Introduction to digital transformation: 3- What drives growth and profit throughout digitalization?
At the end of the day, the success of your transformation shall be recognized in financial terms. So, we are asking what drives your success.
by Giandomenico Rivetti, Lars Dittmann
The answer to the question of what drives growth and profit throughout the digital transformation is based on the distinction between traditional and modern business models. In traditional set-ups, producers are offering their assets to satisfy customer needs, while modern business models are designed starting from customer needs.
As an example, let us compare a traditional hotel with Airbnb. The core competences of the hotel start with the building, the rooms, the lobby, hotel bar and restaurants. Then comes the offerings of overnight stays, breakfast, half board, etc. This is the Proposed Value to the customer who will in return Perceive a Value. This Perceived Value is driving customer decisions. Airbnb on the other hand, starts with the customer and its needs. The offered products and services are provided by partners and the perceived value is constantly monitored. Airbnb has extended its presence leading to growth and the perception of being the number one platform helps to get good prices, whichdrives profit.
To craft such a modern business model, the triangle of customer needs, proposed value, and perceived value is to be exploited.
Whether running on a traditional business model or a modern model, most probably there is no CEO or head of sales and marketing in the world who would contradict the statement that customer needs must be clearly understood.
The question is rather how serious one is working on the task. Are those customer needs explicitly described and are they validated together with a set of lead customers? Who is constantly monitoring and measuring the customer needs? A typical pitfall is to define customer needs from your own understanding and not from a recent interaction with the customers which leads us to the topic of touchpoints.
Touchpoints with Customers
Typical points of contact with the customers are in marketing, sales, project management, and customer service for an engineered product business.
Touchpoints change from industry to industry. The perceived value in the different touchpoints varies. To be seen as the overall number one lets us make sure to be the number one in most contacts – like in at least three out of four touchpoints.
The example of a restaurant makes this concept more tangible: touching points are the food, the service, and the ambience. If the food is good but the waiter is rude, and we do not feel well in the restaurant, we will not return to the restaurant.
Transferring this experience to engineered product type business: your core technology might be top nudge, but if the project management process misses the additional customer needs around the product, such as easy communication, fast and friendly replies, easy to understand documentation, product certificates in different local variances, and so on, the perceived value is lacking far behindthe potential.
Getting a price premium is difficult. Digital technologies enable an improved customer journey where the customer needs it. This leads to the questions where to invest in the customer journey. In traditional business models, the thinking goes from the core competences to the proposed products and services before entering the sphere of the customer needs. This gives a natural bias to re-invest in the existing competences while omitting new investments in other touchpoints. The investments in the other touchpoints, like for instance in a digital improved project management function or customer service set-up for an industrial goods manufacturer, are out of the comfort zone. While being number one in the core technology of the product, the overall perception of the value may be not as good.
Our recommendation is to see every touchpoint as an opportunity to become the partner of choice.
The proposed value must be easy to communicate.
The simplicity of the statement has the advantage that the proposed value is well known and understood within the entire organization. All team members throughout the different touchpoints communicate to the customer in the same way, based on a shared vision. This shared vision drives the behavior in the daily interactions and throughout all activities, which aim at improving the value proposition.
It takes stamina and empathy to align the teams and properly on-board new team members.
A close dialogue with your customers is key to understand what she or he perceives as value. This leads us to the well-known saying that Perception is Reality. And for the interaction with the customer, it is so true.
Customers buy from us if they perceive it is value to buy from us.
However, let us be clear on the facts. Facts do matter. And being number one based on objective criteria on the core technical performance is a big advantage. But it does not guarantee sales and profit. Just like a restaurant with great food, they cannot afford lousy service. In modern set-ups the perception can be monitored and reviewed constantly.
Digital technologies are providing perfect tools to conduct this task. Starting from analysis of online interactions on websites to more sophisticated methods. The quest is to have an alignment between proposed and perceived values. This guarantees the satisfaction of customer needs.
Importance of purpose
The value that is proposed to and perceived by your customer gives purpose to the business transaction.
This purpose is also an important leadership instrument insight for your organization. The staff gets motivated by serving a good purpose. Especially the young generation ranks purpose as an important criterion to choose the company they want to work for.
This has an impact on the human resource function in companies with modern business models.
Some companies have even renamed the human resource function into human realization function.
They facilitate the realization of the employees, while the selection of the staff is clearly allocated to the bosses.
The boss serves the purpose and needs team members who can align on the shared quest. He needs to be able to build teams around purpose.
Building the new business model from the customer need is key.
For traditional companies, this means that any type of transformation starts with the customer. The dialogue with the customer is close, continuous, and well structured. Digital technologies support the structure of the interaction.
Growth and profit emerge from a position of being the partner of choice, the number one in all touchpoints in the client interaction.
Our recommendation is to carefully assess where to invest along the various touchpoints in the customer journey, so that proposed and perceived value end up in alignment.
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