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Stages of Digital Transformation

Lets set the stage for discussion by presenting a model that we can use as reference. There has been attempts over the years to drive companies to focus on the customer (VOC, Focus Groups, etc,) but many existing companies have primarily seen the customer as a means to an profitable end. A few companies that had true inspirational leaders like Eastman Kodak’s founder George Eastman in the 1800s and today’s Jeff Bezo’s founder of Amazon understood that providing a simple and faster experiences to customers was the mission. “ You click the button and we do the rest” made it simple for Kodak’s customers to obtain what was valuable to them, a memory of a moment in time. This simple concept launched both companies to the top of their market. Today companies like Amazon and Netflix see that making it easier to get want you want is the way to the digital promise land. Today Eastman Kodak is gone because it was unable to remain focused on making it easier for the customer. During the digital photography revolution Kodak reverted to an internally focused mindset and lost their dominance to the simplicity and the low cost of digital photography. It’s an ironic and iconic tale for the history books given the early focus by George Eastman on the customer. To think Kodak made one of the first consumer digital images but lacked the leadership to consider what this promising new technology would mean to its customer base shows how important it is to know the customer. Today the world runs on images and Kodak is a foot note buried by the technology it created. In the new order Amazon and Netflix are examples of companies that have thought about the customer first and delivered the customer experience more easily than their competition and continue to change the world.

Here are some examples;

Netflix saves me time by eliminating useless time wasting commercials and by making it easy for me the find what I want to watch. They allow me to take entertainment with me easily on the road. Netflix eliminates the endless channel surfing and device lock down provided by the old fashion cable companies.

Amazon makes it easy for me to order anything and have it shipped to my doorstep in less than 48hrs. I can find almost anything from tractor parts to detergent. They provide what I want, when I need it, and its effortless. They also help me run my household with the Alexa digital assistant. Leveraging Alexa they have become the hub for all my home automation devices offering me a totally matrixed experience that gives me organized lists, entertainment, music, news and operates my many home automation devices from disparate companies. Amazon operates at will in all three of the transformation circles shown in the model above and honestly I am loyal to Amazon and totally impressed by their digital strategy!

In return for easy living I give companies like Amazon access to my life, tons of data and lots of money buying stuff. So far they have used their access to my life responsibility, offering me better and better services over time. As soon as they sell my information or use it in a way that is not in my best interest then I will no longer be a loyalist and 15 years of relationship will be gone in a minute. It is very important to remember that keeping the customer in mind is paramount to long term success in the digital world.

I have been using this model for over 6 years to help people interested in transformation understand the opportunity space that exists. The important part of this model is to realize that there are two distinct halves. The left-hand blue colored side illustrates that companies might begin by focusing internally on operations and driving benefits for customers through better service experiences. In this space there will be productivity gains and potentially new revenue streams from leasing and “pay per unit” selling models. It is very important for customers to have a seamless experience if you plan to be perceived as a digital leader.

The right half (greenish) portion of this model represents a shift from an internal focus towards customers in order to understand and create value for THEM across their respective value chains. Moving from an internal to a true customer perspective is the “shift” that progressive companies are making today to stay ahead of their competition as they digitally transform.

Many companies today are just getting started and so they are on the left side of this model, still selling things and maybe driving some service efficiencies with limited data sets coming back from their connected devices. Companies that are selling things should consider how device data could help save time in their service organizations. They should consider internal productivity objectives where they can save their own resources time and energy and serve their customer base better. True Digital Transformation is a long process so starting with an internal project is a much easier than trying to organize efforts that include customers and other external parties. Once some success comes to the transformation efforts internally, companies can extend that thinking to other more complex opportunities that include customers. When companies truly engage customers they will need to allocate time and energy to truly understand what their customers value.

As a simple starter example consider leasing a product as a service as a logical first step. Do this only when internal service and reliability have proven to be exceptional because reliability is table stakes. Its important to note that when a product is leased or “servitized” the manufacturer becomes its own service consumer. That’s why optimizing service first might be a good place to start!

I want to emphasize that the focus on the customer value is the major “shift” that is occurring in this digital “Age of the Customer”. This is the transformation that is really changing markets today. Companies that truly internalize this shift will be successful at using data to build brand loyalty and then be able to use data combined with that loyalty to build a long lasting partnership with their customers.

I hope you enjoy this blog and this model. I will be spending the next few sessions exploring different aspects of this model and would appreciate your perspective and input on my thinking as we all move forward in the new digital world.

Thank you for taking your valuable time to read this blog and I hope that it has provided corresponding value to your thinking.

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Selling Services Model- Explaining the Blue (Left) half of the model – Part 1 of 2

Image : Selling Thngs to Selling Services Model

This is a model I developed to visualize the opportunity space that may exist in your marketplace. The first circle represents the current state of many businesses today and the following three circles are the stages of digital transformation. Their size reflects the increasing revenue opportunities that exist as companies progress left to right in their thinking and approach to the customer and marketplace. It has been published that revenue from services will far surpass revenue from selling discrete things and margins for services are usually much higher than product margins. Digitally transforming a company may take time and energy but can yield very large future revenue streams.

The left-hand side of the model shown in blue represents internally focused opportunities that exist for most businesses today. Internally focused means that the primary focus is still inside the company and less on the customer. Internal focus has been the way many companies have seen the world for a very long time so its a good place for many companies to start their digital transformation efforts because they can visualize them more easily.

The right-hand side of the model indicated by the greenish blue colors highlights an increasing focus on the customer and less of a focus on the internal operational benefits to the company. This is the area where digital transformation will begin to bring benefits to the customers and the company simultaneously. It will be the subject of part 2 of this article.


Let’s take apart the model a little bit more;

In the first circle, is the incumbent way of doing business, the customer is the sensor, they own the device and they have to call you to get what they need resolved when something goes wrong. This is the way businesses ran in the not so distant past. Use the customer’s precious time to tell the service arm of a business what is wrong, making your customer the sensor and the communications conduit. Service folks were nice and the experience was at times pleasant but the fact is no one wants to deal with a problem. That was the norm 10 years ago, today wasting the time of your customer for this type of a process is no longer acceptable with the technology that exists at your finger tips.

The first step it to get an IoT Connection to your product and become data aware. That data awareness can be used to become better at reacting to problems and studying existing issues so that over time your service department can learn to become PROACTIVE instead of REACTIVE. Using simple data to improve service events for the customer is not a huge leap technology wise but can provide big benefits. A proactive service event that eliminates the down time for the customer or reduces the effort to resolve a problem is the first stage of the digital service evolution. It is where a lot of companies start because it’s manageable and impacts mostly internal resources and yields quick positive support from the customer base. It is the easiest way to leverage data and begin your transformation.

At this same level of maturity companies can consider shifting the selling model towards a lease or pay per use model (Servitization). This is a natural step that is still focused internally but takes advantage of data to improve visibility to the situation on the ground at the customers location and improve or extend the services offered to the customer. At this stage as an example the company can offer to take on more responsibility for the equipment (own the service) or help deliver the consumables when they are needed saving the customer time. Moving into pay per click model allows companies to take some additional revenue points by making it easier for customers to get to what they need when they need it. Customers no longer have to mange the ordering, inventory or know their consumption patterns, this can be done for them. If the customer leases the equipment in a pay per use business model then if the machine does not run then the company looses revenue and the customer is no longer the sensor or the conduit to the company. The more proactive at understanding the problems with a device the more profitable this transition step can be.

This blue half of the diagram we just examined is usually the starting position for digital transformation and companies can improve themselves internally saving both CUSTOMERS AND INTERNAL employees TIME. What internally focused companies may not see is there is another opportunity space based on focusing the data being gathered on the customer and becoming more focused on helping customers be more successful with their own operations. I will discuss this half of the model in my next blog!
( See Part 2)

The Shift to Green Pastures – The Grass Really Is Greener On the Other side! (Part 2 – Explaining the Right Half of the Diagram)

The diagram below is a progression model that describes the move from selling a thing towards selling services.

As we shift our attention from the left “blue side” of this diagram to the green side we begin to use data to better understand the customer. Jumping over the “blue line” represents a major cultural shift in perspective for a company. Any company competing in todays data driven economy must become focused on obtaining data that can enrich the customer as much as it optimizes the companies internal operations. It represents a move from merely being more proactive in dispensing customer facing services to becoming more predictive of what’s happening real time inside a device. Understanding how a device impacts the customer environment is critical at this stage. Becoming data and customer focused together enables a true loyal relationship with your customer. These changes represent a major change in self awareness for most companies and can become a big impediment to transformation success if the company culture is not on board!

As companies shift their focus product development and service have to work side by side on predicting major service issues by modeling systems and becoming more predictive. The goal should be to reach perceived zero defects in a device so that customers NEVER HAVE TO CALL for service and can experience close to 100% up time. This is a critical foundational step as devices become more commoditized over time. Innovative customer focused service solutions must become the focus of business transformation efforts and augment traditional features development. Investments need to be balanced differently between new features and enhanced services. Services will lead to better customer engagement and experiences with the devices. Developing a more intimate relationship with the customers is a critical step to being successful in these later stages of transformation. I am of the opinion that data collection should be focused on saving the customers time and should be used to make them more effective at their operations enabling faster paths to their business value. This is very different way of thinking and may pose a problem to historically rigid or strategy challenged organizations. Problem statements for digital efforts in this stage should reflect a customer perspective and priority should be given to features that would help customers perform at a higher level of quality and efficiency.

The largest opportunity space illustrated by the last transformational circle represents the final stage and a collaborative mindset. This stage reaches past the customer and includes gathering and working with other sources of data to become an integral part of an customer facing eco system. Matrix offerings are offerings that fully support and enable the data driven customer environment which is a larger view of the customer and includes adjacent opportunities to a companies current market. In this stage the true market leaders will learn to integrate disparate data sources and work within the marketplace to bring together information that helps the customers succeed at their most complicated enterprise business or personal objectives. This space will take time to evolve and for me its the most difficult and less obvious of the three opportunity spaces. I see consolidators of data emerging today but those players will have difficulty getting cooperation from the current players who desire to own their data. As an example there are data aggregators for social media feeds that have emerged and can provide company specific information that can be used with internal data to get a better view of the customer. In financial markets data aggregators pull together data on clients and provided insights into customer profiles for larger financial institutions these examples are a start but not necessarily customer focused. To me the Amazon Echo “Alexa” functionality is better placed as helping customers with home automation. It has been exciting to watch Alexa and other voice assistants transform our personal life by becoming more and more matrixed as time goes on transforming into a “hub” for controlling many household devices. The voice assistant device started as a gadget that helped me order stuff from Amazon and get easier access to news, music and information when I wanted to. Kind a of a radio Netflix of sorts. Alexa over the last few years has become the house “hub” saving me time for just about everything from catching my shopping and todo lists, playing games and controlling all my smart stuff from almost any manufacturer you can imagine. Amazon did not forget the basics, I can easily order and re-order from Amazon and check when things will arrive. Recently another expansion is taking place and Amazon is joining with automobile companies to expand their reach. This illustrates the matrix principle. The latest car commercial feature an Alexa assistant to help with manual tasks while driving, this is a marriage of voice data, technology and “skills” to make the driving experience even richer and safer by keeping peoples hands on the wheel. I had to admit I thought about trading in my car because Alexa seems to be the hub of the future! These are all examples of “matrixed” offerings in my opinion and an indication of things to come for all devices.

Technology is advancing at a break neck pace and Block chain is another step towards matrix offerings. Block chain will change the dynamics of marketplaces as companies coordinate exchanges based on data to benefit end customer value. As company perspectives change and become focused on the customers these kinds of eco-systems will become more prevalent because customers will become less and less tolerant of lock in schemes and expect marketplace players to agree to standards to make their operations more effective. Amazon Web Services, Google and Microsoft are working hard and positioning themselves to become the data aggregators making sure all enterprises have a place to park their data to facilitate these kinds of eco-system exchanges. They have made it easy to collect, exchange, aggregate, report on and analyze data and they will be become very powerful matrix enablers for informing adaptive applications. When 5G arrives on the scene even more devices will become connected driving more and more opportunities to leverage data for matrixed offerings.


I hope these initial blog articles help to explain and position my perspectives on the stages of Digital Transformation. These are some perspectives explaining what is unfolding before us and hopefully helps you explore the possibilities that exist in your market. I would love to hear your thoughts and ideas on these stages of transformation and what they mean to you and your company. Learning and sharing is what makes connectivity so powerful and drives innovation! This is a really exciting time to be in industry and it will become an historically significant moment as the world transforms! There are a lot of moving parts so having conversation about how this will all materialize is really fun and exciting! Thank you for taking the time to read this blog and please help me learn through comments and observations. Perspectives are ones greatest teacher and I would like to hear from you.

An IoT Connection Alone Will Not Make Your Business Transform!

It’s amazing to me how many conversations on Digital Transformation confine themselves to the technology aspects of transformation alone. Technology is a driver and an enabler but the real innovation comes when companies determine how these technology elements will get applied to transform business endeavors. The markets you participate in today and have the opportunity to possibly contribute to tomorrow is the real transformation conversation. Digital is already causing disruption across industries to products, services and entire markets so how can you be sure that your investments are targeted enough to capitalize on this newly minted trend? I believe that paying close attention to these 4 areas can help businesses leverage the promise of IoT connectivity and should be the basis of any technology implementation.


Think Strategically About Markets and Your Business –Transformation enabled by the IoT will give rise to a portfolio of projects impacting many different aspects of a company. Ensure that the efforts are coordinated around a business objective and accompanying strategy to help focus and coordinate the key decisions and functions involved. Determination of appropriate investment levels by function will be critical to the overall success of the strategies. Feature and Technology development that for years led the way to market share may be giving way to services and experiences based opportunities that digital technology makes possible. Product Technology alone may no longer be the road to the customer, so the company strategy has to evolve to the next level of sophistication. Make sure the plan comes together at the top levels and that the various functional parties have alignment and awareness of each other. All functions must have an appreciation and a commitment to the business objectives at hand. Push the businesses verticals to focus on the business opportunities and let central groups like IT determine the common technology elements to avoid wasteful and endless technology preference discussions. The fundamental discussion needs to be focused on delivering the business objectives and strategy!

Here is an article I wrote for CIO Review on Product Features becoming less of an emphasis.

https://product-lifecycle-management.cioreview.com/cxoinsight/cut-versionis-technology-still-the-main-road-to-the-customer-nid-6028-cid-88.html


Look broadly at the opportunities at hand. Recognize that IoT opportunities can transform many parts of your business. IoT based transformation initiatives can improve internal operations, improve products, create new business models and enhance the customer experience when combined with products and services and market eco-systems. Take the time to explore how the availability of data can impact these various areas and invest carefully during the portfolio process. Embrace the low hanging fruit like optimizing service through remote access but reach for bigger opportunities like selling the customer operational consulting based on the data that is being collected. Don’t be afraid to do something bold. Digital is changing the world in bold ways and bold thinking may gain you a new foot hold in the digital economy.


Focus on maturing Cross Functional Team Management- Appreciate that most IoT projects cut across many functions and will require mature cross functional coordination as a critical component to success. Establish good governance and integrated Stage Gate/ AGILE processes and deliverables to make sure that people are engaged and working together across functions. An integrated methodology will help teams make well informed decisions at the project level creating success at the portfolio level. Avoid arguments that revolve around “turf” in favor of cross functional team efforts that include R&D, IT, business, process improvement and operational resources. Digital is disruptive, disrupt your internal boundaries first and reward the teams that play well together!


Break traditional silos that impact portfolio allocations – Silos depend on baseline budgeting so shake up the money tree and rethink investment balances! Investments will shift towards new opportunity spaces that enable innovations for your customers and your operations. As an example, R&D resources that may have always worked on feature development may find themselves working on analytical modeling that will help predict the failure of a component so that service can save money and customers can avoid downtime. This requires a critical shift in thinking away from pure feature development to a more balanced customer focused perspective. Many organizations will get this wrong at the beginning. Traditional silo mentality and current momentum are the enemies of digital transformation. Engage your teams and make sure all knowledge workers truly understand the opportunities that IoT and data can bring to the enterprise. Make sure investment “baselines” are challenged and ensure that funding and resources truly find their way into the IoT portfolio!


To close the promise of IoT and Digital technology is an important but secondary conversation to the broader business challenges that digital brings to the forefront in any transformation conversation. Organizational change management, strategic thinking, leadership and program management may well turn out to be the real enablers of digital success at many companies working to transform and gain the promise that connectivity makes.


What ideas do you have?


Join and contribute to my LinkedIN Group – Selling Things to Selling Services


https://www.linkedin.com/groups/8111647

Time

As a quick blog, I wanted to explain my thinking on why digital transformation should be focused on saving customers time. I have been accused of over simplifying the opportunity that digital transformation brings when I state that Digital Transformation is about saving time for the customer and nothing else. It seems to me that every successful company that is leading digital transformation has a model where saving time is the center pillar of their effort. Maybe it is just how you perceive the opportunity space. Lets explore the Netflix history. Netflix in its very early days first made it easy to get a CD/DVD and return it. I was able to watch what I wanted by ordering on-line, walking to the mailbox and popping the movie into my device. It eliminated the need to drive to the video store, look around, pick movies, drive home watching them and then worrying about late fees if I kept them too long! This major change in business model saved me time to get what I wanted, access to content. As Nextflix progressed into streaming they made sure that their streaming app was ubiquitous in all devices and simple to set up making it seamless and less time consuming to use streaming. The streaming app allowed me to consume TV shows whenever I wanted without even leaving my couch! Netfix then continued to save me time by offering me titles that I valued based on my viewing habits. They eliminated time wasting ads that I really didn’t care about that interrupt my entertainment time. Netflix has killed many competitors along the way and set the bar for streaming services. Amazon is the king of saving me time, the app makes it so easy to order everything that it saves me time running to the store, hoping to find what I need, wasting gas and my valuable time to locate an item. I know exactly when something will arrive for all kinds of items and food alike. If I need to return an item, Amazon has worked to reduce the time and energy it takes to return something. Finally on-line shopping is exploding because the average person feels comfortable with the Amazon model over going shopping. Uber as a last example saves me time to find a ride in a big city, allows me to see exactly when the car will arrive and also makes the experience much nicer than a traditional cab ride. Uber saves me time, gives me real time updates, shows me a price in advance and eliminates the stress when I pay, allowing me to not have to have cash on hand. In all these examples the key is knowing what the customer values most in a given situation and using the available information and insights available to help them save time obtaining the value. Once a trust is built, offering them better services that take less time to get to will continue to positively impact their perception of your value and drive loyalty to your brand. So in my opinion, it is all about reducing the time to value for customers and carefully understanding what they value and reducing the time and effort it takes to obtain it!

About David G. Sherburne

Having a unique technical background and leadership experience gives me the insight needed to solve pressing enterprise problems. I have deep experience in Engineering, Product Commercialization, IT Applications Development and Project Management that include both business and technology based assignments. My technology experience includes 10+ years of expertise implementing IoT platforms and leading digital transformation efforts for a medical device company. As a recognized industry thought leader I regularly chair conferences, contribute to technology publications, consult with a variety of companies, participate on industry executive leadership boards, and speak at industry events on digital technology trends that are impacting businesses today. My combination of career experiences in engineering and information technology give me the perspective to consult for any business, established or just starting up. Please feel free to contact me for consulting engagements, ad hoc phone consulting or just for an engaging conversation on technology and its impact on business.

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