Digital transformation—the adoption of digital technology to improve business process and revenue opportunities—has been taking place across dozens of industries for the better part of three decades. From the advent of computers in the 80s, to the Internet in the 90s, and mobile connectivity in the 00s, large firms have seen success in various forms for a while. But while digital transformation is not new, there is a renewed interest in this topic that we haven’t seen before. Google searches for the term have increased tenfold over the last three years alone:
Some of the top books on digital transformation have been released in just the last 5 years. So if digital technology isn’t new, then why is there renewed concern amongst non-tech companies?
Well, for starters, disruption from the outside has greatly increased. The average age of companies in the S&P 500 is lower than its ever been—going from 60 years old in the mid-1950s to just around 20 years old as of 2012. Additionally, we have seen technology-first firms become billion dollar companies at increasingly rapid rates. For most of the 20th century, it could take decades to cross $1 billion. But in 2012, Instagram sold for $1 billion after just two years. The ability to build, iterate, and gain widespread market adoption has never been faster (and likely won’t slow down any time soon due to Moore’s Law). With that pace comes immediate threat to big companies: Technology-based startups are able to build bridges over once impassable moats.
This is where the modern “digital transformation” comes into play. The pace of disruption is driven not just by technology itself but the speed at which consumers and businesses can adopt technology. Multi-million dollar, multi-year IT projects have given way to self-install SaaS software. As a result, digital transformation has caused consumer and business demands to go through the roof.
The pace of disruption is driven not just by technology itself but the speed at which consumers and businesses can adopt technology.
For large corporations to succeed in today’s technology-driven landscape, they must focus less on digital transformation and more on customer experience transformation. For many companies this is a bigger challenge because traditional business models don’t compete on customer experience. Take car companies for example. Fuel economy and horsepower, or cup holders and upholstery material are not enough to compete. Today’s car will have to integrate technology in a seamless way. But with interactive technology come new demands on how a company must engage with its customers. A car company could be successful with high-performance vehicles twenty years ago, but today it must also use technology to develop relationships with its customers.
Again, the modern digital transformation is about customer experience. Let’s take a look at some of the ways technology has created a customer experience revolution and what large corporations must do to adapt.
The modern digital transformation is about customer experience.
Migration costs are plummeting
Or put another way, the cost of switching is low. This may be a new threat to mature corporations who have enjoyed customer loyalty enforced through disincentives to switch. Digital technology levels the playing field, creating a much more competitive (and sometimes commoditized) market. And while I am no business expert, I do know that the way you compete in highly competitive markets is through customer experience.
Look at how digital transformation has affected cable providers. Often cable providers enjoy regional monopolies. Even when faced with competition from satellite companies, cable providers can rely on the high opportunity costs of switching to prevent customers from leaving. Today, the threats are coming from entertainment providers operating outside these traditional models: Hulu, Netflix and Amazon. The cost of switching is lower than ever, which is why these companies are competing on the experience of using their platforms while also creating better, niche programming.
The way you compete in highly competitive markets is through customer experience.
Good user experience is expected
Technology is so cheap and easy to modify, the stakes have risen for how firms must utilize it. Meanwhile, consumer demands have increased. 15 years ago, a consumer’s interaction with digital technology was either through a personal computer or through the tools they used at their job. Today, consumers and businesses are using technology 24/7 and while your industry might have a low bar when it comes to digital technology, you are no longer being compared to peers. Instead you’ll be compared to things Google, Facebook, or Uber.
Again, Netflix gives us a great example to draw on. They started in 1999 and have navigated from disc-at-home delivery, to a streaming service, and to original programming. With discs-at-home, Netflix had no real competition. Once they shifted to streaming, other competitors emerged from Hulu and standard cable networks. They competed on experience, by providing almost seamless experiences between platforms (from gaming systems, to TV’s and mobile devices). They stepped it up a notch in 2013 with original programming, starting with a handful of shows to now more than 60 shows and dozens of original movies. The digital edge they once enjoyed to themselves is gone, and they’ve stayed ahead of the curve by enhancing experience as they evolve.
Technology allows buyers to onboard themselves
A related aspect to user experience is how easy a service or product is to begin using. In the past, digital transformation was costly not just for companies but businesses and consumers wanting digital or digitally-enhanced offerings. Remember what it cost to get a satellite dish installed? Or getting a custom server installed at your business? Today, you can have new internet service installed, and be onboarded to Netflix in a matter of hours, and for a fraction of the cost. At our agency, our “server” is Dropbox. Instead of ordering servers and paying for technicians to come install them, I signed up for Dropbox, added 20 users, and set our security preferences. The entire company moved to the cloud literally overnight.
Customers want two-way communication with brands through technology
I recently described my interaction with a home security system, where I detailed how the companion mobile app felt like an afterthought. With a focus on “digital transformation,” this happens frequently. Often leadership may simply set a goal to get a mobile app in the market and check the box. But technology actually opens doors that weren’t previously opened. Having an alarm system in your house was a passive interaction with a brand, but introducing a mobile app now creates a foundation for a new relationship. You’re in the user’s pocket—your customer can now engage with your brand outside the house, on the go.
Today, creating digital products means opening the lines of communication with customers
With this pervasive quality of technology comes more data about how your customers will use your service. You have access to usage data and direct access to your customer (through in-app messaging or personal email/SMS). Passive digital products are like giving customers microphones without turning them on. Today, creating digital products means opening the lines of communication with customers.
The reason many non-tech firms are ill-equipped to handle this new wave of digital transformation is because it’s actually about customer experience. Many companies that have enjoyed competitive advantage for decades will find that they often haven’t engaged with customers in this way ever before. And when you open the digital door, your customers will expect someone to be on the other side.