O. Business models.
Each of these areas provides its unique set of opportunities and circumstances that use the elements of what digital is.
Where does digital transformation occur?
- Customer experience and service design
- Customer insight
What do we mean by customer insight and digital transformation? We need to ask: ‘How can we adapt to digital technology, process, practice and culture to use customer insight?’. To use customer insight effectively, the organisation needs to change in one or all of those areas. The organisation may need to adapt to new technology/processes/practices or alter its culture to take advantage of insight. Biggest problem: they don’t have insight, but they’re not set up to take advantage of the insight they have. The risk for businesses is that they don’t know what customers want or what they’re like.
Mini case study 10.3: Hertz marketing - Adding value
What do we mean by adding value and digital transformation? ‘How can we adapt to digital technology, process, practice and culture to provide value?’. So that stage of transformation may be a priority. To add value, the organisation needs to consider how to adapt to new technology/processes/practices or alter its culture to provide customer value. Biggest problem: they may not use customer insight to inform about what value customers seek to derive from their products and services. Customers may remain with unmet or under-served needs.
Box 10.2: Customer value in digitally transformed organisations - Interfaces with customers
Interface should represent the place where two parties interact, any situation where the individual meets the organisation. ‘Touchpoint’ has been suggested as an alternative to interface to shift the focus from existing technology and the idea of a screen. And humans experience many different touchpoints with an organisation even during a single interaction. The word interface could refer to a cohesive and planned arrangement of touchpoints that a person experiences.
What do we mean by interfaces with customers and digital transformation? ‘How can we adapt to digital technology, process, practice and culture to change and improve the interface with customers’?. These four elements provide an opportunity to change new interfaces between the organisation and the customer.
Box 10.3: Interfaces in digitally transformed organisations - Business process.
Automation of business process. The transformation is about changing the process and allowing the organisation to take advantage of a digital opportunity to adapt to technology. Automating an existing process is likely to avoid any advantage associated with automation. The process needs to be rethought so that steps can be changed, added to or removed.
Key drivers to automate processes are often about the time taken by existing information-intensive processes.
Box 10.4: Digital transformation and change to the insurance sector - The business model
What business models have emerged that are products of ‘digital’? Technological developments means that certain business models have emerged that weren’t possible previously. Changes to culture/practices/processes also mean that new business models can be explored and exploited. What business models are changing? - 24/7 anywhere: customers can access an organisation at any time and from any location.
- From ‘What can I sell you?’ to ‘What do you need?’: focus on customer.
- Away from assets and towards access to services: it’s not about owning physical assets, but it’s possible to connect people who own those assets with people who want access.
- New business where digital is at the heart of the opportunity
There can be situations where the arrival and emerge of a new digital technology creates a chance for the creation and transformation of a new business opportunity.
Mini case study 10.4: Digital technology at the heart of the business opportunity - Adapting the existing business to a digital opportunity
Digital transformation refers to the adaptation of an existing business around a digital opportunity.
Adoption is the acquisition of a technology into a business. Organisations adopt technology because it’s fashionable, new, shiny or because they’re worried about being left behind, but this doesn’t necessarily make a digital business. Adoption can be indicator of a lack of strategic thinking and these might be at odds with what the business wants to achieve. The goal of digital transformation is to adapt the business so that it can take advantage of digital culture, processes and practice and maximise return on digital technologies.
Mini case study 10.5: Domino’s Pizza as a constantly transforming business
The framework of digital transformation
A framework for digital transformation can appear linear, compartmentalised and seem to be designed to run one. On the contrary, the themes discussed below are iterative, with activities feeding back and forward through process. And it’s an ongoing process, which some liken to a never-ending journey.
The process of review
Successful digital transformation projects don’t dive straight in and start innovating or implementing. The process of review phase is used to establish the current situation of the organisation.
Digital transformation can be initiated because there’s opportunity to place a digital innovation at the heart of the organisation. At this review stage, the organisation probably needs to look at 4 issues:
* What the digital opportunity is.
* How sure the organisation is of the opportunity.
Opportunity analysis will look at questions that are quite traditional in thinking, such as:
o Is there an opportunity to grow the business with existing customers or new customers?
o What are the kinds of revenue we can forecast or expect?
o What value can this create for customers?
Success assurance looks at more internal issues and these are quite traditional in their thinking, such as:
o How stable, permanent, and reliable is the new technology, culture, process or practice?
o Can the opportunity be scaled up?
o How safe is it for the business to adapt to this digital opportunity?
* What level of digital the leadership of the organisation possesses.
* How mature as a digital business the organisation sees itself.
The process of strategy
The development of a digital transformation strategy can borrow some relevant features of strategic development. Key themes that occur regularly in successful digital strategies.
- A focus on the objective for the future rather than solving an existing problem
A digital transformation strategy’s focus should be about opportunities, about focusing on creating achievable goals built around important key themes.
The other significant difference between traditional strategic objectives and digital transformation objectives is speed and time. Traditionally, strategic thinking was about the long term. Digital transformation objectives are set around much shorter intervals.
It’s critical that digital transformation objectives are aligned with business objectives.
The process of resourcing and planning
Once the roadmap for digital transformation is complete, there are two things that the digital transformation project has to give thought to:
* The design of the transformation.
There needs to be a master plan for implementation of a transformation project.
There’re traditional ways of planning that are very familiar, but newer more contemporary methods could be more useful.
* A programme for change.
More important is the plan for change that will occur in the organisation. To take advantage of a digital opportunity, aspects of the organisation need to adapt to it.
Change needs to occur in digital literacy and digital competence of stakeholders.
A fundamental programme for change might be around organisation culture. Change is often very difficult and, if badly managed, can have the opposite effect.
The process of deployment
Traditional approaches to project management make sense where something is big, but where projects are smaller/faster/responsivemore appropriate ways of managing deployment.
Digital provides interesting opportunities to explore deployment in different ways. Technology-focused teams have started to work in different ways to implement projects through a process of agile development. Agile can be a useful way of looking at implementing a transformation project.
The 12 principles of agile (Beck, 2001) fit well into defining characteristics of digital transformation. The focus on collaboration with end-users and customers, small self-organising teams and responding to change resonate highly with themes of digital transformation. Hackathons have been used to deploy small transformation projects and encompass the broader principles of a digital transformation framework. Both of these approaches emphasise the issue of speed and time that affects digital transformation objectives
The process of living with, and evaluating, digital transformation
complete failures. Studies abound of failure rates of transformation projects, with some giving an ultimatum to organisations.
Living with a phase of digital transformation equates to evaluating the process as it runs and may require several approaches to be considered. Organisations that adopted an agile approach will use the process of regular check-ins with transformation teams and employees.
There’s a period when a whole project needs to be evaluated in terms of success. Evaluation will review the issues raised in the initial stages of the project:
* Did the transformation grow the business with existing customers or new customers?
* Did it generate the forecasted or expected revenues and what revenue can we forecast or expect?
* Did it create the value that customers wanted?
* Has the organisation been able to scale up the opportunity from a small idea to a much larger proposition?
Furthermore, reviews will also explore:
* How stable is the new technology, culture, process or practice now that the organisation has adapted to it?
* How permanent is the new technology, culture, process or practice?
* How reliable is the new technology, culture, process or practice?
* Were all the risks and issues associated with the new technology, culture, process or practice adequately identified and were the counter-measures appropriate?
The organisation should also review digital maturity index to see whether an appropriate transformation has taken place, and a review of the leadership should show increasing digital awareness and enculturation of broad-based leaders and increasing awareness of organisation among the digital leadership.
The digital transformation of marketing is also happening – in the form of growth hacking.
What is growth hacking?
Growth hacking: to boost awareness and lead generation and conversion. It originated in the start-up scene on the West Coast of US several years ago and early adopters included SaaS subscription businesses and social networks.
Box 10.6: Growth hacking
Ellis: ‘Startups live and die by their ability to drive customer acquisition growth… they’re under extreme resource constraints and need to figure out how to break through the noise to let their target customers know they have a superior solution for a critical problem… the best growth hacks take advantage of the unique opportunities available in a connected world where digital experiences can spread rapidly’.
It’s a form of marketing digital disruption because technology is an enabler for marketers to understand and respond to user behaviour more rapidly.
Growth hackers set a goal to acquire users/visitors and achieves it without a marketing budget.
Damelin: ‘The rules of supply and demand dictate that the way established firms are currently marketing will already be expensive… As an entrepreneur, you must be non-traditional. Facing bigger players with bigger budgets, the odds are stacked against you. Identify the people you want to be customers and go get them. The instinct to do what other companies in the same space are doing is the wrong thing to do’.
What about the ‘digital’ element?
This is where agile methodologies from software design come in (Scrum) – marketers use ‘test, learn and commit’ loops. They use a series of micro-optimisations and tests to find out what works.
Mini case study 10.6: Hotmail
Defining goals and KPIs
The starting point is setting a KPI, that is a number that quickly tell you if things are going well. In the context of an e-commerce company, growth targets can be simplified into 3 areas:
1. Volume. Unique visitors or visits, brand mentions and searches.
2. Quality. Conversion rates to ‘add-to-basket’ and ‘checkout to sale’.
3. Value. £, euro and $ overall and profit, repeat customer order value based on repeat customer conversion rate, second-order conversion over a specific time.
Stage 1: Reach. Initial phase in the customer engagement process where prospects are researching and exploiting options; primary goals: publish quality content and use effective direct marketing techniques to build awareness. The KPIs associated include:
* Analogue marketing:
- Advertising
o Impressions
o Response rate
o Cost per conversion
- Direct mail
o Delivery rate
o Response rate
o Cost per conversion
- Trade shows and other events
o Registration
o Attendees
o Satisfaction
- Public/media relations
o New releases
o Journalist enquiries
o Interviews
o Pickups/coverage
o Positive mentions
o Endorsements by journalists/influencers
o Share of voice
* Digital marketing
- Website and blog
o SEO effectiveness
o Pay-per-click adv efficiency: impressions, cost per click, cost per conversion
o User sessions
- Webinars
o Attendee rate
o Drop-off rate
o Engagement rate
o Conversion rate
- Social media
o Connections
Stage 2: Act. Persuading prospects to start interacting and begin making buying decisions. Primary goals: continue publishing content and using direct marketing techniques, but also to engage directly with prospects. Other KPIs to be added:
* Analogue marketing
- Inbound phone calls
* Digital marketing
- Website and blog
o Subscribers
o Backlinks
o Time on site
o Downloads
- Social media
o Engagement: likes, shares, retweets, comments, …
o Sentiment
o Conversion
- Leads
o Quality
o Conversion
Stage 3: Convert. Prospects become customers. Primary goals: generate purchases and integrate various nurturing, marketing automation and remarketing techniques to ensure relevance and drive repeat sales. KPIs to be added:
* Digital marketing
- Website and blog
o Return visitors
o E-commerce transactions
- Leads
o Cost per lead
- Orders
o Revenue from purchases
o Average order value
Stage 4: Engage. Focus on creating repeat customers and leveraging relationships with those customers over time. Key focus: building and expanding customer engagements and measuring CLV from the value of the customer advocates that have been created. KPIs to be added:
* Digital marketing
* Website and blog
- Email: open rate, clickthrough rate, bounce rate, unsubscribe rate
- Social media: customer advocacy
- Orders: revenue from repeat purchases
* ROI
- All marketing campaigns and initiatives
- CLV
Effective marketing dashboards incorporate as many of the above elements as possible. Make the dashboard available throughout the organisation and tie goals to compensation programme for marketing team. This will help drive marketing and sales alignment, and specific results important to success.
How to use a single metric to run a start-up
Start-ups have an added challenge: extreme resource constraints. Data collection is easy, but if there’s too much to analyse it can take too long to review and might bury the one key metric that matters. 4 main reasons why start-ups should focus on a single metric:
1. It answers the most important business question
2. It forces the tea to draw a line in the sand and have a clear goal
3. It forces the entire company
4. It inspires a culture of experimentation
There a 6 broadly defined business models. Examples:
1. Transactional: Someone buys something.
2. Collaborative: Someone votes, comments or creates content for you.
3. SaaS: Someone uses your system, and value they get means they don’t churn/cancel subscription.
4. Media: Someone clicks on a banner, PPC ad, or affiliate link.
5. Game (free mobile apps): Players pay for additional content, time savings, extra lives, currency, ….
6. App (fee or paying mobile apps): same of above.
‘One key thing’ by Keller and Papasan (2012): achievers always work from a clear sense of priority and that distraction undermines results.
Growth hacking is a combination of 2 things:
- Growth: about how you shift the kind of metrics that matter most to a business.
- Hacking: how to get growth; taking a different approach to ‘normal’ marketing.
growth targets can be simplified into 3 areas:
- Volume. Unique visitors or visits, brand mentions and searches.
- Quality. Conversion rates to ‘add-to-basket’ and ‘checkout to sale’.
- Value. £, euro and $ overall and profit, repeat customer order value based on repeat customer conversion rate, second-order conversion over a specific time.
How to use a single metric to run a start-up
Start-ups have an added challenge: extreme resource constraints. Data collection is easy, but if there’s too much to analyse it can take too long to review and might bury the one key metric that matters. 4 main reasons why start-ups should focus on a single metric:
1. It answers the most important business question
2. It forces the tea to draw a line in the sand and have a clear goal
3. It forces the entire company
4. It inspires a culture of experimentation
There a 6 broadly defined business models. Examples:
1. Transactional: Someone buys something.
2. Collaborative: Someone votes, comments or creates content for you.
3. SaaS: Someone uses your system, and value they get means they don’t churn/cancel subscription.
4. Media: Someone clicks on a banner, PPC ad, or affiliate link.
5. Game (free mobile apps): Players pay for additional content, time savings, extra lives, currency, ….
6. App (fee or paying mobile apps): same of above.
‘One key thing’ by Keller and Papasan (2012): achievers always work from a clear sense of priority and that distraction undermines results.
Growth hacking is a combination of 2 things:
- Growth: about how you shift the kind of metrics that matter most to a business.
- Hacking: how to get growth; taking a different approach to ‘normal’ marketing.
6 broadly defined business models
- Transactional: Someone buys something.
- Collaborative: Someone votes, comments or creates content for you.
- SaaS: Someone uses your system, and value they get means they don’t churn/cancel subscription.
- Media: Someone clicks on a banner, PPC ad, or affiliate link.
- Game (free mobile apps): Players pay for additional content, time savings, extra lives, currency, ….
- App (fee or paying mobile apps): same of above.
Creating a growth hacking mindset
Growth hacking is an approach, rather than a set of tools. To be a good growth hacker:
* Mindset is extremely important. Accelerated growth on a minimum budget. It’s all about users.
* Being curious and creative. Don’t fix on spending a budget, go back to basics and think about tapping into human behaviour.
* The internal culture is important. The business needs to be open to experimentation.
* A good team is required. Marketers with a broad base of knowledge in all areas, but capabilities in both ‘left-brain’ and ‘right-brain’ disciplines.
Ideal skill set of a growth hacking team
4 key specialisms in terms of building a growth hacking team:
* Coder/developer.
* Psychologist.
* Marketer/branding.
* Data analyst.
Use of Scrum, an agile methodology, in digital marketing
Tensions in how marketers should work. The growth of marketing technology has meant that marketers can try out initial ideas and use the outcomes to refine a campaign through ‘test, learn and commit’ loops.
Agile marketing: respond quickly to evolving needs of customer and new technologies; small marketing ‘experiments’ to test assumptions and monitoring performance to maintain/adapt/change activity.
One of the most used agile methods is Scrum. Traditional approach to the product development process is like a relay race. To excel, speed and flexibility are needed. This is where a holistic approach is needed. Other benefits include:
* Understanding what customers really want and continuously reviewing those needs to make sure your marketing stays relevant;
* Continuously testing small elements of the overall marketing campaign to discover what has the most positive impact on customers;
* Iteratively testing campaigns on the fly and incorporating the learning as you go, rather than measuring success at the end and using the results to do something different ‘next time’;
* Continuous campaign delivery – with campaign elements modified on the fly;
* Strong collaboration between marketing, operations and finance.
This methodology is based on implementing smaller iterative projects quickly and cheaply.
Mini case study 10.7: Airbnb
