The evidence is piling up that organization-wide digital transformation is challenging for many organizations. Companies are beginning to report high failure rates for digital transformation, similar to failure rates for large-scale transformation in general. There are too many legacy systems, too much technical debt, and too many functional and business unit data silos to overcome.
In the early days of discussions about digital transformation, it was common to paint a broad picture of what digital transformation might accomplish. For example, one 2011 study argued that digital transformation should transform operational processes, business models, and customer experience. These are all are worthy objectives, and it’s conceivable that for many companies, each of these could be so broken that the business couldn’t survive without a full makeover of any or all of them.
However, few organizations have the necessary resources — financial, human, and technical — to be able to transform so much at the same time. Therefore, they need to prioritize their investments.
So where to start? If the three major options are operations, business models, and customer experience, why should companies address internal processes if they are at least adequate? And while changing business models can lead to substantial improvements in company valuations, it’s a heavy lift to entirely change a business model with which customers, employees, and business partners are familiar. That leaves the customer experience.
We’d argue that a much better alternative to tackling an expansive organizational transformation with digital is to focus on the transformation of customer experience, relationships, and processes. This is not because transforming the customer experience is easiest, but because doing so is far more likely to keep a company viable than changing other aspects of business. If an organization has happy customers, it can probably survive any inefficiencies in accounts payable or employee benefits tracking.
Many digital transformations thus far have not focused on customer-oriented applications, at least not in a way that customers would notice. One study across four industries, for example, found that $4.7 trillion of spending on digital transformation yielded only 19% of customers reporting significant improvement in the experiences they encountered with companies. Another study of digital transformation in global banking found that the most aggressive digital banks focused primarily on cost-cutting. This did improve profitability, but it’s unlikely to make customers more loyal or satisfied.
Many established businesses are concerned about the entry of tech startups into their industries. While new companies may have streamlined internal processes, what usually makes them attractive to customers is their customer experience. If established companies are pursuing digital transformation in order to repel new tech-intensive entrants, their digital innovations need to be focused on applications that are visible and beneficial to customers. This means not only internal customer-oriented processes but also the creation of new digital product and service offerings for customers.
Internal customer-focused transformation begins by focusing on viewing the business from the outside-in — that is, from the customer’s point of view. The ability to do this has changed hugely in the past two decades, largely due to the evolving body of knowledge around customer journey mapping and the critical importance of focusing on end-to-end business processes for customer value creation. Digital transformation success will revolve around customer value creation and understanding the importance of improving processes before automating them.
