Over the last few years, there has been a lot of focus on Digital Transformation, which is not a new concept. In the last decade or so, the focus was on paperless offices, work place mobility, which is what I would classify as Digitization.
These days, the focus is on what we call Digitalization, which is a comprehensive transformation rather than Digitization mentioned previously. I too struggled to understand the meaning of Digitalization or the impact of Digital Transformation in any organization. The most important questions are ‘what is the ROI?’ and ‘where do we start?’.
I carefully thought over it and came with a very simple definition of digitalization:
Reaching out to your customer base with the customized products.
If you look at the definition, there are three main components of it:
· Reaching out
· Customer base
· Customized products
The diagram above, shows these three components of the digital transformation.
Reaching out - The single, most important component of digital transformation is to build an app or a website, where the customers can login and access the services. This component is so powerful that most of the organizations think that this is the only component that they need to focus on. So, when the app is launched, the companies are assumed to be digital enough. However, this is not entirely true. An app or a website is only a reflection of your existing products and processes and the desired impact of digital transformation is not achieved, if we ignore the other components.
Customer base - Let me start with an example. It was on the news, a few days ago, that the government in Hong Kong has granted digital banking licenses to 7 institutes, including some major leading retailers. The distinct advantage that these retailers have got is their customer base and their digital footprint. By knowing their customers better, they can reach out to them and do not need any brick and mortar stores to launch their business.
Even product companies, like Apple, have a huge customer base, therefore have already launched their own credit card. Amazon is next in this business.
Airlines are sitting on a huge base of customer data. The need is to understand the customer’s requirements and use that knowledge and information to increase the ancillary revenue. Airlines can generate a lot of revenue by knowing their customers. (Airlines have another problem; not every passenger that flies with an airline, joins their loyalty program. As a result of this, a valuable digital footprint is not getting captured – something that calls for more discussion)
The same goes for any loyalty card industry or retail industry.
Due to these reasons, in the diagram, data is shown as the central piece combining the different dimensions of the digital triangle.
Customized Products - Once you have gathered sufficient customer footprint, the value is generated by using this data to customize the products that your customer requires. Here I shall give an example from my personal experience. In Australia, I got more than 30% discount on my comprehensive car insurance policy, when I let the insurance company know that I use public transport to commute to work. In other words, if I do not drive to work, then my accident probability is greatly reduced. The insurance company was smart enough to customize the product for the Australian market where more than 30% of the workforce uses public transport. The percentage would be much higher if you consider the white collar work force. Similarly, health insurance companies could gather more data about their customers and customize the premium.
If you reach out to the customers with the products they are looking for, it is very likely that they will buy that product. Product customization along with digital channels has the potential to increase the revenue significantly. Amazon is the master of this game. It usually plays its cards close to the chest, but in 2006, Jeff Bezos revealed that an incredible 35% of sales were a direct result of cross-sells. That is the power of knowing your customers and customizing the products portfolio and hence a very critical part of digital transformation.
Now, if you ignore the elements ‘Customer’, ‘Products’ and ‘Data’ from the Digital Transformation summary, only the glassy outlook, without the real ROI, is left.
I have worked across different industries: Aviation, Retail, Banking, Utilities and the Public Sector. The ROI from Digital Transformation is different for every industry, and so is the investment rate in Digital Transformation. Banking and Retail industries have seen huge value generated from Digital Transformation and hence these industries are at the forefront of digital revolution. The next are the Transport, Travel, Aviation and Hotel industries, whereas, Construction, Oil and Gas sectors are playing the catch up.
Of course, there are other cultural, people and change management aspects of the digital journey, which are not part of the above discussion. This article is just about showing the value of data driven culture in the digital transformation journey.