Driving Business Value Through Digital Transformation

Summary

In the digital age, the way companies create and capture value for their organization has profoundly changed. However, with digital transformation, many companies leave substantial value on the table by getting dragged 'into' a digital transformation rather than staying focused on how they will create and capture value with digital. To do this, companies must first understand the three different types of digital valuation: valuation coming from customers (cross-selling, increased loyalty, exceptional customer experience); valuation coming from operations (increased efficiency, modularity and reuse of components, process automation); and valuation coming from the company's ecosystems (leveraging partners to access more customers, such as reciprocity programs, and a range of products and services). Keeping these types of valuation in mind, companies can then take the necessary steps to create digital value by identifying opportunities in their industry, developing mutually reinforcing capabilities, tracking the evolution of digital value using a dashboard and performance indicators (KPI Dashboard), recruiting digital partners, and investing in the digital competence of all company members. Companies that achieve this will be truly 'future-ready'

A global company we recently worked with seemed to really understand the digital message. They hired a digital executive who led many successful projects to enhance the customer experience. These included making it easier to switch from an in-person to an online service for certain tasks, as well as introducing a new loyalty program with targeted offers based on customer purchase data. The leaders were convinced that they were creating great added value for the customer.

However, there was a problem. The improvement of the shopping experience and the transactional platform, the core of the company's revenue operations, was postponed, which, despite the innovations, ended up adding complexity to the company's fragmented processes, systems, and data. Although the customer experience often improved - and in some cases, revenue increased - the inefficiency of the transactional system overshadowed the gains and added other risks such as cybersecurity and system failures.

In the digital age, the way companies create and capture value has profoundly changed. But most of them fail to keep up. Our extensive experience shows that the average company overlooks at least 50% of its potential digital value, if not more, compared to the market leaders in their industry.

From our experience with a portfolio of global companies from various sectors, the main reason for this situation seems obvious: companies often focus on implementing a digital transformation initiative instead of concretely thinking about how they will create and then capture value through digital technology. The emphasis must be first and foremost on valuation.

This means changing the way of thinking, operating, developing talent, measuring performance, organizing work (operational model), establishing partnerships, and innovating to be competitive in the digital economy.

We call companies that adopt this approach 'future-ready'.

According to an article published in the renowned Harvard Business Review (2022), the most successful companies generate 70% or more of the potential valuation through their digital initiatives, significantly more than the average company.

Three Types of Digital Valuation

To help leaders and their companies adopt a future-oriented mindset, a key step is to recognize three types of digital valuation — these types represent where and how value can be created, as well as areas where there is a risk of leaving value behind.

VALUE FROM CUSTOMERS

This involves increasing revenue through cross-selling and new offerings, as well as enhancing customer engagement and loyalty. Helping customers meet their needs, offering them an exceptional experience, and acting in a consistent and targeted manner contributes to creating value.

For example, a global construction company began its transformation process by focusing on customer value. Aware that site managers are key customers with demanding tasks, the company created a mobile app, a one-stop-shop where site managers can get everything they need from the company, such as advice, prices, place orders, and enjoy an Uber-like tracking experience for cement delivery. The app proved to be a breakthrough initiative for the company, leading to a significant increase in sales through this channel and a much higher customer satisfaction level (NPS or Net Promoter Score).

VALUE FROM OPERATIONS

The foundation of digital activity, the valuation of operations encompasses cost reduction and improvements in efficiency and speed. Companies can create this type of value by developing modular components, creating reusable digital components, automating processes, and becoming more accessible and agile. One of our clients focused heavily on operational efficiency and reducing the cost of its post-sale services, while continuing to improve the customer experience.

VALUE FROM THE ECOSYSTEM

This refers to revenues generated by an enterprise's ecosystem partners, as well as additional value created by customers and operations in the context of a partnership. This type of valuation is often overlooked or considered risky, but as companies move towards more digital and partnership-based models, ecosystem value becomes increasingly important and has an influence on the bottom line (EBITDA).

Almost every company can generate substantial value from ecosystems in which they rely on partners both for reach (to access more customers) and portfolio diversity (to add more products and services)

Taking Action to Create Digital Value

After clarifying the different types of value, our experience allows us to identify several key actions you can take to create digital value :

Identify opportunities in the field

This involves thinking beyond your industry sector. Digital is about imagining the future, and what you didn’t think was possible, in order to develop entirely new value propositions for your customers.

For example, Shopify enables online commerce by providing a platform with partners who support the entire customer journey, across various business sectors. Services include brand creation, online presence establishment, store setup, sales, logistics and shipping, payment processing, and day-to-day management. Shopify creates value by offering an integrated solution to meet all customer needs in the field and is now number two behind Amazon, with 10.3% of U.S. retail e-commerce sales in 2021.

To identify opportunities in the field, start by examining the end-to-end journey of your typical customer (persona), including beyond the scope of your company, and think about how you might improve it — or even own it as a unique destination by establishing partnerships to add complementary services.

Develop the required capabilities for the future

Many companies fail in trying to change their culture, often with a program dedicated to describing (or, in fact, prescribing) the future culture. This is putting the cart before the horse.

Culture is built through routines, shared values, and informal norms — the working habits of the company — not by dictates and training. It’s better to approach this type of habit change by developing future capabilities that will help your company create value from your digital initiatives, and ensuring that they reinforce each other.

For example, one of our clients integrated new systems and processes for sales execution, merchandise returns, marketing benefit payments, and customer relationship management, including a digital confirmation capability - an automatic review of inventory, transport, and other elements of the customer journey when an order is confirmed online. Complementary systems and the habits and processes associated with them allow for mutually reinforcing and accumulating learning over time.

Proceed with the prioritization of digital initiatives

The prioritization of digital initiatives is an essential first step that we have often written about, but it bears repeating — and it falls directly on the shoulders of the CEO.

Business leaders must ask themselves the following question: "Does my company have a clear roadmap of digital priorities, rather than a basket of digital projects"?

The goal of this roadmap is not just to go from point A to point B. It's about forcing the organization to prioritize three, or at most, five bold initiatives, that is, digital initiatives likely to have a significant impact on the overall performance of the organization, and to focus resources accordingly.

The most common pitfall we see in failed digital strategies is undoubtedly the tendency of leaders to greenlight all projects. However, by doing so, they run the risk that no project will reach a sufficient scale to change behaviors, mobilize the entire organization, or have a concrete impact.

Developing a tool for assessing the indicative value of projects and establishing a clear demand management process for digital initiatives are essential.

Measure the valuation generated through a dashboard

Dashboards with performance indicators can be very useful for measuring the stages of capacity creation and digital valuation along the way, as well as for encouraging the company to stay on track, since it often takes a long time for changes to be felt in the results.

Effective dashboards allow everyone to see the current state and progress made, and to make better adjustments, which helps to shift from a command-and-control model to one of support and communication.

To achieve this, the dashboard must illustrate the components and key business drivers of the company's business model and ensure the capture and tracking of financial performance for each of them.

But what is equally important is that it demonstrates how the components work together to produce higher valuation and revenue for the company — and increased value for customers, often measured in terms of appreciation of the experience and customer satisfaction (NPS).

The dashboard helps the company understand how to optimize its conversion rates in its current business model and capitalize on its growth opportunities, which will represent a significant percentage and growth vector of its annual revenue.

Recruit Digital Partners

Establishing partnerships is not the goal, but rather a means for companies ready to face future challenges to achieve their goal of creating value from their ecosystems. Digital partners can help to increase the reach and scope of a company through digital interactions or touchpoints.

Take the example of companies like Du Proprio that find new ways to meet customer needs in the sale of real estate. The company started by helping clients find a buyer, but the journey quickly expanded to other business sectors.

Integrating partners such as mortgage brokers, insurers, renovation partners, and providing many marketing services digitally as part of an integrated offer, simplifies and improves the real estate sales journey. Moreover, this allows DuProprio to derive more value from the transactions made by its clientele.

Invest in Digital Skills

Companies that excel in digital do not have a 'us versus them' or accusatory mindset between IT, digital operations, traditional operations, and the rest of the organization. Everyone aspires to digital mastery, from the board of directors to new employees. The benefits (innovation) and risks (service interruptions and cyberattacks) are a shared responsibility.

One of our clients, a global leader in its sector, decided early in its digital transformation process to encourage digital mastery throughout the company, with initiatives such as recruiting innovation ambassadors (or change agents) in each operational unit, implementing agile practices, inventorying internal digital skills, training for reskilling and upskilling employees, and promoting hands-on experiences with new technologies.

The digital wave continues, and it would be easy to be overwhelmed by the flood of transformation initiatives. But to be truly future-ready — and avoid leaving substantial sums on the table — it is important to stay focused on specific ways to create and capture digital value, and to track this value so that everyone can see it.