The good news about being in the middle of a digitization era is the plethora of new technology available that allows companies to reinvent themselves. However, the challenge about digital transformation is that it involves massive change.
MIT Sloan Senior Research Scientist Peter Weill shared his thoughts on this conundrum in a recent webinar—Six Questions for Digital Transformation—adding it’s not about the technology per se, but about the way in which we change our organizations that matters. Weill, who along with MIT colleague Stephanie Woerner, recently published an HBR Press book—What’s Your Digital Business Model? Six Questions to Help You Build the Next-Generation Enterprise—says the goal of the book was to understand how companies can thrive in the digital era. In their research, in which they analyzed more than 1,000 companies to determine what top performing companies do differently, Weill and Woerner found that organizations who have already embraced a digital transformation have enjoyed significantly higher profits than their industry averages.
In his webinar, Weill, who is also Chairman of the Center for Information Systems Research (CISR), suggests there are six questions an organization needs to ask itself to thrive in the digital era:
#1 How big is the digital threat and opportunity? Or, as Weill explains, what percent of revenue would you lose if your organization didn’t change anything in the next five years? MIT CISR recent research showed the average loss of revenue for most companies would be 28%—jumping to 46% for companies in the $7 billion-and-up revenue range. To illustrate, Weill shared an example of WeChat, a digitized social platform used frequently in China to perform daily activities (buying food, banking, travel, renting an apartment) and how it’s challenging conventional banks. Weill pointed out that these types of digitized companies are a “massive threat to the financial services industry” and could relegate the bank to be a commodity back-end service provider while WeChat and others capture the relationship with the customer.
#2 Which business model is best for your enterprise? To illustrate this question, Weill told the Aetna story. The insurance giant has made a strategic, broad shift in its business model, changing from insurance provider to a company that “helps build a healthier world.” Aetna’s goal is to create an Amazon-like experience and become a destination for its customers.
#3 What is your digital competitive advantage? Weill posits that there are three sources of competitive advantage: content (what is consumed by customer), experience (how it is packaged), and platform (how it is delivered). To discover its competitive advantage, an organization should determine if they are great—relative to all competitors—at one, two, or all three of these capabilities. Weill adds most companies that were “born” pre-digital may be great at only one of the three, and should start digitally transforming that one capability, and then tackle the other two. However, he says, some companies (say who answered 50% or above to question #1) can’t wait and need to act quickly on all three. “The more you need to be world class, the higher risk for your transformation not working. Or, the more organizational change and partnering you’ll need to do to create a competitive advantage.”
#4 How do we use the technology we have to connect all of the other technologies? Digital technology is fundamentally about connectivity—linking the customer and the company to meet more of the customer’s needs. For example, providers are battling to become the GoTo source of added value services to the home—whether it is digital lighting, cameras, locks, entertainment, environmental, or all of these together. Weill says the big question is: Who are you going to trust with your data and to help you to manage your home? The goal of these providers is to be the single GoTo entity that manages all the others.
#5 Do you have the crucial capabilities to reinvent your enterprise? Weill says this is a difficult question to answer and shares the example of DBS, a Singapore-based bank, which has made a remarkable digital transformation. By focusing on the three capabilities in question #3, DBS was able to significantly improve the customer experience and was awarded “the best bank in the world for 2018” by Global Finance magazine. “DBS is becoming digital to the core. It has automated many processes, encouraged and enabled people to innovate, and moved heavily into the cloud.” Weill says the bank’s goal is to make banking more fun for customers. DBS has made it much easier for customers to conduct business with the bank, saving more than 250 million customer hours and one million employee hours. DBS has also embraced new ways of digitally inspired thinking, including a partnership that offers banking services at cafés throughout India attracting more than 1 million customers in the first year.
#6 Do you have the leadership to make transformation happen? This is perhaps the most difficult question says Weill. As an example, he mentions BBVA, a Spanish-based bank that operates globally. By answering and acting on these six questions, the bank has made a massive digital transformation with strong results. Today, it is #1 in customer experience in its eight core markets and digital accounts for 36% of all products and services sold. Digital transformation requires a strong vision, with leadership often making hard decisions. The leaders must get the entire organization, including every person, onboard. Every employee has to play a role in the new digitally transformed enterprise. Most important, they need to feel like part of the team and believe that their contributions matter.