Digital transformation for dummies
I have been at the forefront of the global growth of the new technologies and its ever-changing usages from SMBs to large corporate groups. Since it has helped some companies emerge from the crowd and increase their value generation, all C-suite are willing to jump in the bandwagon. Though the vast majority of them don’t have any clue what is happening, it is mostly needed to do a strategic change to focus on “Digital”. So, let’s try to debunk the “Digital transformation” that we all have in mind.
Digital transformation can be described as the use of web technologies. But web technologies are like 360° advertising agencies: they can do everything and anything. At the end of the day, all depends on the strategic needs you have. It can be either for:
(1) cost reduction: higher calculation capabilities for better stock management or better customer acquisition cost
(2) increase of the willingness to pay: brand value growth through new capabilities to meet customer needs
(3) creation of a new market: new capabilities to address or create a need
From those 3 strategic directions, you can then select the tools available outside to reach your goals. At this stage, you need to prevent yourself from using any buzzwords (big data, platform, uberization, and others). In fact, you have to focus on questions: what is the pain point or the opportunity you want to address. We can do it like this because there will be many companies able to support you. Don’t think your need is unique. Because it is not. What is unique is your capabilities to integrate and leverage the new technology companies into your business process. And that is the conditions you need to write down. Once done, you can go to the next stage.
Now you know what is the problem you want to tackle, you can open your mind to your management consulting company or any of the suppliers you have at your disposal. This is where the Digital transformation gets tricky: you need to actually manage your supplier or vendor to acquire some intel and basic know-how while you are asking him about solutions to help you address your need. Don’t stop with one, because he doesn’t know more than you about who are the best vendors out there for your need: new technologies are changing at a 6-month pace. But the underlying process is well structured and you can rely on them, provided it fits your company business process. From here on it is only a project to manage.
Let’s take a simple use case with eCommerce. A company is willing to sell more products and it has seen competition use eCommerce websites and are generating more and more revenue. That company can go either with (1) “I need to run a eCommerce website too” or (2) “What should I do to sell more”. Option 1 leads you to start an eCommerce division with all the related costs (online traffic acquisition, technical platform, connection with the ERP, payment gateway, retail vs. franchise vs. eCommerce business attribution matrix amongst many). For a €1M to €10M yearly revenue through that channel, you may need up to €1M for the tech part, €1M of headcount a year, €1M of eCommerce online Marketing costs a year, and €2M of additional costs to generate “synergies” with the traditional business. 3 years in, you sit on a cost structure of €9M.
Option 2 leads you to another world. You can assess eCommerce vs. Amazon vs. new business model. You know the cost for eCommerce. For Amazon, let’s assume you divide by ten the cost structure with a small issue related to the stock management. Nothing critical. The new business model is quite complicated but if you may already have competitors (mainly startups) who are testing them for you. You will need to make a “Make/ Buy/ Partner” decision. Easier since it is a standard M&A question. Anything else are only technicalities your suppliers need to deal with. Let them do the work you pay them for. But don’t forget you are reading “Digital Transformation for dummies”: many shortcuts and bypasses.