The four key characteristics of a digital company
In all sectors, “traditional” companies are facing or are about to face a digital transformation path. However, a path that cannot be limited simply to the “digitalization” of existing processes and to bringing the old business model online. The changes induced by the digital in society, in purchasing behavior, in competitive models, require companies to rethink and innovate their business models substantially. Regardless of the sector specificities in which companies operate, observing the leaders of this new industrial era, some recurring traits emerge on the essential characteristics of a digital company. We want to indicate here the 4 characteristics that we believe are essential and that must be taken into consideration when designing a digital strategy.
1) Centered on “data” (Datacentric)
Operating in a digital world means producing and consuming a huge amount of data. The ability to use this data to improve, rethink and innovate your business model therefore becomes essential. Take the case of Amazon. The company has grown over time from being a pure online retailer to one of the largest Big Data companies in the world. These are the main steps of its evolution:
a) Offer an online catalog 10 times larger than the largest physical distributor, 10% less.
b) Create a community of bloggers and buyers to evaluate the products offered; the data generated by this “collaborative” network, together with user behavior data (for example: historical trend of purchases; queries on the platform; methods of interaction on the site) allow a very high level of customization in suggesting the products and bundles of offer, with the result of dramatically improving cross and up-selling during the purchase phase.
c) Use the data generated by the platform to offer the best level of customer care in the world: in any way a customer requests assistance (telephone, chat, email …) Amazon operators always have immediately available all the relevant customer information and access to the huge corporate knowledge base, to give precise and punctual answers despite the heterogeneity of its offer.
d) Open their services and big data algorithms to companies, through:
AWS, the largest cloud computing and online storage service in the world; The opening of the e-commerce platform to small distributors, offering services not only for logistics but also for analyzing customer needs and behavior.
An example of a “traditional” player who is betting on this transition is Ford. First he used big-data analysis models to improve supply chain management, then to design new car models, now to reinvent his business model. In the latest presentations to analysts, top management has clearly outlined a future for Ford based on mobility and connectivity (also in partnership with players such as Amazon).
Warning: the trap you can fall into is having too much data, investing in infrastructure and digital technologies, and then relying as always on “past” experience to guide the company. A digital player must be able to make managerial decisions based on the evidence shown by this data, even when it goes against the current / accepted “paradigm” and involves a certain level of risk.
1) The customer at the center
In the digital world, customers have become accustomed to a new level of service. Everything, immediately, at the best price. Always and everywhere. And moreover designed to measure.
To compete on this growing segment of customers – today in Italy perhaps still limited to some demographic and geographical areas, but which will represent the majority of consumers – it is necessary to focus on his needs and on how to offer him the best experience and level of service. The logic of product and price is no longer sufficient, it is taken for granted. And this is true of all sectors and markets. In the end, the consumer is always the same individual, who buys an online book, RCA insurance, a trip to the sea or a new washing machine.
The big companies of the 21st century therefore focus obsessively on the customer. Amazon, already mentioned above, is an example of excellence on the customer care side. The much discussed Uber, without going into the merits of the heated discussions underway around the world about its business model, is undoubtedly a best practice in terms of customer experience. What makes Uber different from other taxi or chauffeur services? The quality of its user experience, which can be summarized in:
a) Speed: the app shows how many “drivers” are in the area and gives a precise estimate of the arrival time; the digital customer doesn’t want to waste time.
b) Information: the rating system allows the user to choose the driver and, once the service is requested, to follow the vehicle’s position in real time; the digital customer does not want surprises.
c) Practicality: payments via account, without having to remember to withdraw the cash necessary for the race or to hope to use the credit card; the digital customer hates paying the old way. Uber has taken a traditional service and redesigned it in a “mobile-first” logic around the customer’s needs, for an uncompromising experience.
An example of a traditional player who is changing his business model around the customer? Nike. Directly from the CEO’s voice, Mark Parker: “Digital allows us to deepen the relationship we have started with consumers, making it even more tailored to their needs”. What derives from it is no longer just sports articles and stores, but an entire digital ecosystem (Nike +) built around the athlete, also strengthened by the partnership with Apple, which allows Nike to communicate and interact directly with the customer. In many sectors the “product” logic is still dominant. The customer is a distant and often little known entity. To enable the transition to a centric customer model, data and analysis models are certainly needed (see point 1) but above all an extraordinary cultural shift by the entire company, starting from top management up to the last employee.
The level of innovation nowadays is experiencing an acceleration never seen before, driven by digital technologies. The speed, unity with the breadth and heterogeneity of the areas and skills in which this innovation takes place make the old company approach insufficient: with internal R&D centers, at most with some university collaboration. Just browse for a while on crunchbase, the online bible on innovation and Venture Capital operations to observe some interesting data:
a) Amazon made 4 acquisitions in 2016 plus 1 in 2017;
b) Facebook made 6 acquisitions in 2016;
c) Apple made 8 acquisitions in 2016 plus 1 in 2017;
d) Google made 17 acquisitions in 2016 plus 1 in 2017.
All the big ones, no matter how strong their internal R&D is, must buy innovation from outside, whether they are technologies, patents or skills. It is a model of “open innovation” well known in Silicon Valley, but which is increasingly being adopted in other areas as well.
An example? In the last two years, the large European insurance groups have established specific VC funds to invest in insurtech, startups with a strong technological and digital content that operate in the insurance world. Among these we mention Allianz, AXA, Aviva. Obviously it is not enough to acquire a company to innovate. The most complex task is once again the managerial one. Internationalizing while keeping alive the original spirit that pushed innovation, without it being absorbed and shaped by the dominant culture is a complex challenge. Challenge made even more difficult by traditional silo organizational models, which certainly do not facilitate dialogue and horizontal innovation.
4) Fast and agile
To compete in a digital world one must be fast and agile. This certainly presupposes an excellence of the operating machine, but also requires the ability to change your mind, adapt and review business models, without being afraid of making mistakes and correcting yourself in the race and questioning yourself. To corroborate this thesis, I think it helps to think more about the great failures of the digital revolution rather than success stories. There are numerous examples of companies that have moved too slowly, largely due to managerial and leadership limitations. Nokia and Kodak are just two of many.
Despite introducing smartphones first, Nokia was too slow to innovate its platform and application ecosystem, as well as to introduce innovative hardware that directly competed with Apple’s new iPhone. Nokia certainly did not lack the skills and was repeatedly cited as an example of excellence in understanding customer needs. It was therefore not a lack of awareness, but a managerial paralysis facing a new wave of change.
For his part Kodak, after inventing digital photography in 1975, had already understood in a study dated 1981 how digital photography would change the market. Despite this, the management, which at the time made profits mainly from the sale of consumables, such as films and photographic paper, did not have the courage to face the digital trend as an opportunity, albeit risky, but persisted to the end to defend the own position annuity.