Digital Transformation: Is It Just a Buzzword?

Digital transformation as seen from the outside: Transforming how you work and the products and services you deliver to be more digital. Digital transformation as experienced on the inside: Purposefully evolving your technology, talent, processes, and culture to deliver a seamless experience inside and out.

What does digital transformation look like?

Some companies seem able to see around the curve, and they make early changes that might not make total sense to the rest of us stuck here in the present, unable to peer around the bend.The Starbucks app is one such innovation of which few people saw the transformative potential.With slow initial adoption, now over one-quarter of Starbucks’ customers run orders through the app. It's one of the top digital payment platforms globally, which is insane when you think about it for even a second.When Starbucks introduced it, the app was an entirely new form of delivering a digital experience. By now, countless quick-serve restaurants have invested in replicating Starbucks' innovation.With COVID still in full swing, Starbucks can meet its customers where they are, even from six feet away. But if it weren't COVID, the rapid move to all things digital would have driven greater adoption and usage sooner or later, pandemic or no.

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How do you rate your digital transformation? Answer these questions:

1. What percentage of your services or products are sold or delivered digitally?
2. How does that measure up against the competition?
3. How does it measure up against the top dogs in parallel verticals?

The three stages of digital transformation

You might be wondering, by this point, where your organization is on the digital transformation continuum. There are three focal points of digital transformation: c

1. Core business
2. Adjacent markets and products
3. Breakthroughs.

Stage one: Optimizing your core

This stage refers to maintaining relevance by optimizing your core business and your existing markets using existing products and assets. You're shuffling deck chairs for efficiency gains, but it can have a significant impact: a 5% efficiency gain can be substantial for large companies with lots of moving parts.This stage is one that no brand ever overcomes. Even Starbucks, who made the coffee shop a staple of American life, must protect its core business. The question is really: How comfortable is a company when it turns its attention to the core of the business? The answer to that question is simple, though it might be difficult to define when you get down to particular cases. If the company is in a position to reinforce relevance proactively, they've mastered this stage (for now); if the company is cornered into reacting to regain slipping relevance, then they've been caught off guard.Just by the words being used, you can probably hear the difference between vanguard companies versus those that have a hard time keeping up.A company that's comfortable with its core business will talk about retention, securing loyalty, differentiation, and disruption. The less comfortable company will describe their in-the-moment needs in terms of declining market share, rising churn, and maintaining relevance.

Stage two: Adjacent branching

This stage refers to buying or building new technologies to better enable how you work or to improve and diversify how you deliver services and products. This stage also includes serving new markets (by age, gender, country, etc.) or introducing adjacent products (like Casper selling linens and lamps).To continue our Starbucks line of thinking, one could say that their specialty gourmet locations Starbucks Reserve in such hip havens as Portland, Austin, Los Angeles, and Brooklyn) aim to do both: branch into the competitive and persnickety world of craft coffee to gain the loyalty of younger, urban professional consumers by competing with the smaller specialty shops that are omnipresent fixtures in such places.

Stage three: Breakthrough transformation

Breakthrough transformations create totally new categories. Amazon's AWS or Kindle were entirely new business categories that many companies have tried and failed to replicate. Starbucks' app, as I mentioned earlier, paved an unbeaten path, down which so many quick-serve establishments are racing to catch up. (Meanwhile, Starbucks can comfortably look beyond where they are, which is already far ahead of the competition.) One could argue that Starbucks' app was an adjacent move, but they created an entirely new way to order, pay, and pick up that initiated a transition to digital that laid the groundwork for how they would be able to weather the storm of COVID-19. The power of their results seem much more than merely adjacent. The transformations at this stage create new business lines, unique differentiators, and new services that customers will come to rely on. It also can give companies a very tall hurdle to slip in front of their competition on the path to market dominance.If you're wondering now how to balance the three demands of the present, near-future, and distant future, let’s put a rough number to it. Though there's wide variation from company to company and vertical to vertical, most established companies should focus around 65-70% of their energy on improving the core business, 20-25% on adjacent business, and the remaining 10% on exploring avenues for and developing breakthrough innovations.

This is a lot to take in

Right you are. That's why this will not be our only article on digital transformation. On the docket, we have articles on digital transformation for enterprise businesses, interviews with and articles by modern customer marketing luminaries, and an inside look into how vanguard companies power digital transformation with data.In the meantime, some food for thought that might jumpstart your ability to throw innovative obstacles at your competition in the race to market dominance:How do you create a portfolio of initiatives to transform your marketing and experience? This would encompass being able to use all of your data, and you would need to bring that data to life through a structured portfolio of bets and initiatives to deliver the next great customer experience or next-generation marketing operation.Is your company playing mainly defense or offense? When you ponder the dream state of your company's customer experience and marketing, which stage does each piece of the puzzle fit into? What innovations are happening in other verticals that haven't been rethought to serve your target market? What pain points can you imagine customers in 2030 having that no one would think of complaining about today?Most importantly, how are you using data today to arm yourself for both defense and offense? How accessible are data and insights to your team and the rest of the company? Data is the starting point of your best defense and offense, and it’s the key to strategic, deliberate transformations across your business. To learn more about shepherding data from a cluttered data lake to utilizing it to power cutting-edge customer experiences, click here to see the revenue gains that ASOS saw after doing just that.