Historic shifts in business fundamentals don’t occur smoothly; rather they happen in sudden, sharp shifts which open unexpected chasms companies must traverse or plunge.
Today, the deep change in human behavior brought about by the emergence of social media marks the latest such shift, perhaps the most dramatic since the Industrial Revolution. Gone are the traditional success factors of operational efficiency and price advantage being uprooted by the conversational, consumer-centric nature of the emerging business environment. Already, quick response, collaboration and flexibility are trumping traditional competitive advantages. And this shift seems to be accelerating into an ever-more-social future.
”Digital transformation is causing a tectonic shift in how companies are structured and led, and how they perform and compete…Digitization is increasing the pace of change throughout the economy, even in sleepy mainstream industries” notes Pierre-Yves Cros, Chief Development Officer of international consulting firm CapGemini. “These shifts are broad and deep and they’re just getting under way… No firm is immune from digital transformation.”
A study by CapGemini and MIT’s Center for Digital Business found that companies that have already responded most deeply to social challenges are 26% more profitable than laggards. Two measures separated those winning companies from others: Digital Intensity, the penetration of social, mobile and other emerging technologies deeply into customer engagement and business operations. Transformative Management Intensity, where a clear vision of how digital is changing the company expresses itself as alterations in governance, customer management and IT-business relationships.
Moving from rhetoric to reality in response to digital transformation is anything but straightforward. Current corporations have hired, trained and compensated a generation of employees around incremental operational improvements. They have, in short, an army optimized to fight the old war, as a new war roars upon them. This new war demands effective, quick response to whatever social/mobile data reveals and collaboration with a diasporic customer and influence population, all in a word where ownership of the prime relationship stands to overpower any other advantage.
A recent massive study by the Harvard Business School Forum on Innovation indicated that, in the end, only two variables may matter. This rigorous analysis of what separates successful companies from others uncovered these two rules: Better before cheaper—companies that compete on differentiators other than price win. Revenue before cost—companies that prioritize increasing revenue over reducing costs prosper more highly than others. How important are these two variable to success? The report concludes: “There are no other rules…. so change anything you must to follow Rules 1 and 2.”
So, the keys to digital transformation may come down to how companies can use social data to make their products “better” in the eyes of empowered consumers and so find new sources of revenue.
We also don’t need to look much further than my Pivot co-producer and someone with whom you already know very well. Brian Solis also published original research on the state of digital transformation and found, in his two reports this year alone, that companies are undergoing change to compete in a digital economy but most don’t know why. In his most recent study, Solis found that 88% of digital strategists and executives claimed that the digital customer experience was driving digital transformation efforts yet only 12% launched efforts to understand the digital customer journey.
Wow. Just wow.
Companies won’t fail in response to digital change because they don’t see it coming; they will fail because their organizations aren’t set up to respond in ways that can really save them. “Big companies are really bad at innovation,” says Harvard’s Maxwell Wessel. “Because they’re designed to be bad at innovation.”