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What Traditional Businesses Need To Know When Beginning A Digital Transformation

Apr 03 2018

Digital transformation has been a top concern of CMOs, CEOs and boards across industries. The digital imperative came earlier to some sectors, such as media and financial services, while others have not yet been driven to re-invent their businesses around bits and bytes. For a company that’s still at the starting block, and with little experience in the realm of developing digital products and services, the prospect of transformation can be daunting.

To get some insights into how companies can think through those early first steps, I spoke with David DeWolf, Founder and CEO of 3Pillar Global. DeWolf focuses very acutely on the arena of helping companies make that initial step toward becoming truly digital. This includes advising on digital strategy and developing customer-facing digital products that drive revenue. Through his work, he’s seen the issues, risks and opportunities companies face when making that first pivot to digital.

Peter Horst: How does a traditional company know when it’s time to think about transforming their business to be more digital-oriented?

David DeWolf: Here’s the brutal reality. In a matter of years every successful business will have a thriving digital business. We’ve seen the media and information world and the retail world turned on their heads. The financial services space is in the midst of disruption and healthcare is not far behind. Pretty much all industries should at least be thinking about how they will compete in this increasingly digital economy.

Horst: How are some of the basic premises of digital transformation that a company must get their heads around?

DeWolf: Digital disruption is not about technology enabling or optimizing your business. It’s about totally disrupting the way in which monies flow throughout the economy. Google and Facebook didn’t enable and optimize the traditional media value chain with technology -- they disrupted it with technology. The digital economy is not just being driven by advertising and generating demand online. It's really about the actual goods and services being the bits and bytes of software and the value proposition that software provides. It's both the distribution channel and the product itself. We no longer sell newspapers, we sell digital content. What we buy from Uber is not the actual transportation -- it is the service of hailing a ride when we want it, where we want it and the convenience of them making that a frictionless experience for us.

Horst: Companies that are newer to the digital arena often naturally default to approaching the transformation challenge from the organizational and mental perspective of the IT organization—which is very different than a product mindset.

DeWolf: That’s right—the two are very different. There are three fundamental differences between IT Software and Digital Software Products.

A software product must be chosen. There’s a fundamental difference between building something that folks will be forced to use in order to do their job vs. building something that customers will choose to use and hopefully pay to use. In an IT world, it’s pretty easy to discover the business needs and build to those requirements. In a product mindset, we must discover what features will motivate a user to choose our software. We have to prioritize building for outcomes rather than output. It’s not about measuring success as the number of features we release; it’s about how the features drive the outcome of attracting and delighting clients.

A software product must be self-funding. Whereas the return from IT software comes from cost optimization and savings, the return from a software product comes from the creation of value. The great news about this is that the ROI for a software product is nearly infinite – limited only by the total addressable market. The flip side is that the return is much less predictable - there aren’t pennies sitting around waiting to be saved. The key here is to minimize time-to-value. The faster a digital product is in market, the faster an organization will be able to figure out how to engage in a value exchange with their customers. Start small, seek feedback, and continually iterate.

A software product is never done. One of the realities that organizations must embrace about the digital economy is that software products are never compete—they must continually evolve. Once you stop innovating and improving, you will begin to lose the market share you’ve worked so hard to capture. The cost of entry and change in a software world is simply too low to create a formidable barrier to entry. Most important here is to build a culture and an environment that excels at change.

Horst: What are some of the pitfalls that catch companies in the early stages of their digital transformation?

DeWolf: Where we see digital innovation fail is when an organization loses sight of either customer needs or business objectives. In this era of “Design Thinking” and “Customer Experience” we often see teams maniacally focused on delighting customers. But these teams can fall into the trap of building all sorts of features that a customer wants, or, says they need, but that don’t create the virtuous cycle of value exchange that leads to a self-funding product. On the flip side, we see some organizations who have not caught the Design Thinking craze but rather are too focused on their vision. They’re convinced they have figured out how to make money and know what customers want and how to disrupt a market. As a result, they don’t listen to feedback.

Horst: Where should they start on their digital business journey—reinventing their core product? Developing a peripheral add-on service?

DeWolf: Wherever you start, start small. Do one thing well before you try to be everything for everyone. Have a niche and dominate it.  Go deep before you go wide. That said, if software is the vehicle of the digital economy, data is the fuel. A great place to start is often with your data assets. It’s amazing how many companies have incredibly valuable data assets that are the natural “exhaust” of their business. Can you derive benchmarking information that your customers would find valuable? Can you automate decision-making for your customers? Create an inventory of what the data assets you have and begin to connect dots between them and customer needs.

Speaking of which, the absolute best place to start is with customer feedback. What are your customers asking for? Get really good at listening. It’s amazing what they will tell you.

Author: By Peter Horst