“No industry or company is protected from the digitalization virus and therefore need to review how to use all functions, unified, in protecting market shares and revenue streams. If you do not see the threat – it is difficult to win the war.”
A few days ago, the bus I usually ride to work with was seven minutes late. Not a big deal but it made me realizes how dependent we are on digital devices and information. At once, after a short sigh from my co-passengers, the smart phones were raised to google transport alternatives, writing on social media about the delay, and start planning the next purchase. I must say that I did the same, and ended up doing research on kitchen ovens on the bus ride into town. Information is available on an instance and all markets are open – all the time with full transparency. This behavior was not possible ten years ago and is now standard on all buses and trains all over the world (a digital hotspot). We consume information and services when we want – and not when the stores are open!
It made me think about how our customer or buying behavior is changing. How much we value that our expectations are meet (bus being on time) and exceeded. It is not what services that are delivered – but rather how they fulfill our expectation of the delivery. Seven minutes is nothing but still it caused, in our world of digitalization and transparency, comments on social media and bad will. The fact is that we more and more live our life in the digital world always connected and available for dialogue and rivers of information.
Very interesting, but what does this mean for the IT organization and me? Hang on – I am getting there.
To continue the discussion of changing customer behavior a bit, I read an interesting article published by Torben Rick (Business Development Expert) on how consumer behavior is changing based on digitalization. The way we purchase good and services is becoming more digitalized through increased transparency, introduction of smart phones and less loyalty to traditional brands. The fact is that a bigger and bigger part of revenues (20% à 40%) is coming from infrequent buyers (increasing in size) with limited loyalty of traditional brand. These buyers are not only looking for the “best buy” from a financial perspective but also looking at service quality, trust and the social brand (what rating it has in social media). Regular marketing does not really address these consumers. One could say that we are moving from a financial definition of customer value to one based on emotions and perception. How to attract customers in a new way? How to build loyalty? Maybe there is no such thing as customer loyalty in the digitalization era but only different levels of expectation fulfillment. Digitalization is obviously helping customer to quickly assess companies and change brand. What does this mean for IT management?
“Maybe there is no such thing as customer loyalty in the digitalization era but only different fulfillment levels of customer expectation.”
Let us little more in-depth probe the effects of digitalization to answer that question. Harvard Business Review described the effects of consumerization and digitalization in article from 2013. Their conclusion is that most of the CIOs are out of synch with the C-suite and do not understand the business needs (impact of digitalization). Most CIOs live in an “IT bubble” with focus on optimizing the IT factory– with limited consideration of business value. Setting long-term strategies and structures (3-5 years) in a fast changing environment (6-12 months). Not really supporting business success!
“Every business is a digital business. You cannot be the best in your industry by not being best at IT”
Harvard Business Review (2013) also sees trends to cope with the increased digitalization on enterprise level. All of the trends address the new digital landscape with changes customer behavior and higher level of unpredictability.
- Customized outsourcing: customizing outsourcing (HR, accounting, payroll, IT, etc) addressing specific market pre-requisites, geography, or customers to maximize business value and competitiveness. Employees are also taking this roll focusing more on delivering value (as individual consultants) than feeding organizational structure.
- More partnership: higher focus on business relationships (business clusters) to serve customers in the best possible way. Companies focus on where they excel and let others do the rest (where they excel). Otherwise, you lose flexibility, agility, adaptability, and even scale economics begin to reverse.
- A focus on customers: Companies start to focus on what is creating the best value for customers and what they do the best.
- Structure changes: Future successful enterprises will be socially enabled, and they will operate as digital business ecosystems–very different from contemporary hierarchical, fixed, integrated, transactional structures of today.
The key success factors for survival in the digital era, based on earlier reasoning, is self-governing, customer value focus and adaptively. The idea is not to do “everything” but rather have a focused strategy on how to maximize customer value. The question is how well IT is supporting this winning concept.
The consequences of digitalization is not something only discussed in blog posts and articles, but is also evident in concrete customer surveys. Every year, the Swedish Quality Index is publishing customer satisfaction in key industries. When studying banks (retail) in Sweden, the trend is stunning. According to Gartner (2012), approximately 40% of bank revenues coming from digital channels. But studying the Swedish Quality Index (Svensk Kvalitetsindex 2012) show that the disappointing rating of traditional banks (Nordea, SEB, Swedbank) and success of new niche and fast-moving banks (fast adaptively of new trends).
- Top two banks are non-bank companies without branches (ICA, and Länsförsäkringar) with a clear customer intimacy focus utilizing broad customer base. The success of IKANO bank and Skandiabank follow this trend.
- Small local banks (Sparbankerna) score high with their presence and closeness to the customers.
- Danske Bank with an innovative technology approach is scoring high.
- Handelsbanken (one of the traditional banks) always score high. The bank is famous for its “beyond budgeting” concept with high focus on self-governing and adaptively.
The conclusion is obviously interesting and it is based on this analysis it is possible to identify a couple of key success factors from a digitalization perspective. The common denominator for these companies is (more or less) self-governing, customer value focus and adaptively (key success factors in digitalization) based on customer expectations and experience. Translating customer needs into packaged services and products. The mastery of the success factors will effect “time to market” and utilization of IT to support customer value. It is interesting to notice that the “best” banks are quite new with limited technology debt and higher focus on innovation to quickly fulfill customer expectations. The time from idea to implementation is much shorter with the successful companies. This is all about strategy, governance and performance management!
Even though the traditional banks (Nordea, SEB and Swedbank) have a Customer Relationship strategy, it is not working in an efficient way and is seen as bureaucratic and not trustworthy. These companies are unable to create self-governing, trustworthy customer focus and adaptively due to traditional governance, technical debt and bureaucracy (control and command). An interesting aspect is that companies that fail to address digitalization through self-governing, customer value focus and adaptively will end up with standard commoditized offerings (products and services) – under price pressure and easy to be replaced. How needs an account at a traditional bank when I can get it more cheap somewhere else – with better understanding of my needs?
Heavy focus on internal control, lack of trust and silo thinking does not win any new costumers in the digital era!
My point of view is that digitalization is driving a changed customer behavior that has enormous impact on business competitiveness. The way to be successful in the digitalization era is through self-governing, customer focus and adaptively. IT plays a decisive role in creating business success in a digital era. First, great analysis and decisions need to be based on accurate information from the IT systems. That is a given. But even more crucial is ITs ability to provide IT services that supports business competiveness and great customer experience. IT need to quickly understand in an efficient way the business challenges and technological advances. The aim is to proactively provide insights on how to meet changing customer expectations through IT. This is not unique for IT but for all functions enabling business success – such as HR, marketing, and accounting with different perspectives. But as the biggest threat to business success comes from IT, IT plays a pivotal role in securing business competitiveness.
- Build awareness that IT plays a pivotal role in creating great customer experience. Send IT managers to practice in the sales organization to learn, first hand, of business challenges.
- Invest resources in continuously understanding and interpreting the business challenges and its impact on IT management. What is actually happening in business today?
- Prepare IT to support business in winning the digitalization war. How does IT support self-governing, customer value focus and adaptively?
- Review how IT delivers value. It is through further long-term command and control, or through adaptability, trust and self-governing?
- Learn about Agile IT Performance Management. This is your ticket to future business success. Give me a call! J
The increasing digitalization in the society has lead to a counter reaction in Swedish schools. Many schools have introduced iPads to speed up the learning to read and write – with good results. But the more progressive schools have actually removed digital support and let the kids read and write using traditional pen and paper. Maybe it is a sign that even schools are trying to survive the digital era with focus being present with the kids, and focusing on adjusting to his/her needs. To let the kids explore through curiosity, think for themselves, and communicate with a creative mind. We are still human after all.