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TheNineElementsofDigitalTransformation

The Nine Elements of Digital

Transformation
Opinion & Analysis January 07, 2014 Reading Time: 10 min
George Westerman, Didier Bonnet and Andrew McAfee

Indepthresearchwithexecutivesatawiderangeofcompanies
showshowmanagerscanusetechnologytoredefinetheir
businesses.
Digitaltransformation

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(http://www.capgemini.com/resources/digital
transformationaroadmapforbilliondollarorganizations)
theuseoftechnologytoradicallyimproveperformanceorreachof
enterprisesisahottopicforcompaniesacrosstheglobe.Executives
inallindustriesareusingdigitaladvancessuchasanalytics,mobility,
socialmediaandsmartembeddeddevicesaswellasimprovingtheir
useoftraditionaltechnologiessuchasERPtochangecustomer
relationships,internalprocessesandvaluepropositions.Other
executives,seeinghowfastdigitaltechnology
disruptedmediaindustriesinthepastdecade,know
theyneedtopayattentiontochangesintheir
industriesnow.
Wherecanyoulookfordigitaltransformation
opportunities?Weinterviewed157executivesin50
companiestofindout.Thesecompaniesarelarge
typically$1billionormoreinannualsalesand
spanned15countries.Toprovidebalanced
perspectives,approximatelyhalfoftheinterviewees
werebusinessleaderssuchasCEOs,lineofbusiness
managers,marketingheadsorCOOs,whiletheother

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halfwereITandtechnologyleaders.
Thecompaniesweinterviewedaremovingforward
withdigitaltransformationatvaryingpacesand
experiencingvaryinglevelsofsuccess.Somearetransformingmanypartsoftheirorganizationswhile
othersarestilldoingonlythebasics.Othersareencounteringorganizationalissuesorotherchallengesthat
preventthemfromtransformingsuccessfully.
Butonethingwefoundwasclear.ThebestcompaniesthosewecallDigiraticombinedigitalactivity
withstrongleadershiptoturntechnologyintotransformation.ThisiswhatwecallDigitalMaturity.
Companiesvaryintheirdigitalmaturity(http://sloanreview.mit.edu/article/theadvantagesof
digitalmaturity/),andthosethataremorematureoutperformthosethatarenot.
Leadingdigitalchangerequiresmanagerstohaveavisionofhowtotransformtheircompanyforadigital
world.So,wherecanyoulook?Whatdigitalactivitiesrepresentgoodopportunitiesforyourbusiness?
Analysisoftheinterviewsshowsclearpatterns.Executivesaredigitallytransformingthreekeyareasof
theirenterprises:customerexperience,operationalprocessesandbusinessmodels.Andeachofthesethree
pillarshasthreedifferentelementsthatarechanging.Thesenineelementsformasetofbuildingblocksfor
digitaltransformation.
Currently,nocompanyinoursamplehasfullytransformedallnineelements.Rather,executivesare
selectingamongthesebuildingblockstomoveforwardinthemannerthattheybelieveisrightfortheir
organizations.Inthisarticle,wehighlightsomeofthewaysthatcompanieswestudiedarechangingthese
nineareas.

Transforming Customer Experience

Thethreemajorbuildingblockswithwhichcompaniesaredigitallytransformingcustomerexperienceare
customerunderstanding,toplinegrowthandcustomertouchpoints.

Customer Understanding
Companiesarestartingtotakeadvantageofpreviousinvestmentsinsystemstogainanindepth
understandingofspecificgeographiesandmarketsegments.Someareexploringsocialmediato
understandwhatmakescustomershappyandwhatleadstocustomerdissatisfaction.
Inaddition,companiesarelearningtopromotetheirbrandsmoreeffectivelythroughdigitalmedia.
Companiesarealsobuildingnewonlinecommunitiestoadviseandbuildloyaltywithclientsinmedical,
realestateorfinancialservicesproducts.Othersarebuildingproductsthatimprovebrandinginlifestyle
communities.
Manyorganizationsarebuildinganalyticscapabilitytounderstandcustomersinmoredetail.Some
insurancecompanies,forexample,areimprovingtheirportfoliosandcoststructuresthroughanalytics
basedunderwritingandpricing.Othercompaniesareconductinganalyticsbasedexperimentstodrive

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customerbehavior.Inonecase,arestaurantcompanyisactivelyconductingexperimentsinpricingand
promotionacrossasetoffranchisedstores.Theexperimentdynamicallyadjustsproductpricesinresponse
todemand,weather,inventorylevelsandproximitytoclosingtime.

Top-Line Growth
Companiesareusingtechnologytoenhanceinpersonsalesconversations.Forexample,financialservices
companiesareusingtabletbasedpresentationsinsteadofpaperbasedslidedeckstomakesalespitches.
Insurancefirmsareintroducingmobiletoolstohelpsalespeopleandcustomersengageinanalyticsbased
planning.Amedicaldevicesalesforceisreplacinginpersoninteractionswithdigitalinteractions.When
visitingadoctorsoffice,asalespersonleavesaniPadwithvideoandotherinformationonnewproducts.
Theaimistogetthedoctorsattentionwithoutinconveniencingthephysicianorimpactingbusyoffice
schedulesinordertoobtaina10minuteconversationwhenthesalespersonreturnstoretrievetheiPad.

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Betterunderstandinghelpsbusinessestotransformthesalesexperience.Companiesareintegrating
customerpurchasingdatatoprovidemorepersonalizedsalesandcustomerserviceoreventooffer
customizedproductpackages.Ahospitalitycompanyengagedinlocationbasedmarketingusesanalyticsto
sendpersonalizedmobilecouponstocustomersastheynearafacilitythecompanycanthentrackuptake
inrealtime.AmortgagecompanyissettingupaCRMstrategytolinkcustomerstolocalrealestate
references.ThissystemproposesnewoffersinrealtimeviatheInternet.
Otherbusinessesareusingconceptstoresasflagshipsfortheirdigitalsellinginnovations.Forinstance,a
mortgagecompanyoffersinvestorsanintegratedprocesscombiningrealestateandbankserviceswith
externalservicesandshowcasestheoverallprocessinaconceptmegastore.
Somecompaniestrytomakelifeeasierforthecustomer,simplifyingtheirprocessesthroughadigitalplug
in.Oneretailerautomaticallyloadsacustomerslastonlineshoppinglistintoitsecommercesite.This
streamlinestheshoppingprocess,allowingcustomersextratimetolookatotherproducts.Customerscan
thendecidewhethertousehomedeliveryoradrivethroughservicewithaspecificpickuptime.

Customer Touch Points

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Customerservicecanbeenhancedsignificantlybydigitalinitiatives.Forexample,abankestablisheda
Twitteraccounttoanswerclientcomplaintsquickly,helpingcustomersavoidgoingphysicallytoabranch.
Thisdigitalinitiativealsoleveragedanexpertcommunity,allowingcrowdsourcingwithseveralemployees
andothercustomers.
Companieswithmultiplechannelstothecustomerareexperiencingpressuretoprovideanintegrated
experience.Multichannelservicesrequireenvisioningandimplementingchangeacrosscustomer
experienceandinternaloperationalprocesses.Manyretailersnowofferhomeshoppingwiththeoptionto
receiveproductsbymailorinastore.However,oneretailexecutivedescribedcustomersbeingangrythat
customerservicerepresentativesinastorecouldnotaccessonlineorderhistory.
Severalcompaniesinourstudyareofferingselfserviceviadigitaltools.Thesetoolsallowthecustomerto
savetime,whilesavingthecompanymoney.Manycompaniesarenowofferingcustomerappstoenhance
customertouchpoints.Inonehospitalitycompany,smartphoneappsarelinkedtothecustomersprofile,
enablingintegrationacrossSMS,appsandsocialmediaefforts.Amediacompanyoffersappswithgeo
localizationandaugmentedrealitytohelpcustomersfindinterestingplacestovisitandprovidespecial
offersviavouchersandecouponing.

Transforming Operational Processes

Althoughtransformedcustomerexperiencesarethemostvisibleandarguablythemostexciting
aspectsoftransformation,companiesarealsorealizingverystrongbenefitsfromtransforminginternal
processesthroughprocessdigitization,workerenablementandperformancemanagement.

Process Digitization
Automationcanenablecompaniestorefocustheirpeopleonmorestrategictasks.Amanufacturerhas
beguntocentralizetheHRfunction,allowingeconomiesofscalethroughselfservicewhilefreeingHR
peopletofocusonenlargingmanagerskills,ratherthancountingdaysoff.Aspecialtymaterialscompany
hasautomatedmanyR&Dprocesses.Automationallowsresearcherstofocusoninnovationandcreativity
ratherthanrepetitiveefforts.Italsocreatesstreamsofdatathatcanbeusefulinlaterdataminingefforts.
Onepaintmanufacturerhascreatedfullyautomatedplantsthatsignificantlyreducelaborrequirements,
improveproductqualityandenhanceenvironmental,healthandsafetyperformance.Anapparelcompany
hasmovedtodigitaldesignprocesseswhencollaboratingwithmanufacturingpartners.Goingdigital
eliminatesmostneedtoshipphysicalprototypesbackandforth,reducingtheproductdevelopment
lifecycleby30%.

Worker Enablement
Individuallevelworkhas,inessence,beenvirtualizedseparatingtheworkprocessfromthelocationof
thework.Afinancialservicesbusinessrearrangeditsheadquarterssothatnobodyhadanassigneddesk,
eventheCEO.Employeesnowworkfromhomeoneortwodaysperweekand,whentheyareintheoffice,

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sitnearpeoplewithwhomtheyaretemporarilycollaborating.Meanwhile,thecompanyscollaborationand
networkingtoolsallowemployeestotalkwithanyoneintheorganizationfromwherevertheyaresitting.
Thisissettingthestageforfurtherchangesrelatedtoglobalization.
Thetoolsthatvirtualizeindividualwork,whileimplementedforcostreasons,havebecomepowerful
enablersforknowledgesharing.Salespeopleandfrontlineemployees,forexample,arebeginningtobenefit
fromcollaborativetoolsinwhichtheycanidentifyexpertsandgetquestionsansweredinrealtime.They
arealsoincreasinglygainingaccesstoasingle,globalviewofthecompanysinteractionswithacustomer.

Performance Management
Transactionalsystemsgiveexecutivesdeeperinsightsintoproducts,regionsandcustomers,allowing
decisionstobemadeonrealdataandnotonassumptions.Thisishappeninginbothinternalprocessesand
customerfacingprocesses.Thelevelofdetailisalsoincreasing,allowingmanagerstocomparestatus
acrosssitesorreallocateproductmanufacturingcapacityinwaystheycouldnotdobefore.
Beyondbeingbetterinformed,digitaltransformationisactuallychangingtheprocessofstrategicdecision
making.Topexecutivesinamedicaldevicemanufacturerusedthecompanysexistingcollaborationtoolsto
extendstrategicplanningsessionsfrom12peopletomorethan300ofthebusinessstopmanagers.This
enabledbetterinputintotheprocessandbetteruptakeofthevisionafterdecisionsweremade.

Transforming Business Models

Companiesarenotonlychanginghowtheirfunctionswork,butalsoredefininghowfunctionsinteractand
evenevolvingtheboundariesandactivitiesofthefirm.
Thethreebuildingblocksofthistransformationaredigitalmodificationstothebusiness,thecreationof
newdigitalbusinesses,anddigitalglobalization.

Digitally Modied Businesses

Onemediaexecutivesaid:Weverealizedthatifwedonttransformthewaywedobusiness,weregoingto
die.Itsnotaboutchangingthewaywedotechnologybutchangingthewaywedobusiness.Thecompany
isfindingwaystoaugmentphysicalwithdigitalofferingsandtousedigitaltosharecontentacross
organizationalsilos.
Agrocerycompanyisstayingtruetoitstraditionalbusinessbutusingdigitaltotransformanewgrowth
business.Asoneexecutivereported,Aftertwoyears,ourecommerceplatformisbringingus20%ofour
newclientsandourtraditionalclientsareconsuming13%moreonaverage.
Otherbusinessesarebuildingdigitalorservicewrappersaroundtraditionalproducts.Anationalpostoffice
iscreatingafreedigitalmailboxattachedtoeachphysicalmailaddressthatcompaniescanuseasa
substituteforapersonsphysicalmailbox.Abusinesscreditcompanyisdevelopingadigitalbusinessfor
somecreditproductsthatrequireslessinvolvementthantheirtraditionalhightouchofferings.

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New Digital Businesses

Companiesarealsointroducingdigitalproductsthatcomplementtraditionalproducts.Forexample,a
sportsapparelmanufacturerstartedsellingGPSandotherdigitaldevicesthatcantrackandreportona
customersworkout.Othercompaniesarechangingbusinessmodelsbyreshapingtheirboundariesthrough
digital.Amortgagecompanyismovingfrombeingalinkinthevaluechaintobeingaglobalassemblerof
investmentproducts.Anairportauthorityisaimingtobecometheownerofatravelersendtoendprocess
byprovidinganintegratedmultichannelexperience,includinginformationonairplanetrafficand
reservations,dutyfreeshoppingpromotionsandotherbenefits.

Digital Globalization
Companiesareincreasinglytransformingfrommultinationaltotrulyglobaloperations.Digitaltechnology
coupledwithintegratedinformationisallowingbusinessestogainglobalsynergieswhileremaininglocally
responsive.Thesecompaniesbenefitfromglobalsharedservicesforfinance,HRandevencorecapabilities
likemanufacturinganddesign.Globalsharedservicespromoteefficiencyandreducerisk.Theyeven
promoteglobalflexibility.Onemanufacturercanshiftproductionaroundtheglobewithonlyafewdays
noticeinresponsetointerruptionsorexcessdemand.

The Take-Away
Digitaltransformationrequiresstrongleadershiptodrivechange.Butitalsorequiresavisionforwhat
partsofthecompanyyouwanttotransform.Companiesinallindustriesandregionsareexperimenting
withandbenefitingfromdigitaltransformation.Whetheritisinthewayindividualsworkand
collaborate,thewaybusinessprocessesareexecutedwithinandacrossorganizationalboundaries,orinthe
wayacompanyunderstandsandservescustomers,digitaltechnologyprovidesawealthofopportunity.
Focusisimportantnocompanywestudiedistransformingallnineareasatonce.Butthebestmanaged
firmsareconstantlyidentifyingnewwaystoredefinethewaytheyworkinthenewdigitalera.
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