All-or-nothing approach
In 2017, Veon, an international communication service provider, launched its new digital platform – a large and highly publicized project with significant investment and the involvement of about 200 employees in the company. The goal was to create a platform that would offer a personalized experience to customers and a sales platform for business partners. However, the project failed – customer feedback was lukewarm, the project was halted, and efforts to align the organization’s operations with the app were stopped. Some of the company’s senior managers left, and many employees were laid off.
Gradual transformation approach: DDP – Discovery-Driven Planning
This failure, along with others like it, proved that the all-or-nothing approach is probably not the right one for advancing digital transformation in an organization. The preferred approach is the DDP approach: start small with relatively low investment, and progress step by step, continuously learning and implementing what is learned.
There is no doubt that there must be a clear vision of where you want to go, but you need to get there gradually, focusing each time on digitizing another process in the organization. While dealing with these specific projects, you learn which metrics to use to define success, which assumptions need to be changed, where to think about new business models, and who the new competitors are. It is likely that all of this will eventually lead to a change in the long-term goals set at the beginning.
For traditional companies, gradual digital transformation is preferable to the all-or-nothing approach
Companies in the digital world have completely different assumptions from traditional companies about how transactions should be conducted. Since the structures of digital companies are constantly changing, managers frequently reassess these assumptions. Direct-to-consumer companies (such as mattress company Casper, shaving company Harry’s, and eyeglasses company Warby Parker) are constantly testing and adjusting features like free shipping, product bundles, bonuses for purchasing additional items, and more. Tactics like these are not an option for companies that sell through distributors. Digital companies operate without intermediaries, which allows them to be profitable at lower prices. These are typically “lean” companies that can change direction or completely pivot with minimal damage. For such companies, even failure is not particularly costly.
In traditional companies, such changes cannot be made without incurring a significant loss in the event of failure. However, traditional companies also have many advantages. Large traditional companies can test several directions simultaneously and experiment with different processes, making it easier for them to discover which model works best.
The German company Klöckner – a traditional company that underwent gradual digital transformation
The German metal distribution company Klöckner is an example of a traditional company that underwent a gradual digital transformation process. The company’s CEO set a goal to build a comprehensive digital platform but led a process of gradually developing digital capabilities, relying on the knowledge of people who worked in the company’s core field – steel. Initially, digitization was applied to inefficient manual processes: the company built an online store, a contract portal, order processing tools, and an app for managing parts. Along the way, the company learned enough to create a broader platform where the company and customers could communicate more easily.
Another advantage traditional companies have when starting the digital transformation process is the familiarity with customers – employees know the customers, and it’s possible to leverage existing data and past transactions.
Berkshire Hathaway took a different approach to deal with competition from Amazon B2B. Instead of building a single order and sales system, the company decided to develop a decentralized platform for selling and distributing products online to businesses (B2B), Berkshire e-Supply. The company, which owns ISCAR, initially sold ISCAR products through the platform, which it marketed to distributors worldwide. Later, the platform expanded, and now distributors can sell any product, including competing ISCAR products, and end customers can receive the product directly from Berkshire e-Supply’s giant warehouses. The system was built using Signature-It eCommerce Platform, and so far, over 400 trading systems have been established globally for Berkshire e-Supply.
DDP approach in digital transformation
The DDP method in the digital transformation process focuses on reinventing the way products that the company already manufactures are sold and delivered, as well as identifying ways to create and deliver new value to customers using digital capabilities. Here are the stages of digital transformation using the DDP method:
1. Identify problems in the operational experience
In the first step, operational processes need to be examined to understand what is not working – where improvisation is needed or where more information is required, or when someone else needs to be involved? These are the areas where digitization can improve. Some processes that might be relevant:
- Post-order handling – the COVID-19 pandemic highlighted the difficulty of handling post-sales issues – without a portal where the customer can track the status of the order and shipment, communication problems can arise with service representatives, who, in the best case, worked from home.
- Order processing – In traditional companies, this process was mostly done by phone, fax, or email, requiring human intervention to enter the order into the SAP ERP system, and often necessitating follow-up communication with the customer – especially if the customer made a mistake in the order.
- Payments – The COVID-19 period further emphasized the need for digital self-service payment options for customers.
The next step is to think about how to redesign the process so that technology adds value by improving the products/services offered and making the processes better, faster, cheaper, or more accessible. Here are some processes that could serve as a good starting point for the transformation process:
- Digitizing order tracking – this is the ideal component to start with. A portal where customers can track their orders themselves does not require changes to organizational processes but provides more value to customers. Since customers want to receive updates on the status of their orders, they quickly adopt the portal, gradually getting used to digital in a non-threatening environment.
- Self-service order processing – the order tracking portal can be expanded to include browsing the product catalog and placing orders. When customers are already using the portal to track orders, it adds more value, especially when the process is personalized – accurate pricing, updated inventory, personalized catalogs, etc.
- Electronic payments in self-service – of course, if online ordering is possible, online payment should also be available.
At Best Buy, the company succeeded in redesigning its business operations to integrate digital with physical assets. In 2010, Amazon launched a price comparison app where consumers checked products in the store but ordered them online at a lower price (showrooming). This threatened to undermine the retail industry, where retailers struggled to offer competitive prices while still paying for real estate, employees, and inventory. The company changed its strategy and integrated the physical world with digital.
Renew Blue Project – Integrating physical with digital
This led to the Renew Blue project, which included 5 components: improving customer experience, changing partnership models with suppliers, investing in ecological and social initiatives, enhancing employee experience, and delivering ROI for investors. Financial goals and processes were set for each component.
To improve the employee experience, the company reinstated discounts for employees and invested more in training. To enhance customer service, the company began aligning product prices with Amazon and other e-commerce suppliers. This required significant changes in storage and supply chain. The company established a system where customers could order products online for delivery or in-store pickup. Given that about 70% of Americans live within 25 kilometers of a Best Buy store, this greatly improved the customer experience. Additionally, the company invested in in-home consultation services, where paid consultants, after training, visit customers’ homes to provide technical advice without selling anything. Over time, the company also adapted its digital operations to support this model.
The new model turned expensive real estate investment into an advantage. Brands like Apple, Samsung, and Microsoft created stores within stores in about 1,000 Best Buy locations, effectively paying rent to display their products.
2. Evaluate results and progress metrics
One of the central questions in any digital transformation is how to use data and digital capabilities to create value for users. The DDP project translates this into clear objectives.
The ROI metric, which is commonly used to measure success, does not help us understand how the project benefits customers, at least not directly. To calculate ROI, investments and returns need to be estimated, which is difficult to do early in the process. Therefore, it is necessary to define metrics that are more related to specific improvements that the digital transformation may bring. It is recommended to consolidate this information into an “From-to” table: identifying the problem, describing the solution and what it will achieve, and presenting a way to measure progress in solving the issue. Within this process, assumptions are examined and refined – a key activity under DDP. The cost of new insights and what they have saved can also be measured. Eventually, an ROI calculation can be reached.
To measure digital transformation, it is suggested to use a metric called ROTI – Return on Time Invested. To calculate it, you simply divide total revenue by the number of employees. The idea is that good technology investments should enable you to do more with less human labor.
3. Identify competition – arena, not market
Today, industry boundaries are so blurred that conventional