Successful Digital Transformation is All About Value
In the digital era, how firms create and capture value has changed profoundly. But with digital transformation, many firms are leaving substantial value on the table, getting caught up in “doing” digital transformation rather than staying focused on how they will create and capture value with digital. To do this, first companies need to understand the three different types of digital value: value from customers (cross-selling, increased loyalty, great customer experience); value from operations (increased efficiency, modularity and reuse of components, automating processes); and value from ecosystems (leveraging partners for both access to more customers and range of products and services). With these types of value in mind, firms can then take action to create digital value by: identifying domain opportunities; building mutually-reinforcing capabilities; tracking digital value with a dashboard; recruiting digital partners; and investing in digital savviness of everyone at the firm. Companies that do this will become truly “future ready.”
A global financial services firm we worked with really seemed to get the digital message. They hired a chief digital officer who led many locally successful projects to improve the customer experience. These included making it easier to move from in-person to online for certain tasks, plus targeted offers based on customer data. They felt confident they were creating great customer value. But there was a problem. Those local innovations ended up adding more complexity to the existing fragmented business processes, systems, and data. Although the customer experience often improved — and in some cases, revenue increased — the rise in the cost-to-serve eclipsed the gains and added other risks like cybersecurity and system crashes.
In the digital era, how firms create and capture value has changed profoundly. But most aren’t keeping up. Our research shows that the average firm today is leaving an eye-opening 50% of potential digital value or more on the table, compared to leading firms.
In our experience working with global enterprises in every industry, the main reason for this seems clear: firms often get caught up in thinking about “doing” a digital transformation initiative rather than thinking concretely about how they will create and then capture value with digital. The focus should start and end with value. This means changing the way you think, operate, develop talent, keep score, organize, partner, and innovate to compete in the digital economy. We call companies that are doing this “future ready,” and the most successful among them are generating 70% or more of the potential value from their digital initiatives — significantly more than the average firm.
In helping leaders and their firms shift to a future ready mindset, a key step is recognizing three types of digital value — these types represent where and how value can be created, as well as the areas where there is a risk of leaving value on the table. We’ll use the global building materials firm CEMEX to illustrate.
This encompasses increased revenue from cross-selling and new offerings, as well as more customer stickiness and loyalty. Helping customers meet their needs, providing a great customer experience, and acting consistently and with purpose helps create value. CEMEX started their transformation by focusing on customer value. Recognizing that construction site managers are key customers with a tough job, in 2017 the firm created the CEMEX Go mobile app, a single place for those managers to get everything they need from CEMEX such as advice, pricing, ordering, and an Uber-like tracking experience for cement delivery. CEMEX Go was the breakthrough initiative for the firm, resulting in a strong increase in revenue for the channel as well as a substantially higher net promoter score.
The foundation of digital business, value from operations includes reduced cost and increased efficiency and speed.
