Watch our on-demand webcast to explore the “outcomes-driven” approach.
When companies shift to this type of outcomes-driven approach, they can generate a focused set of digital priorities that are tied to business goals and customer needs. What does it take to do that well? We’ve identified four success factors for maximizing the value from investments in digital.
Close Gaps in the Business Strategy
For digital to effectively support business goals, the business strategy itself needs to be comprehensive and future orientated. The strategy should fully account for all the major forces reshaping an industry, including the impact of digital. Yet many strategies are incomplete. For example, when leaders at a major industrial company set out to define their digital priorities, they realized that their business strategy didn’t account for the emergence of 3rd-party digital buying platforms.
Because of this, the company didn’t have a clear perspective on whether it wanted to participate, partner, become, or ignore those new entities in the ecosystem. Once the company clarified that partnership was the right option, it could then prioritize the digital investments needed to ensure there were effective interfaces. Sharpening your business strategy enables you to confidentially define your digital priorities, ensuring the two are in lock-step.
Think More Broadly About Customer Problems You Can Solve
Digital technologies, combined with other enabling capabilities, open new ways for companies to solve customer problems. But engaging customers in new ways effectively can happen only if these initiatives are guided by deep customer insights. While industrial companies have made big strides in being customer-driven, they commonly focus on understanding their existing customers and the needs and requirements associated with the specific product they are selling. That’s fine for optimizing current products but can constrain seeing new sources of value.
For example, one B2B material company we worked with had a deep but narrow understanding of their customers. They had detailed insights into the performance requirements, trade-offs, and trends related to the product categories they supplied today.
However, to fully take advantage of digital opportunities, they needed to develop a broader understanding of their customer’s (and their customer’s customers) needs in areas not related to product features. A broader research program identified specific opportunities that were well served by digital solutions including managing inventory, dealing with supply chain reliability, and efficiently quoting to end-consumers. Companies looking to maximize the value of digital need to look beyond current insights and ensure they have fully informed perspectives on all the areas a company may need support.
Identify Business Model Dependencies
Adding digital elements to an existing business model often necessitates changes to other parts of the model. For example, moving elements of the sales and ordering processing online can require resetting the business rules for pricing, which in an analog world may be handled in an ad hoc fashion through internal conversations and exceptions.
In a rush to move quickly, companies often miss the opportunity to realize the full value of digital when they don’t account for business model interdependencies. For example, an industrial distributor we advised revamped and accelerated its digital commerce platform as it was a meaningful source of value to the customer. Initially, they didn’t see the desired ROI because they under-invested in other supporting changes. However, when the company put time and resources into supporting changes in branch operations (e.g., retraining of associates, dedicated “click and collect” protocols) and the fulfillment model (e.g., speed of delivery, lower cost options) they saw a notable uptick in the value they accrued from their digital investments. Digital can enhance a company’s overall business model, but only if it is optimized holistically.
Enable Your People and Culture
One of the most common talent challenges leaders face is whether to digitally upskill existing employees, who know the business well, with digital training or bring in new employees with deep digital experience. The answer is always a bit of both, but the optimal solution is to find key leaders who can act as boundary spanners.
Boundary spanners bring experience and perspective from both domains and can help ensure companies maximize the value from digital in their industry’s context. Because digital initiatives inevitably cut across organizational boundaries, both functional and market, the process for building and implementing needs to be collaborative. Boundary spanners can play a key role incorporating input from business unit leads who are setting strategy, functional groups like marketing, sales, and manufacturing that are executing the plan, and corporate functions that are looking for scale and efficiency opportunities across the company.
For example, the industrial distributor described above recognized that it didn’t have the requisite digital experience in their current team and needed to recruit from the outside. They found an ideal boundary spanner in someone who led the digital program for a big-box retailer in their same category. This individual had deep expertise with digital business models and solutions, but also understood their market and customers well. The new leader was able to work effectively with business unit leaders by customizing new digital solutions for the unique market circumstances.
Digital also has implications for culture. For example, automotive companies have historically measured the “refresh rate” of a vehicle in years. As vehicles become more connected and digital, the refresh rate associated with certain systems now needs to be measured in months. That has implication for process and technology, but also for the culture of innovation. Teams need to move quicker and think about continuous evolution vs. big leaps in performance, for one. They also need to think about customer insights differently because usage data on a beta might be more valuable than traditional customer research.
Culture change can be the Achilles heel of many digital transformations if it is not given the same attention as process and systems. An important starting point is defining the new behaviors your organization wants to instill as well as the specific nudges to encourage them.
Digital has the potential to transform companies and industries. But succeeding requires ensuring that the focus is on driving business outcomes and recognizing and addressing the common challenges that cause digital efforts to stall.
About the Authors
Ned Calder is a Partner at Innosight and a co-leader of the Industrials & Technology practice. firstname.lastname@example.org
Freddy Solis is an Associate Partner at Innosight. email@example.com
Anna Veatch is a Partner at Innosight. firstname.lastname@example.org
Rob Bell is a Partner at Innosight and a co-leader of the Industrials & Technology practice. email@example.com