Strategic Management: Digital Transformation | PDF

Learning Objectives ▪ Identify the digital blind spots and how to overcome them ▪ Discuss the five domain...

Learning Objectives ▪ Identify the digital blind spots and how to overcome them ▪ Discuss the five domains of strategy that Digital is changing ▪ Strategic Introduce the concepts of a Playbook for Digital Transformation ▪ Discuss what it means to rethink customers ▪ Define the Customer Network Paradigm ▪ Present the Marketing Funnel and the Path to Purchase Management ▪ Discuss Customer Network behavior Lecture 9 Digital Experience and Strategy 2 The Five Domains of Digital Transformation The Five Domains of Digital Transformation Encyclopædia Britannica – A Telling Story Encyclopædia Britannica – contd. In March 2012, after 244 years, Encyclopædia Britannica, Inc., announced it had It maintained a focus on its core mission: editorial quality and educational service. printed its last edition. There is no reason new businesses have to be the only engines of innovation. Wiped out by the digital revolution? Far from it! Established companies, like Britannica, can set the pace. Over the preceding twenty years, Britannica had been through a wrenching process The problem is that—in many cases—management simply doesn’t have a playbook of transformation – facing waves of challenges: CD-ROM era, Microsoft Encarta, to follow to understand and then address the competitive challenges of digitization Nupedia then Wikipedia. ✓ The Digital Transformation Playbook, by David L. Rogers, is intended to help organizations understand, strategize for, and compete on the digital playing field. Britannica understood that customers’ behaviors were changing dramatically with the adoption of new technologies. The company’s leaders sought to understand the needs of its core customers - home users and educational institutions, increasingly in the K–12 market. 3 4  Overcoming Your Digital Blind Spots Overcoming Your Digital Blind Spots Back during the first wave of the Industrial Revolution, factories were With the spread of electrification to factories at the end of the nineteenth dependent on fixed sources of power—first, water power from waterwheels century, all of this changed. located along rivers and, later, steam power from coal-fired engines Electrical power eliminated all the constraints that had defined factories up Although these power sources enabled the rise of mass production, they set until that point. fundamental constraints as well Machinery could be arranged in the optimal order of work. Lines of At the outset, they dictated where plants could be located and how productive production could feed into each other, like tributaries to a river, rather than all they could be fitting in along one line shaft. Factory size was no longer limited by the Furthermore, because both waterwheels and steam engines demanded that maximum length of line shafts and belts. all equipment in a factory be attached to a central drive shaft—a single long The possibilities for entirely new plant designs were breathtaking. And yet the motor that powered every machine—these power sources dictated the design incumbent plant owners were largely blind to these opportunities. They were of factories and the way work could be done within them so used to the assumptions and constraints of hundreds of years of plant design that they simply could not see the possibilities before them. 5 6 Overcoming Your Digital Blind Spots Overcoming Your Digital Blind Spots It fell to the new electrical utilities, the “start-ups” of the electrification Today, our digital-born businesses (such as Google or Amazon) are like era, to evangelize for innovation in manufacturing. the electrical companies of the early electrification era. And our savvy These new firms loaned electric motors for free to manufacturers just to digital adopters (such as Britannica) are like the factories that learned to get them to try the new technology. retool and advance into the next industrial age. They sent trainers and engineers, also for free, to train the managers and Both types of businesses recognize the possibilities created by digital workers at plants so that they could see how electric motors could technologies. Both see that the constraints of the pre-digital era have transform their business. vanished, making new business models, new revenue streams, and new sources of competitive advantage not only possible but also cheaper, Progress was slow at first, yet by the 1920s, a new ecosystem of faster, and more customer-centric than ever before. factories, workers, engineers, products, and businesses had taken shape, with electrical power at its center. 7 8  Five Domains of Strategy That Digital Is Changing Five Domains of Strategy That Digital Is Changing If electrification was transformative because it changed the fundamental Digital technologies transform how we need to think about competition. constraints of manufacturing, then the impact of digital is even bigger because it changes the constraints under which practically every domain More and more, we are competing not just with rival companies from of business strategy operates. within our industry but also with companies from outside our industry Digital technologies change how we connect and create value with our that are stealing customers away with their new digital offerings. customers. We may have grown up in a world in which companies We may find ourselves competing fiercely with a long-standing rival in broadcast messages and shipped products to customers. one area while leveraging that company’s capabilities by cooperating in But today the relationship is much more two-way: customers’ another sector of our business. communications and reviews make them a bigger influencer than Increasingly, our competitive assets may no longer reside in our own advertisements or celebrities, and customers’ dynamic participation has organization; rather, they may be in a network of partners that we bring become a critical driver of business success. together in looser business relationships. 9 10 Five Domains of Strategy That Digital Is Changing Five Domains of Strategy That Digital Is Changing Digital technologies have changed our world perhaps most significantly Digital technologies are also transforming the ways that businesses innovate. in how we think about data. Traditionally, innovation was expensive, high stakes, and insular. In traditional businesses, data was expensive to obtain, difficult to store, Testing new ideas was difficult and costly, so businesses relied on their and utilized in organizational silos. Just managing this data required that managers to guess what to build into a product before launching it in the massive IT systems be purchased and maintained. market. Today, data is being generated at an unprecedented rate—not just by Today, digital technologies enable continuous testing and experimentation, processes that were inconceivable in the past. Prototypes can be built for companies but by everyone. Moreover, cloud-based systems for storing pennies and ideas tested quickly with user communities. data are increasingly cheap, readily available, and easy to use. Constant learning and the rapid iteration of products, before and after their The biggest challenge today is turning the enormous amount of data we launch date, are becoming the norm. have into valuable information. 11 12  Five Domains of Strategy That Digital Is Changing Five Domains of Strategy That Digital Is Changing Finally, digital technologies force us to think differently about how we understand and create value for the customer. What customers value can change very quickly, and our competitors are constantly uncovering new opportunities that our customers may value. All too often, when a business hits upon success in the marketplace, a dangerous complacency sets in. As Andy Grove warned years ago, in the digital age, “only the paranoid survive.” Constantly pushing the envelope to find our next source of customer value is now an imperative. 13 14 Harness Customer Networks Harness Customer Networks Customers have always been essential to every business as the buyers of goods and services. In order to grow, companies have targeted them with mass-marketing tools designed to reach, inform, motivate, and persuade them to buy. In the digital age, however, the relationship of customers to businesses is changing dramatically. 15 16  The Customer Network Paradigm The Customer Network Paradigm Today, we’re moving towards a customer network model. In the twentieth century, businesses of all kinds were built on a mass- market model. 17 18 The Customer Network Paradigm The Marketing Funnel and the Path to Purchase The firm is still a central actor in the creation and promotion of goods and services. But the new roles of customers create a more complex relationship. In the customer network model, current and potential customers have access to a wide variety of digital platforms that allow them to interact, publish, broadcast, and innovate—and thereby shape brands, reputations, and markets. The firm needs to listen in, observe the customers’ networked interactions, and understand their perceptions, responses, and unmet needs. It needs to identify and nurture those customers who may become brand champions, evangelists, marketing partners, or cocreators of value with the firm. 19 20  The Marketing Funnel and the Path to Purchase Five Customer Network Behaviors Today’s customer networks, however, make their biggest impact on the marketing funnel through an additional level, which can be called advocacy. At this psychological stage, customers are not just loyal; they advocate for the brand and connect the brand to people in their network. These customers post photos of products on Instagram, write reviews on TripAdvisor, and answer friends’ product questions on Twitter (X). Thanks to search engine algorithms, this type of customer expression is heavily weighted to influence search results. Each customer’s advocacy thus feeds back up to the top of the funnel and has the potential to increase the magnitude of awareness, consideration, and so on through the funnel. 21 22 Five Customer Network Behaviors Access: They seek to access digital data, content, and interactions as quickly, easily, and flexibly as possible. Customers are drawn to anything that provides the immediacy of simple, instant access. Engage: They seek to engage with digital content that is sensory, interactive, and relevant to their needs. Customize: They seek to customize their experiences by choosing and modifying a wide assortment of information, products, and services. THANK YOU Connect: They seek to connect with one another by sharing their experiences, ideas, and opinions through text, images, and social links. Collaborate: As social beings, they are naturally drawn to work together. Accordingly, they seek to collaborate on projects and goals through open platforms. 23 24