Digitalization and Disruption in Business

Stephen DeAngelis

April 24, 2014

Lora Cecere reports, “Today, 63% of consumer manufacturing organizations have a digital path to purchase initiative.” [“Digital Path to Purchase: An Outside-In Opportunity,” Supply Chain Shaman, 12 February 2014] The fact that so manufacturers have recognized the importance of the digital path to purchase demonstrates how important the whole matter of digitalization in business has become. James Manyika, a McKinsey & Company analyst, asserts, “Every sector, whether it’s retail, financial services, shipping, manufacturing, and even agriculture, now takes inputs and uses technology to drive much of what it does.” [“Why every leader should care about digitization and disruptive innovation,” Telecom, Media, and High Tech Extranet, 2 April 2014 (registration required)] The “technology” to which Manyika refers is primarily digital technology. Deloitte analysts, Christine Cutten and Barbara Venneman, agree with that assessment. “Content and assets are increasingly digital,” they write, “with audio, video, and interactive elements — and consumed across multiple channels, including not only mobile, social, and the web, but also in store, on location, or in the field.” [“Digital Engagement,” Deloitte University Press, 21 February 2014]

Andrew McAfee, from MIT (who was interviewed along with Manyika), claims, “By now we’re all familiar with digitized text, digitized audio, and digital video. One of the profoundly interesting and important things going on these days is that lots of other information is being digitized. Our social interactions are being digitized, largely thanks to all the different social networks and social media that we have. The attributes of the physical world are being digitized, thanks to all of these sensors that we have for pressure, temperature, force, stress, strain, you name it. Our whereabouts are being digitized, thanks to GPS systems and smartphones.” In other words, digitalization could well be the most important trend shaping today’s (and tomorrow’s) business landscape. McAfee and Manyika, along with many other analysts, see this as a disruptive trend that could upend businesses that fail to comprehend how digitalization is changing their world and fail to adjust to these new conditions. Cutten and Venneman add:

“Digital is at the heart of business — reshaping customer interaction, rewiring how work gets done, and potentially rewriting the nature of competition in some markets. Today’s digital technologies include mobile, social, and the web, but wearables and the Internet of Things could dramatically expand the definition in the years ahead. The underlying intent is simple: using technology to design more compelling, personally relevant, engrossing experiences that lead to lasting, productive relationships, higher levels of satisfaction, and new sources of revenue. Driving digital engagement.”

Another group of McKinsey analysts, Venkat Atluri, Satya Rao, and Shekhar Varanasi, provide additional evidence for how digital devices are changing the world in which we live. “Now established as a successful example of technology that has changed the way people interact with the world,” they write, “the smartphone continues to push the boundaries of personal connectivity by fast becoming a hub for an array of rapidly evolving and equally intelligent ‘adjacent’ devices with specific, enhanced utilities.” [“Beyond smartphones: Assessing adjacent devices,” Telecom, Media, and High Tech Extranet, 26 March 2014 (registration required)] If your company wants to do business in emerging market countries, having a mobile strategy is an imperative since most developing countries have leapfrogged landline communications in favor of cellular technologies.

One of the more interesting points made by Manyika is that business executives need to broaden their thinking when it comes digitization to include more than just electronic devices. “We also have other forms of digitization,” he states. “Physical products and goods continue to be quite physical but are coming wrapped in data. Think about your container on a ship that’s tagged, and it turns out that even the actuarial models for how the tracking of that is valued and insurance contracts are constructed is different whether the thing is tagged and tracked versus not.” By now it should be quite obvious that creating a digitalization strategy for a business is far more complicated than it might first appear. That begs the question: Where should you begin? Cutten and Venneman believe the best place to start is with sales and marketing.

“Tapping digital channels to advertise, market, sell, and provide customer care is far from new terrain for many companies. Early efforts have focused on coverage and consistency: Do I have a digital presence where my customers are spending time? Do the various channels provide consistent information, services, and brand experience? Even as some companies struggle with these foundational elements, customers expect new levels of digital engagement. Today’s markets demand intimacy and synchronization across channels — providing seamless, personalized experiences to customers who are time-, place-, and context-aware. Customers want to be able to connect via mobile, web, call centers, kiosks, and emerging technologies–and they expect the experience to pick up where the last interaction left off. Second-screening (providing synchronized, complementary content simultaneously across two channels) has gained popularity in media and entertainment, with other industries following suit. And it doesn’t stop with digital. Sometimes dubbed omnichannel, digital engagement also looks to connect the digital experience with physical interactions — in-store, on-site, and via customer and field service personnel.”

Although I agree that having a strategy for a customer’s digital path to purchase is extremely important, it’s difficult to have a seamless omnichannel strategy if a back office digitalization strategy isn’t already in place. Omnichannel operations add a lot of complexity to supply chain operations and the more information you have about where inventories are located and how different channels can help satisfy order fulfillment the better off you are. McKinsey analysts, Nicolo Galante, Eric Hazan and Pierre Pont, agree, “Channel management is a complex proposition.” [“The multichannel journey: Profitably shaping the path to purchase,” Telecom, Media, and High Tech Extranet, 20 November 2013 (registration required)] They continue:

“Multiple messages and offers are directed to a single customer via multiple channels in an attempt to cross-sell. These attempts, however, are often undermined because the messages and offers are not coordinated, leading to inconsistent, if not contradictory, communications and less-than-seamless interactions across the [Consumer Decision Journey]. Retailers are beginning to leverage the power of their Web sites as a central repository to ensure that each customer interaction through each channel is informed by every other customer interaction. When every channel owner knows precisely how a customer has used other channels – e.g., a salesperson at a store is fully aware of what product questions a customer asked through the Web site’s live chat feature or what their past online/offline purchases were – they can better align their scripts, offers, and recommendations with the customer’s actual histories and experiences toward a more effective sales attempt.”

Cutten and Venneman admit, “The implications of digital engagement are even more interesting when you look beyond sales and marketing.” They add, “There is tremendous opportunity to apply digital engagement principles within the enterprise to reengineer how your own employees interact, work, and grow. The same digital backbone put in place for external stakeholders can be used to drive internal engagement across almost every process and domain.” Cecere believes that digitalization strategies should be designed with the consumer in mind. She explains, “Supply chain leaders need to partner with commercial teams to drive a market-driven, not a marketing-driven, response. The key is listening, sensing and adapting to market signals with little latency. This cannot happen with the old inside-out processes. Use these new initiatives to build innovation at the edge and test new forms of analytics and use new forms of data.”

McAfee concludes, “I foresee a big change coming in the way the very best organizations are making some of their key judgments, forecasts, predictions, decisions. The tough transition is going to be getting the people and the alleged experts out of the way, and teaching them to be a lot more humble and a lot more data driven. The other very big change that’s coming is the fact that we have access — again via technology, networks, and very powerful devices — to a worldwide body of knowledge and talent and skill.” Successful companies are going to embrace the disruptions caused by technologies and take advantage of emerging opportunities by developing effective digitalization strategies.