Friday, April 5, 2019

What Digital Transformation Really Means

Digital transformation is one of those somewhat-nebulous terms one hears all the time, where it comes to what enterprises need to do to survive and thrive in their future markets. One hears all sorts of near-platitudes about how companies must now be continuously reinventing their business processes.

The not-as-often mentioned reason for all this “digital reinvention” is that firms and industries must adapt to an era of direct-to-consumer business models that disrupt or destroy traditional distribution channels.

“Digital connections will "cut out the middleman” while “manufacturers will sell directly to customers,” Forrester Research researchers say. All of that means “changing the economics of selling, service, and fulfillment.”

In other words, the carrot is better performance in a direct-to-consumer world. The stick is business disruption and loss of markets.

The sort of typical way this is stated is that firms must create the ability to deliver easy, effective and emotional customer experiences that customers value. Many would say the winners are working from the customer’s perspective, not the organization’s view. That is almost too lyrical.

Digital transformation is much more raw; a response to more-difficult markets characterized by growing transparency of supply and prices that combine to attack profit margins.

In other words, though we often think of digital transformation as something firms need to do--and though that is an apt characterization--digital transformation speaks to the “Amazoning” or “Alibaba-ing” of virtually all markets.

“Using hardware, software, algorithms, and the internet, it's 10 times cheaper and faster to engage customers, create offerings, harness partners, and operate your business,” say researchers at Forrester Research.

Ability to create and support digital marketplaces is one angle. But It is more than widespread “online commerce.” Nor is it just the ability to create digital products and services.
“You want to be customer obsessed, not competitor obsessed,” Forrester researchers say.

All true. But what is really happening is a drastic altering of the balance of power between customers and companies.

And that means lower revenue and lower profit margins as transparency destroys pricing premiums created by consumer lack of knowledge or accessibility.

Non-efficient pricing becomes nearly impossible.

So, ignoring all the fancy clauses, firm digital transformation aims to prepare firms for a direct-to-consumer world, with all that implies for the ways services and products are created, marketed, sold and supported.

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