Six Questions That Can Help Guide Digital Transformation
MIT researcher Stephanie
Woerner discusses a field-tested framework for the digital transformation of
companies.
Companies know they must
transform to appeal to the digital customer, but they still struggle to find
the best path forward, according to a book by MIT researchers Stephanie Woerner
and Peter Weill. It’s not enough to tweak management practices that worked in
the past, they note. What’s needed is a wholesale rethinking of the enterprise.
For example, a bank must
look at itself as helping clients navigate life events, instead of merely being
a place for transactions. “That small shift in thinking would mean a profound
shift in almost every aspect of the business” and would be the firm’s best bet
to fight off digital disruptors, they write. The authors offer a field-tested
framework on how companies can digitally transform, based on a years-long study
at the MIT Center for Information Systems Research.
Woerner joined the Knowledge@Wharton show to talk about the book, What’s Your Digital Business Model? Six Questions to Help
You Build the Next Generation Enterprise.
An edited transcript of the
conversation follows.
Knowledge@Wharton: What are the biggest challenges for business
leaders to be the most effective in this digital culture?
Stephanie Woerner: I think “culture” is one great word that describes
what has to happen within companies. They have to develop new ways of working,
really taking evidence into account when making decisions. Another is really
figuring out how to integrate the business. What customers are expecting is a seamless
experience, and you really can’t deliver that in the long term without using
technology to integrate silos so that you’re able to share across the business.
Externally, boundaries are more porous and leaders have to think about how
they’re going to use partners to add things that their company doesn’t have.
Knowledge@Wharton: You’ve framed this book around six questions for
companies and business leaders to consider. What are those questions?
Woerner: The first is, how strong is the digital threat or
opportunity to your business model? [It’s helpful to figure out] where do you
have competitors coming in, where are startups [and] what percentage of your
revenues are under threat.
The second is, which business model is best
for your enterprise’s future? In our book, we talk about the two dimensions
that we have found most enterprises are looking to change.
The third is, what’s your key competitive
advantage — are you going to focus on content, experience or platform? The
fourth is really thinking about technologies, especially digital technologies,
and how are you going to use mobile and the internet of things to connect and
learn? Then we talk a little bit about the crucial capabilities to reinvent the
enterprise. We have identified eight of them. Finally, do you have the
leadership at all levels to make the transformation happen?
Knowledge@Wharton: You give an example involving banks becoming places
to help people buy a home, not just to come in to get a mortgage. What happened
to make businesses think more about the customer’s needs?
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Woerner: We couldn’t do it until we had some of these
technologies in place, where you could start to think about creating an
integrated experience that also is integrated across channels, and is
integrated across your products and services. USAA (United Services Automobile
Association) was one of the early companies in thinking about these life
events. They had their members coming to them and saying, “I need to change my
auto insurance.” USAA realized they could help them buy the car, do the
financing and do the insurance, so they created that as an experience. It was
so popular that other companies started to think about how do you take these
products that you have as a company and turn them into a solution for your
customer?
Knowledge@Wharton: The digital component of a business is so important
because of our connectivity, right?
Woerner: That’s right, but I think we need to be careful in
just suggesting that a company add a digital business unit. If you just layer a
digital business unit onto the enterprise without fundamentally changing the
organization, you’re not going to succeed. There is some very complicated, deep
background work that’s got to be done to pull off these integrated products and
services.
Knowledge@Wharton: How do you change or incorporate a digital culture?
There are a lot of different skills that are needed that may not exist in a
company currently.
Woerner: What you’re talking about is this culture that’s
going to change in terms of cross-functional collaboration. There’s going to be
a lot more of it. When you’re talking about skills that you’re trying to hire
for, you’re going to have to have people who understand what digital can do for
your company. If you really look at the ways of working, we’re seeing a lot
more test-and-learn, a lot more experimentation. But you can’t just experiment.
You actually have to know how to take those experiments and then scale them up.
As we’re doing research on digital, we’re
seeing that work is changing, becoming more flexible, becoming more
evidence-based. We’re also seeing that leadership has to change because they
can’t just go with intuition. They’ve got to be willing to look at the data
that all of their operations and their people are coming up with. It’s a lot
more about communication. And there’s a really big piece about coaching because
if you’re going to iterate and learn and experiment, you have to be able to
give feedback on a continuous basis so that both people and the organization
can succeed.
Knowledge@Wharton: Some businesses have become ecosystems, which
suggests the increased merger activity that we’re seeing. Do you expect that
trend to continue? Will we see more companies try to become an ecosystem,
especially when they’re relating to their customers?
Woerner: Absolutely. We did not talk about it in this book,
but in some research that we just did, we see a fair amount of consolidation at
the ecosystem level, and I think we’re going to continue to see some more. I
don’t know where we’re going to end up. Being an ecosystem is really, really
hard. You have to have a platform. You have to have the people. You have to
have the partnerships in place. You have to know a lot about your customers.
And that’s very difficult to pull off.
We’re seeing it in banking, where banks are
trying to figure out how they offer these products and services — these
integrated solutions — for their customers. We’re talking to manufacturing companies
that are trying to figure out what they would have to add to become an
ecosystem, so I think we’re going to see more consolidation.
Retail is interesting because Amazon has got
its fingers in a lot of different types of retail. It’s hard to see what happens
there. But certainly in the companies that we’re talking to, they’re all making
an ecosystem play. In fact, we advise companies to think about if you can’t be
an ecosystem driver for the whole industry, can you be an ecosystem for your
best customers? That will at least get you some experimentation. You’ll get
some learning, then you can take those learnings and apply them to your current
business model.
Knowledge@Wharton: You mentioned retail, which is a sector where the
customer relationship has become more important than ever. Technology gives
consumers many different choices, so loyalty isn’t something they hold on to as
much as they did in the past.
Woerner: Search changes everything. Consumers, both B2B and
B2C, can easily find different options just through search. You’re right in
saying that the customer is at the focal point of a lot of these interactions,
and the technologies that have been put into place make it easier. You know
through social media what your friends are thinking. You can be connected
through mobile and the internet of things. It’s nascent, but there’s a lot of
opportunity there for different kinds of companies using sensors to create a
relationship.
Knowledge@Wharton: Businesses are always looking for an advantage over
their rivals. How has digital changed that?
Woerner: Often, they were looking for efficiencies and
cutting costs, and now they’re thinking as much about creating that
relationship with the customer and learning more about their customer. You’re
thinking about partnerships and changing your business design so that you’re
not just a value chain but more of an ecosystem. I think that digital makes
those easier. It also increases your potential for being seen globally. Those
are some of the things that we’re seeing.
Knowledge@Wharton: You focused in the book on health insurance company
Aetna. How has Aetna been able to seize the opportunities and differentiate
itself from the competition?
Woerner: We thought Aetna was fascinating because they took
a long-term approach to changing their business. When they started, they were
what we call a supplier — that’s one of our four digital business models. They
were selling their products through intermediaries to employers and had no
connection with the end-customer.
Over time, they did a couple of things. One,
they made a series of strategic acquisitions. One of them that we had so much
fun talking about in the book was iTriage, which was a mobile app that anybody
could download. You could put your symptoms in, and they could help you figure
out what was wrong. They could learn a lot about what customers were thinking
about when they would actually tap into using their insurance. At the same
time, Aetna could intervene, so they ended up with far fewer emergency room
visits.
One of the other things that they did is
looked at their APIs (application program interface). What could they
service-enable that could be used for innovation internally in creating those
integrated products and services, and how could they open up to more partners?
They didn’t open up their APIs externally to everyone, but they created a
series of partnerships so that they could begin to offer complimentary products
and services to their members that they didn’t have before. They really were
moving themselves more to an ecosystem.
What’s going to happen with the CVS
merger/acquisition, we’re not sure. We’re hoping that we can get in and talk to
them again once it’s complete. But I think it’s fascinating how you take this
big old insurance company that remakes themselves to move more into an
ecosystem, driver-type of model.
Knowledge@Wharton: What about the future of digital with respect to
policymaking? Legislation is behind the technology right now, but it is moving
to the top of the agenda.
Woerner: Policy is not my area, but I think that you’re
right. Congress may be slow, but look at what Europe is doing
with the GDPR (General Data Protection Regulation).
Every company that we’ve talked to is concerned about GDPR because any company
that has to deal with Europe is going to be affected by those regulations.
Europe is starting to set some rules into place that many companies are trying
to figure out how they’re going to follow.
One of my colleagues does research on
creepiness. Is collecting all of this data creepy? How are you using it? Do you
serve up advertising that makes your customer think, “What do they know about
me?” There are going to be some changes around data use, I think. But I don’t
know if Congress is going to be the one to do it, or if it’s going to come from
outside the country
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