DIGITAL TRANSFORMATION

Digital transformation is the application of technology to radically change the way we lead our lives. Smartphones and ready access to information are great examples of such transformation. I can’t remember the last time I used a payphone, the Yellow Pages or a paper map.

At the enterprise level, digital transformation involves changes that fundamentallychange a business or how customers interact with it. Too often, however, organizations undertake digital transformation projects and emerge with, perhaps, a new web site or mobile application that provides some marginal benefits. 

Case Studies, Good and Bad

Let me review some examples that have succeeded and try to understand the themes that they have in common.

Back in the 1970s, banks started adding automated teller machines (ATMs). At first, they were limited in functionality and provided only as limited alternatives to interacting with a human teller. The banks that didn’t hop on the ATM bandwagon bragged in advertisements that they didn’t have ATMs. Implicitly, they were suggesting that interacting with a human was preferable to interacting with a machine. 30 years later, however, there are bank branches that have only ATMs. The few times that I have had to deal with human bank tellers generally involve unhappiness with standing in line, waiting for a human to assist me. ATMs have almost completely supplanted human tellers for simple bank transactions (withdrawals, deposits, transfers, etc.). Bank customers understand that humans add little value to simple transactions and prefer to perform these operations with machines. ATMs have transformed the banking industry.

A similar story has unfolded in the travel industry. Years ago, if I wanted to book an airline flight, I would call a bunch of airlines individually, figure out the best price, then call one back and book my fare. Alternatively, I could talk to a travel agent who would, essentially, do this for me. The travel agent had some tools – for example, the Sabresystem– that were not available to regular customers so could more easily find a better fare than I could find on my own. Today, of course, few people bother with travel agencies. Expedia and others made tools available to customers that allow us to search and compare fare prices without a travel agent. Travelers understand that, for simple ticketing, humans add little value and that they can perform these operations more quickly and conveniently by using travel sites.

In both of the banking and traveling cases, technology provided solutions that were more efficient and convenient than interacting with humans. ATMs and travel sites represented a digital transformation of their respective industries.

In the case of Amazon and Zappos, the pattern is similar but more surprising. Amazon started out selling books. Clearly, the ability to order and receive any book, by mail, within a few days was significantly more convenient than having to visit multiple bookstores or having to contact book publishers. Amazon, of course, did not restrict itself to books; it soon started selling everything. Initially, this was met with skepticism; who would buy something on the Internet that they hadn’t seen and touched? In the case of Zappos, skeptics would say that shoes couldn’t possibly be sold over the Internet. How would people know if they fit?

Amazon and Zappos have both succeeded in fundamentally changing their industries. Amazon has proven that customers are willing to trust customer-authored reviews and are willing to buy just about anything over the Internet. If they need to “touch” a product before buying it, they’ll do this at their local store but will then place the order online (sometimes, while standing in the local store!). Zappos has demonstrated that even shoes can be sold on the Internet if you provide good service, a large selection and generous product return policies. Both companies have demonstrated that the value provided by “brick and mortar” operations is more than offset by the better prices, better service and convenience of shopping on the Internet.

As a final example, let me explain the phenomenon that’s driving the success of Uber and Airbnb. Both of these services have been the targets of complaints by established interests in their industries. Taxi operators, for example, complain that Uber drivers are not vetted by the government and might be dangerous drivers or might assault their passengers. Similarly, hotel operators protest that Airbnb hosts are not licensed to operate in the hospitality industry and may be providing unsafe or substandard services.

What is ironic to customers of Uber and Airbnb is that they prefer these companies over the traditional providers because they provide better/safer/cleaner services. If Uber and Airbnb aren’t licensed or vetted by the government, how can they provide better service? The answer is that customer reviews on Uber and Airbnb are significantly more effective than any government licensing process. Every Uber driver is aware of the importance of providing good service. Every Airbnb host knows that, without good customer reviews, no one will want to stay on their premises. Customers understand that the value provided by government licensing is more than offset by the accuracy of customer reviews, the better pricing and the better service provided by Uber and Airbnb.

In all of the cases that I’ve discussed, the key ingredient that explains how these companies have succeeded in digitally transforming their industries is that they have used technology to challenge the fundamental “value proposition” of these industries. In the case of banking and travel, the upstarts challenged the notion that humans were needed for simple operations. In the case of Internet retailing, the upstarts challenged the value provided by local brick-and-mortar operations. In the case of taxi services and hotel accommodations, the upstarts challenged the value of government licensing.

Having considered some successful digital transformations, let me discuss some that haven’t been so successful. Perhaps understanding failures is just as important as understanding successes.

The Internet has had a great impact on how both cars and houses are sold, but the impact does not qualify as a fundamental transformation. Today’s home buyers can use Zillow and other web sites to thoroughly research what homes are available for sale, to understand crime and school data for neighborhoods and to calculate how much money it will take to buy and maintain a house. At the end of the day, however, they still work with a realtor to submit an offer and buy a house. The realtor, in turn, might use PDF forms to simplify the paperwork process, but the papers being signed are still the same ones that were used before Zillow. Real estate web sites have transformed the way we find houses but not the way we buy them. Similarly, the Internet gives us a better way of researching new car models but, unless you’re buying a Tesla, at the end of the day, you’re still dealing with the same dealerships you dealt with before the Internet.

Neither the real estate nor the automotive industries have truly realized a digital transformation. Technology has improved the way these businesses operate but it has not changed them.

Tomorrow’s Case Studies

With this brief history of industries that have succeeded or failed to transform themselves, let’s consider those that have yet to try. Think about experiences that you have as a customer that have you pulling your hair out. Worse yet, consider experiences that are bad, have always been bad and everyone is resigned to them always being bad. The DMV? The doctor’s office? Your cell phone company’s customer service? When I asked you to think about bad experiences, I bet these didn’t even come to mind; they are so bad that they have escaped the realm of consideration as things that might possibly be fixed.

Why is the DMV so inefficient? More generally, why is dealing with government bureaucracies so painful? Much of it has to do with poor utilization of human resources and poor understanding of business processes. Why can’t we go online and “get a number” (and an estimate of wait time) before driving to the DMV? Why do we have to deal with humans to request our property tax records? Government bureaucracies are prime for digital transformation. “Smart cities” and “digital government” can be way more cost effective and way less frustrating for the citizenry.

The doctor’s office, too, is much like the DMV. You have an appointment at 3, you arrive there at 2:45 and spend 15 minutes answering the same questions (medications, insurance, medical history) that you answered last time. Then you sit until 3:15 or 3:30 or 4:00 until you get called. You go the examination room and get asked the same questions again (by the PA) and then you sit some more. Finally, the doctor shows up and tells you that you have a viral infection and that she can’t do anything for you. You go home and a few weeks later see that your insurance company was billed $400 or $78 or $312.

Why can’t clinics schedule appointments better? Have they tried some data analytics on their scheduling patterns? They should. When they’re running late, why can’t they text you to show up 15 minutes later? They should be able to. Why do we need to go to a clinic when we’re just trying to determine if we have a cold or a sinus infection? We shouldn’t have to. Why can’t we know what a medical procedure is going to cost before we have it? We should be able to.

Customer service in healthcare is poor because no one has ever really cared about it before. Now, however, a new class of health provider, the “accountable care organization” (ACO), is emerging. These clinics and hospitals receive preferential treatment from large employers in exchange for guaranteeing better patient service and better (“accountable”) results. If patients don’t like their services, the organization doesn’t get paid as much money. ACOs are fertile ground for digital transformation of healthcare services.

Government and healthcare are just two areas where we believe there are opportunities for digital transformation; there are many others. Hotels, cruise ships, sports arenas and theme parks are all examples of industries whose customers would benefit from a fresh look at their business processes. As to your cell phone company, sorry, some things just can’t be fixed J.

Why is Digital Transformation Difficult?

Why do some efforts succeed and others fail? I propose that the successes occur when efforts focus on new ways of achieving fundamental goals rather than simply improving on current schemes.

Ric Merrifield (with whom I worked for several years), wrote a book called Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation (ISBN: 978-0133829143). The key message of the book is understanding the difference between what a company does and how it does it is important. Too often, companies mistake the latter for the former. It would be easy to conclude that Hilton is in the business of operating hotels. It’s not. Hilton is in the business of providing people with temporary lodging; hotels are how Hilton accomplishes this. Airbnb is in the same business as Hilton but accomplishes it in a much different fashion.

To accomplish the digital transformation of a company, we have to understand what the company does and we have to envision how technology might be applied to change how it achieves its mission. It is far too easy to focus on improving the existing “hows” instead of inventing new ones. Developing a mobile app for requesting Yellow Cabs or providing electronic forms for realtors is not transformative – it is simply improving existing processes.

This “rethinking” is difficult. Humans have a tendency to settle into comfortable patterns of thinking, especially when that thinking involves our livelihoods! At a personal level, I am writing this white paper because I want to educate readers on what digital transformation means and how to achieve it. Why am I writing this long prose, however? Why not a Powerpoint document or a video or an interpretive dance? Maybe there are better ways of accomplishing my “what”.

In addition to these mental barriers, there is also the barrier of aversion to risk. Proposing radical notions is always risky. Historically, radicals have not fared too well!

How an Outside Company Can Help

Using an outside contractor to assist with digital transformation projects can be of great value. At worst, if the project is not approved, the failure can be blamed on the external scapegoats! I say this somewhat in jest while acknowledging that consultants are frequently employed to delegate risk-taking. Consultants, no matter how well integrated into a company, always maintain an independence which allows them to take greater risks and to accept a greater percentage of blame should anything go wrong.

In addition to these ulterior benefits, outside contractors bring a much more positive benefit to digital transformation projects. Outsiders have the advantage of being outsiders! An outsider is less likely to bring preconceived notions and biases when discussing changes to how a company performs its business. External consultants are in a much better place to see the big picture than company insiders who might be threatened by change or who might be acting in their own self-interests.

Consultants who have worked on digital transformation projects also bring tools and expertise to the projects. They are familiar with customer “journey mapping”, with analyzing business processes and with heat mapping potential areas of improvement. The consultants can help you with developing the vision of how a company can benefit from technology in fundamental, transformative, ways.

Finally, if the consulting company has the necessary technical skills, it can also assist with the development of prototypes and proofs-of-concept that illustrate how a company can be transformed. Digital transformation projects are often large, complicated and expensive and require high-level consideration and review in order to get approved. A consulting company with experience in large transformative projects can help to develop the proposals that get such projects approved.

Level 11

Great! You’ve gotten to the sales pitch!

Level 11 is a consulting/product development firm. Through luck and hard work, we’ve had the opportunity to work on some of the largest, most successful, digital transformation projects ever attempted. Two of these have been $1B+ projects (our portion of that was very small!).

While our initial involvement in digital transformation was to provide targeted, though essential, technology components, our recent engagements have involved us from the very start of these projects, collaborating with company management to develop the overall strategy and vision. During the course of these end-to-end engagements, we’ve developed a process for helping clients rethink their businesses. The process involves six steps:

 

In the initial stages of this process we:

  • Interview executive staff to develop insight into company’s goals and business (identifying the “what”)
  • Analyze business processes and operations to identify points of “friction”
  • Lead “ideation” meetings with both internal and external creative resources to consider new ways of achieving company goals
  • Bring in branding and design specialists to consider how the new company vision might be communicated through new branding, messaging and product design

Much of our success in these early exercises is attributable to our broad partner network. In addition to our own team, we have an extended group of companies with whom we collaborate to take on large projects. These companies focus on numerous disciplines:

  • Branding
  • Hardware development
  • Supply chain management
  • Industrial design
  • User experience/user interface design
  • Customer surveys
  • Innovative marketing

After an initial phase of research and analysis, we emerge with the “grand vision”. This vision is usually a radical rethinking of how the client achieves its goals. Frequently, it touches on every single aspect of the company and how it operates. It is often insanely ambitious, bold and downright scary. Our theory is that if it’s not scary, we didn’t do a good enough job in the developing the vision.

Without experienced help, developing the vision can be difficult; it requires a willingness to discard everything you think you know about your company. Level 11 can assist or drive this process. We can work with minimal direction or along with your stakeholders and subject matter experts to translate complex issues into compelling and tangible results. We can provide the creativity as well as help you discover your own creativity during the process of researching and analyzing your business. We have expertise in assembling and directing teams tailored to individual clients and encompassing experts from multiple disciplines including architects, branding specialists, filmmakers, UI/UX designers, graphic artists and industrial engineers. Great ideas often come from unexpected sources. We can bring you a wide variety of sources.

As hard as it is to develop the vision, however, funding it is even harder. One does not take on a digital transformation project without a) getting C-level (and, often, board-level) approval and b) expecting that someone (maybe lots of someones) will try to keep you from succeeding. Taxi drivers do not like Uber.

We believe that the best way to internally sell digital transformation projects is to demonstrate the outcome; show the CEO and board what the company can become. We believe, too, that the best way to accomplish this is by developing an “end-to-end immersive demo” – a microcosm of the company – that illustrates all of the new ideas. Some clients do this in an “innovation center”; others do it in an empty warehouse. Regardless of where it’s done, the result is the same: a laboratory where executives can observe the vision of what the company can become. 

For one of our customers with a particular extensive “rethinking” of their operations, the demonstration of the grand vision lasted three hours! In spite of the duration and detail, dozens of mid- and high-level executives sat through the demo (actually, they walked through 30+ rooms), asked detailed questions and were rapt for all three hours. We had anticipated 90%+ of their questions and clearly had done our homework. The project was approved.

Developing the living demo is not a simple or inexpensive task. In many cases, we have to develop custom hardware and software in order to make the demo sufficiently convincing. In some ways, the demo serves as a proof-of-concept, too. It shows that you know what you want to do and how to accomplish it. We recommend that the demo not be dismantled even after the project is approved. Once a project starts implementation phase, the demo can serve as a testbed for new ideas and as a staging area for new systems before they are deployed to production.

Naturally, Level 11 can help with the planning, design and development of the end-to-end demo. We work with partners to build out physical spaces, as needed, providing both demo space and work areas as well as required infrastructure. We work with creative teams to script and choreograph demos. If custom hardware is needed, we can evaluate the use of off-the-shelf equipment for prototypes or we can work with our hardware partners to develop proprietary solutions. Finally, if any software needs to be written, we can do that with our own team and we can farm out work to partner companies for any specialized code.

In developing the end-to-end demo, it is not enough to simply have the necessary skills, it is also important to be fast. If you take too long to develop the demo and to sell your transformative ideas, you will inevitably fail. The longer a digital transformation initiative takes to realize, the more time that people have to get cold feet or to grow cynical of the effort. At a more basic level, if you take too long to execute, the ideas you came up with during the analysis phase will be obsolete by the time you’re done!

Level 11 is fast. We pride ourselves in being able to quickly analyze the “hard part” of any problem and to immediately address it, up front. We call this “spiking the problem™”. We take our best architects and developers and have them quickly figure out a path through all the layers of a system in order to get basic functionality up and running in the least amount of time. We make sure that this path is sufficient to enable the features demonstrated in the end-to-end demo. 

Expect to take 2-4 months to develop the end-to-end demo. If takes less than this, there’s probably not enough “heft” in the transformative ideas. If it takes more, you’re running the risk of losing your window of opportunity.

Beyond demo development, Level 11 can, of course, also help you implement your digital transformation project. Having thought through key technical issues during development of the demonstration, we are then well positioned to developing the actual enterprise-grade solutions.

Summary

Level 11 has spent years working with the deepest thinkers, innovators and leaders in the technology world. We use techniques such as persuasive presentations and immersive, scenario-driven, prototypes to tangibly illustrate complex visions with clarity and purpose. We embrace “think tank” approaches to review literature, synthesize research, explore and ideate. We stay abreast of emerging technology, societal trends and technological innovations. We brainstorm without fixation, challenging beliefs and assumptions. We know how to bring divergent ideas into useful focus.

Digital transformation is difficult to achieve. It requires tremendous drive, courage and commitment to succeed. It is difficult to achieve transformation solely from within. Level 11 can provide an independent perspective, as well as the people and skills that are needed to rethink how a business can achieve its goals.

Chris P