(even though old habits die hard)
Most newly appointed Chief Digital Officers or CTOS remember the 1990s well – they were earning their stripes while listening to Boyz II Men & Pearl Jam on the radio and CDs. The music might be different now, but this current tech era of “digital transformation” feels similar to the 1990s. Both decades have labels that are ambiguous but ubiquitous: in the 90s, anything sounded better with an “e-” in front of it (e-mail, e-commerce (yes, it stuck!), e-business, e-HR, e-tc…). And in today’s world, we are cluttered with digital ___(fill in the blank)__. And like the 90s, we are seeing most of the Fortune 500 companies devote huge resources to these ambiguously-titled movements. CIO reports that by the end of 2017, 70% of the Fortune Global 500 had set up full-time digital transformation or innovation teams.
Given these similarities, we see a trend that for many firms, they’re still tackling “digital transformation” today like they’re back in the 90s. Old habits die hard, especially those many Chief Digital Officers acquired in the early, formative decades of their careers. Many are still company-centric and tech-first.
Incredible technology developed in the 80s took flight in the “e-business” wave of the 90s, where the growth rate of investment by businesses in tech (computers, communications equipment, and software) was averaging 24% each year from 1995-2000. This investment was largely in tech-to-automate, using tech to create in-house efficiencies that led to a better bottom line.
90s tech spend was largely for the needs of the business. Business challenges drove our tech decisions and budgets, not customers. The user of the tech in most cases was the employee, who, in the 90s, was definitely not treated like a customer. Their needs around new technology were an afterthought, or secondary at best, and they were handled through a one-way dialogue by change management and training teams.
So we continued to party like it was 1999, and the next wave of new technology came along: the cell phone, smart phone, Cloud, 3G, 4G…incredible ingenuity emerging. 15-ish years later today, businesses find themselves expecting and hoping for the same large financial gains they saw from their IT investments in the 1990s.
But the difference in 2019 is that the customer has entered the IT equation.
As a recent Salesforce study shows: “With more choice, more access to information, and less incentive to be loyal, today’s customers are firmly in control of their relationships with companies.” It’s trickier because we (since we’re all customers), well, we’re irrational and demanding. Our attention spans are lower, our loyalties are not as strong. With loyalties lower, we are fairly game for using a startup: there are more of them now than ever before and they have learned to hit customer needs quickly and precisely. That same Salesforce study found: “57% of customers have stopped buying from a company because a competitor provided a better experience.” This was driven largely by lower switching costs and creates a sense of urgency for “digital transformation” that makes the timeframes of the “e-90s” feel glacial.
Our expectations have been set higher by firms who have had the customer at the center from day 1. Firms like Amazon, whose founder & CEO Jeff Bezos recently said, “The No. 1 thing that has made us successful by far is obsessive compulsive focus on the customer as opposed to obsession over the competitor.”
An incredible customer experience has become more table-stakes for B2C firms, but for B2B as well. Business buyers expectations mirror consumer expectations for company interactions, with 69% of business buyers in a recent study done by Salesforce responding, “I expect Amazon-like buying experiences.” Mark Wilson, Senior Director of customer transformation at Paycor, an integrated, cloud-based HR software platform noted, “Listening and responding to customers was hugely powerful and key to our success. 60% of our quarterly product enhancements are driven by feedback from customers.”
Companies who are thriving today might have kept their love of Pearl Jam, but they shed their 90s loyalty of tech-for-tech’s-sake or “tech for my sake.” They moved to “tech only for the customer’s sake.”
Those companies have made two major shifts:
1) From company-centric IT strategies….. to firm-wide alignment on customer problems-to-solve
Most companies are trying to shed their “inside-out” lens. In the past, this lens had led them to look in-house to think about growth: competitor & industry reports, M&A due diligence, and geographic expansion, bringing in new tech and then finding a use case for it. This strategy was enough for many decades.
Companies who have been successful in the last decade have expanded beyond the “inside-out” view into an outside-in lens, asking “what’s best for the customer?” Amazon and other customer-centered firms were built on this, so they had no shifting to do. Now, most Fortune 500 firms are growing through initiatives based almost entirely on customer problems, with technology as an enabler to creating those new offerings and experiences. Their success lies in large part to their movement from tech-to-automate to tech-to-solve-customer-problems.
For example, UPS just launched a new platform product – Ware2Go – that meets the unique fulfillment needs of its small business customers with warehouses on the other side looking to fill space appropriately. Similarly, Nike heard the needs (read: pain) of shopping with their fast-growing tweens for shoes at the store, so they launched EasyKicks, an innovative shoe-subscription service.
2) From “fund-the-build”…. to “fund-the-test”
Many large firms budget for technology by thinking of “funding-the-build,” answering leadership’s question of “what product are you creating and what is the price tag for development across which quarters?” The finish line is the build – the metrics, gantt, and funding involved for those elements. A successful crossing of the finish line is a build that is on budget, on time.
This is familiar to today’s companies and pairs nicely with a side of a PR, “ABC company creates new connected device, enhances position as leader in big data!!” But this also comes with the usual side of weariness of unwieldy IT gantt charts and massive budgets that expand over time, all leading to less-than-stellar returns… Hertz’s $32M lawsuit against Accenture over poor web design services being a recent public example.
“Fund-the-build” did us well in the 90s, when those pesky customers weren’t a part of the equation. Agile was the first to bring in the concept of iteration and testing, but it didn’t get us far enough, because it was still about the build and not the customer. Just because you built it doesn’t mean anyone will come. And when the user adoption is tepid, your investment will generate anemic returns.
And thus, another path has emerged: “fund-the-test.” Firms are de-risking tech spend by investing in small, sequential tests around consumer desirability and business viability where the findings from each test shape the next. Yasir Anwar, the former CTO at Macy’s, said teams are “given empowerment to go and test what is best for our customers, to go and run multiple experiments, to test with our customers, (and) come back with the results.” In this way, they lean into the latent, unarticulated needs of their customer, then design, build, and test solutions to their current challenges. IT and tech is deployed in small tranches and is tweaked based off live in-market experiments with customers.
Walmart admitted it was pretending to test when really it was “funding-the-build,” noting “what we launch is what we test.” However, now it has shifted to “fund-the-test” and runs roughly 25 experiments at any given time
….and has grown the number of tests each year from 70 in 2016 to 253 in 2017. This approach is similar to the Venture Capital mindset of funding new services and experiences: invest in small doses, not all at once, dependent upon proven traction in the market. The customer and business together de-risk the new service, and then they determine what tech is required to scale and sustain.
Is your company stuck in the 90s when it comes to digital transformation? Or are you making these shifts, even in small ways? Get inspired by companies who lead by solving customer needs, guide digital solutions, and fund customer tests throughout. It could be the linchpin to capturing the ROI of your digital transformation.