“Digital transformation is not just about automating your processes, doing administrative discipline and making sure you are becoming more productive. There’s another piece you need to do: transformation around the interaction with your customers. By doing both, a company can be ‘future ready.’” That’s what Stephanie L. Woerner, a senior research scientist at MIT’s Sloan School of Management, told me.
Woerner, also director of MIT’s Center for Information Systems Research (CISR), is a co-author of the new book, Ready for the future: the four paths to capture digital valuealong with fellow MIT researchers Peter Weill and Ina Sebastian.
With CFOs increasingly at the center of major technology transformations, I asked Woerner to share some of the highlights from the research. The four paths include: focus on operational efficiency and solve complexity first; focus on the customer experience first and fix the complexities last; address both in iterative steps; or simply start from scratch and create a digital native business unit. All pathways, or a combination, are said to be viable when looking at financial performance.
According to the research, it is vital to communicate and create a common language for the journey so that everyone in the company understands it and uses it to describe the journey.
Companies that are “future ready” by executing digital transformation have significantly higher financial performance, with average revenue growth of 17.3 percentage points and net margins of 14 percentage points above company averages. industry, scientists at MIT CISR discovered.
Starting and ending with value
For five years, the think tank conducted research on ways to harness digital capabilities to innovate, engage and satisfy customers. The findings are based on data from more than a thousand companies, case studies and interviews. On average, it took 22 months before companies began to see measurable results from the digital transformation process, Woerner said.
If you’re buying expensive software and systems for digital transformation, he recommends monitoring how you’re capturing digital value with a dashboard:
– Value of operations. (implementation of new platforms). “Is your cost of operations going down? Do you have more operational efficiency? Is your speed to market faster?”
– customer value. (cross-selling, customer retention, and new offers) “Are you increasing customer revenue? Are you able to cross-sell better?”
– Value of your ecosystem. Attract partners and products and services from abroad. “This is where you start to track things like partnership revenue and start to assess what kind of data you see from the ecosystem.”
While they’re all important, when looking at each of the values individually, the value of customers contributed the most to revenue growth and profitability, he says.
For example, “if you can increase 10% of your value from customers [like in cross-selling] would see a 5.9% increase in revenue growth and a 4.5% increase in profitability [year over year]says Woerner. This was followed by the value of ecosystems and then the value of operations.
An example? One organization that started with customer value is the cement company CEMEX. In 2017, they created the CEMEX Go mobile app aimed at construction site managers, Woerner explained. They could get prices, orders, advice, and also the ability to track a cement delivery.
“They had 90% adoption within a year of launch,” says Woerner. “Everyone started to move away from going to the trailer at the construction site and entering things on the mainframe to doing it all on the mobile device. And this is a place where the CFO was really important because for a short period of time CEMEX had two platforms running.”
With the CFO and team looking at operational value and efficiencies, the focus shifted to reducing cost of service as it was becoming quite high, but at the same time improving the customer experience remained a priority, Woerner says. With the data, “the CEO finally said, ‘Okay, now we’re going to stop and integrate these two systems so now we have one system,’” he says. “They had to spend probably a year to 18 months doing that integration, but now they’re building on it.”
Regarding the value of the ecosystem, CEMEX has a construction materials network called Construama, based in Mexico and other Latin American countries. CEMEX launched its Construrama Online store in 2018.
‘Silos and spaghetti’
Woerner also mentioned the importance of frictionless data. But legacy systems and long-standing habits are holding some companies back. “Most companies start in a place we call ‘silos and spaghetti,’” she says. “They have a business unit silo and another business unit silo, or even product silos. For example, you can’t cross-sell if you have all these silos.”
An example? “This is something Schneider Electric found,” he explains. “They finished most of their big acquisitions in 2008. They had 198 business units and 158 ERPs. [enterprise resource planning] systems, and they had this amazingly fragmented customer experience. Someone who is going to buy from one business unit could not buy from another.” By 2018, they were down to 12 ERP systems, she says.
So did Schneider Electric take 10 years? “Yes, they were big and they had done a lot,” says Woerner. “But not all transformations take that long.”
In moving from “silos and spaghetti” to “future ready,” the company experienced “organizational explosions”, which Woerner says all organizations undertaking digital transformation will experience. The investigation uncovered four: assigning who makes the important decisions (power struggle); create new ways of working that incorporate the voice of the customer; end data silos; and restructuring.
One thing is for sure, the time and effort put into digital transformation pays off to maintain customer focus, create new revenue streams, and remain competitive.
See you tomorrow.
what a thing
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