5 Disruptions to Marketing, Part 1: Digital Transformation (2018 Update)

5_disruptions_2018_digital_transformation

At the end of last year, Scott Brinker wrote a series on 5 disruptions to marketing. This is his article. Thank you Scott!

I wanted to look beyond the typical kind of prediction posts that we are inundated with at holiday season to scope out the larger changes underway over the next 3-5 years:

  1. Digital transformation redefines “marketing” beyond the marketing department.
  2. Microservices & APIs (and open source) form the fabric of marketing infrastructure.
  3. Vertical competition presents a greater strategic threat than horizontal competition.
  4. AR, MR, VR, IoT, wearables, conversational interfaces, etc. give us digital everything.
  5. Artificial intelligence multiplies the operational complexity of marketing & business.

Now that we’re one year along this journey, let’s revisit how those trends are progressing and consider what we’re likely to see with them in the year ahead. These aren’t “predictions,” but rather “updates” on the big multi-year themes that are reshaping marketing as we know it.

As with last year’s series, I’ll break this up into five parts for easier digestion.

1. DIGITAL TRANSFORMATION (2018 Update)

Total Customer Experience: Marketing + Sales + Customer Service + Product

The essence of digital transformation is that marketing, sales, service — and most of all — product are all being entwined together under the banner of “customer experience.”

Naturally, that makes sense from the customer’s point-of-view. How much delight or disgust do customers feel across the entire spectrum of engagements they have with your company, from the very first touchpoint onward?

Their whole end-to-end experience is the product.

The five things that make this transformational are:

  1. All of these touchpoints are either digital or digitally-supported.
  2. Orchestrating these touchpoints is inherently a cross-organizational mission.
  3. Marketing is increasingly at the center of that orchestration.
  4. Marketing is embedded in the product (and, vice versa, product in the marketing).
  5. The resulting end-to-end experience for customers is how smart companies are disrupting their competitors — e.g., Uber isn’t the car ride, it’s the whole seamless experience.

A report produced a couple of months ago by the CMO Council asked CMOs to identify one — and importantly, only one — top mandate that they had for the year ahead. As shown in the chart below, 67% reported a cross-organizational mandate on growth and/or customer experience.

Marketing's Top Mandate for 2018

Of course, it’s one thing to talk about customer experience, another to actually effect it.

But as Barry Levine wrote on MarTech Today a couple months ago, “At our most recent MarTech Conference, there seemed to be a transformation percolating throughout the sessions and presentations. After several false starts in previous years, it seemed to me that ‘marketing’ is now clearly becoming something bigger.”

In many ways, marketing is looking, sounding and feeling less like its traditional role of “demand generation” and more like “experience management.” — Barry Levine

Aetna: Customer Experience as Marketing

David Edelman, CMO of Aetna, emphasized in his keynote at MarTech how marketing was now deeply engaged in helping to shape customer experience — including pioneering mobile and wearable touchpoints that innovate the very nature of the relationship between the company and its customers.

Successful marketing-led customer experience projects and programs shared by other speakers at MarTech included:

  • Keurig Green Mountain, launching connected coffee machines that enable a whole new kind of digitally-augmented customer experience with their products
  • Staples, using marketing analytics to map and improve steps across the customer journey that spanned traditionally separate teams within the firm
  • Dr. Martens, implementing omni-channel personalization seamlessly across email, their e-commerce site, and social media in ways that genuinely amplified their brand

And that’s just a representative sample. The thing that they all have in common: marketing is being embedded into the product/service and the end-to-end customer experience.

Last year I wondered whether marketing would continue to rise to the challenge of this scope explosion — from communications to experiences. Over the past year, I’ve been excited to see so many marketing teams embrace this opportunity in the charge of digital transformation.

Marketing as Customer Experience

But there’s another aspect of digital transformation in marketing that I’ve noticed over the past year: the changes in what marketers were actually doing. Not just shifts in their mission — i.e., delivering delightful customer experience. But shifts in what they’re building with their hands and minds to achieve that mission.

Empowered by a plethora of marketing technologies that are widely accessible to and usable by non-technical, “generalist” marketers, ordinary citizens of the marketing department have increasingly become do-it-yourself wizards in crafting digital interactions with customers, digital workflows throughout their organizations — beyond marketing, into sales, service, finance, etc. — and dynamic data dashboards, models, and reports.

I use the phrase “citizens of the marketing department” quite intentionally, because these wizard-like capabilities that marketers are acquiring align with three big IT-democratization movements:

Citizen Developers on the Rise

  • CITIZEN DEVELOPERS — who use no-code or low-code tools to create web apps, mobile apps, interactive content, bots, and other kinds of functional experiences for staff, prospects, and customers
  • CITIZEN INTEGRATORS — who use iPaaS and other workflow automation tools to create business processes on-the-fly, intelligently routing data and triggering activities across multiple teams
  • CITIZEN ANALYSTS or even CITIZEN DATA SCIENTISTS — who easily pull together business intelligence data from a variety of sources on demand, analyze it, visualize it, tease out insights, and even automate decisions around it

That’s not to say that these “citizens” have eliminated the need for “experts” wholesale. There is still plenty of work that requires professional developers, systems integrators, and data scientists. But the scope of what individual marketers can build on their own is astounding — and unprecedented.

This is digital transformation in a company’s internal ecosystem. The kind of power that would have taken teams of experts and weeks of work to implement an idea even just 5 years ago is now in the hands of individual citizen marketers to instantiate almost immediately.

And as marketing technology continues to race forward, their power to create only grows.

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The Transformation of Selling: How Digital Enables Seamless Selling

A preview of new, very cogent, research from Altimeter, a Prophet Company. One of my top 10 digital content and thought leadership inspiration sources.

EXECUTIVE SUMMARY

While “social selling” is a key idea that has emerged over the past few years,  it is clear that something larger is afoot. Keeping up with fast-moving and  well-informed customers requires sales departments to focus less on the hard  sell and more on adding value to the experience and relationship via digital  channels. Moreover, selling must become seamless, bridging traditional  department silos like Marketing, Sales, and Service to meet customers  wherever they may engage an organization.

This report examines the transformation of selling in complex transactions,  such as those typically done in business-to-business (B2B) sales or high-  consideration consumer sales. Three types of transitions drive the digital  transformation process: Platform Integration, Organization, and Culture.

Notably, while digital technologies may drive the transformation, the strategic  focus for sales teams must include changing organization and culture such that  customers become the core of the selling process.

INTEGRATION OF DATA, INSIGHTS, AND CONTENT PLATFORMS LAYS THE FOUNDATION.

Digital Transformation of Sales 3 Transitions

On the surface, integration appears to revolve around technology platforms. But Jerome  Thiebaud, Director of Global Digital Workplace Marketing at Avanade, pointed out a subtle  difference, saying, “It’s not because you have technology that you are going to be successful  in the marketplace. It’s because you have technology that allows you to focus more on the  customer, and on the human interaction.” Most companies have an overabundance of  technology but lack the integration between those platforms to keep customers at the center.

Maureen Blandford, CMO of Software Improvement Group, affirms, “Integration is the  new black. We’re trying to build as small a technology stack as possible, with optimal  integration.” Here are some of the top integration efforts organizations should prioritize to  transform selling.

PUT THE POWER OF DIGITAL DATA AND CONTENT IN THE HANDS OF EMPLOYEES TO ENGAGE PARTNERS AND CLIENTS.

At the most basic level, digitizing Sales means more than getting them equipment and loading them up with software and content — it’s about making sure that these enabling  technologies are tuned to drive better engagement with customers. At CBRE,  one of

the world’s largest commercial real estate firms, a key goal was to enable salespeople  to demonstrate their deep understanding of their clients’ businesses by using digital  to establish and scale thought leadership and thus trust. CBRE took all of the paper  materials its salespeople used to hand out to clients and put them on iPads. They built  a proprietary iOS app called Engaged, enabling corporate, 400 local offices and 75,000  employees to quickly access relevant assets digitally. The app enables salespeople to  add interactive and engaging content, like video, to their presentations and pitches on

the fly, without having to go back to IT for help. At the same time, CBRE recognized that  social media was becoming a more important force.

“If you’re looking for [real estate] space, you’re not going to be looking on Twitter,”  acknowledges CBRE’s Trey Tubbs. “But our clients, prospective clients, and people in our  industry follow us on social media. An article will go out and be well-received by people  we never expected to be interested.”

LEVERAGE EXISTING TOOLS RATHER THAN SEEKING OUT NEW ONES.

Rather than try to select, install, and adopt a new technology, sometimes it’s faster and easier to tap an established one and modify existing processes instead.

At Intel, the Marketing group leveraged the  existing Brand IQ platform, rather than create a new tool, to create a content aggregator,  which became a one-stop shop for anyone to post and share content. Different Sales  roles would share different types of content that they found helpful.

Danielle Miller, Global Social Business Strategist and Manager at Intel, recalls, “We  were finding that everybody likes the bright shiny tool. ‘Let’s just get a tool!’ But there  needs to be recognition that we look at the internal processes so that it serves as a  solid foundation for the future, because we knew there was a limit to how many tools a  salesperson can manage.”

DISTRIBUTE  CUSTOMER DATA AND LISTENING THROUGHOUT THE ORGANIZATION. DATA IS A GREAT WAY TO OPEN WINDOWS BETWEEN SILOS.

Selling transformation silos

The avowed goal of many digital transformation efforts is to have a perfect, 360-degree view of everything a customer does, on and off your site. The reality is that this will take years, and you can’t afford to wait. Several  organizations we spoke with described how they took a first basic step of integrating  operational and social media data about customers into their CRM profiles.

At thyssenkrupp Elevator Asia Pacific, digital was the way to open windows between the  silos, enabling the organization to look at its customers through the same customer data  lens. The company has diverse customers ranging from sophisticated building managers  in Singapore to first time developers in China, altogether using 250,000 elevators,  escalators, and moving walkways throughout Asia Pacific. The first step was to put all  sales brochures and materials on tablets so that relevant assets were easy for teams to  access and for Marketing to update. In addition, the tablets gave thyssenkrupp’s teams  direct access to data on equipment breakdowns and on how quickly service issues were  addressed. They could then create customer-specific presentations to demonstrate the  value of their products and services.

Similarly, thyssenkrupp sources data from social listening that identifies problems at  customer sites before they become major problems. That data flows into various CRM  systems and can proactively trigger a visit by thyssenkrupp to the customer.

“We’re generating leads from what we can observe in the public social space,” explained  Kelly Truax, VP of Service Support at thyssenkrupp Elevator Asia Pacific. “We have full-  time people in place who monitor social channels, looking for our competitors’ unhappy  customers, but also watching out for any of our own customers who may need assistance  before they approach us.”

TAP INTO ANALYTICS AND ARTIFICIAL INTELLIGENCE TO IMPROVE CONTENT CREATION AND ENGAGEMENT.

Given the rising digital sophistication of buyers, Marketing can’t get away with creating “one-size-fits-all” collateral anymore. The problem with most content isn’t that there isn’t enough, but rather that there’s too much of the wrong kind. A study  by Docurated found that a third of a sales rep’s time is spent searching for or creating  content — time that could have been spent engaging in sales conversations. To address  this, organizations are using marketing technology to support the content needs of  salespeople. For example, Dun & Bradstreet uses digital intelligence to perform lookalike  modeling that identifies the next best action and then programmatically creates and  delivers relevant content — either to the salesperson or directly to the customer. On  larger accounts, Marketing works closely with Sales to deploy the right set of tactics —  such as  architecting workshops, creating custom content, or designing events.

Machine learning can also provide context, discerning and anticipating what customers  are looking for. IBM uses artificial intelligence to answer basic questions or offer free trials  based on interactions with customers. When the conversation gets to the point where the  customer is using buying language or asking deep technical questions, the program will  engage the appropriate sales or technical rep.

“A tool like this can nurture thousands of prospects all at once who are all driving towards  the same goal,” explains Jeannette Browning, worldwide manager of IBM Watson’s  Digital Client Cognitive Evangelism team. “It’s an interesting combination of tech support  and learning, while providing key digital assets.” Machines will become smart enough to be able to interact with humans — and also realize when it’s necessary for a human to  take over and enact the “escalate to human” sub-routine.

A complete 10 page report overview can be found on SlideShare.

Thank you Charlene Li, Altimeter.

What Digital Business Key Performance Indicators (KPIs) are you using?

Digital business key performance indicators (KPIs) designed to assess the progress of digital transformation are still not widely used or universally understood — it’s a key critical success factor essential to continued investment. These metrics and analytics should stand alone initially but always tied to the overall corporate strategic initiatives.

what_is_chief_digital_officer-100340171-orig

How would you describe your transformation progress? What set of relevant KPIs specific to the digital business transformation effort are your guidance?

With most enterprises already using a robust set of enterprise KPIs to measure the performance of their business, it may seem superfluous to create yet another set of KPIs. However, as with any large transformation or project, it is helpful to temporarily create transitional KPIs for the duration of the digital business effort. In Digital Business KPIs: Defining and Measuring Success, research firm Gartner sets out to look at how enterprise CEOs, chief digital officers and CIOs must move beyond the transformation stage and set metrics and goals that lay out a true digital business journey. In fact, according to Gartner, CEOs, chief digital officers (CDOs) and CIOs must:

Move beyond the transformation stage and set metrics and goals that lay out the digital business journey.

My experience validates the need to work closely from the outset with each senior business unit executive to quantify the potential economic benefits of digitalization.

Use startup-style metrics for new ventures, acquisitions and business models.

Curated from http://www.consultparagon.com

From McKinsey: The seven decisions that matter in a digital transformation: A CEO’s guide to reinvention

The seven decisions that matter in a digital transformation: A CEO’s guide to reinvention – http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/the-seven-decisions-that-matter-in-a-digital-transformation

A successful digital transformation requires making trade-off decisions. Here’s how successful CEOs guide their business’s reinvention.

 

Being the CEO of a large company facing digital disruption can seem like being a gambler at a roulette table. You know you need to place bets to win, but you have no idea where to put your chips.

Of course, digital transformations aren’t games of chance. But they do require big and bold commitments in the midst of uncertainty to reinvent the business rather than just improve it.

Many of the digital initiatives large incumbents have already tried to date have tended to operate at the margins of the business. Innovation labs or apps can be useful for learning and can even provide a boost to the company. Meanwhile, the legacy business remains in place, largely unperturbed.

Without a transformation of the core—the value proposition, people, processes, and technologies that are the lifeblood of the business—any digital initiative is likely to be a short-term fix. The legacy organization will inevitably exert a gravitational pull that drives a reversion to established practices. Reinvention of a business is, by its nature, bold. But it’s one thing to be bold; it’s another to be thoughtfully bold. A digital reinvention requires the CEO to make tough decisions, which involve hard trade-offs that it is tempting to ignore, defer, or rush into. Yet knowing which decisions to prioritize and how to implement them can make the difference between a successful transformation effort and one that struggles.

These decisions occur in the four phases of a successful digital transformation program:

  • Discovering the ambition for the business based on where value is migrating
  • Designing a transformation program that targets profitable customer journeys
  • Delivering the change through an ecosystem of partners
  • De-risking the transformation process to maximize the chances of success

In each of these areas, the CEO has a lot of things to do, from modeling new behavior to driving a change in culture to executing strategy.1 1. Carolyn B. Aiken and Scott P. Keller, “The CEO’s role in leading transformation,” February 2007, is a seminal piece on transformations. The points made in it remain true in the digital age. But this article focuses on some of the big decisions CEOs need to make, and how they can go about making them. Based on our experience with dozens of digital transformations, we believe these seven decisions are the most important ones.

DISCOVER—Set the ambition for the business.

Decision 1: Where the business should go

Few decisions are more momentous than choosing the business direction. While the almost existential nature of this decision can seem overwhelming, most incumbents don’t have a choice, since they are already facing disruptions that can threaten their long-term viability.

Data and analysis, as well as a disciplined framework for thinking through options, provide a helpful structure for making the decision. As a starting point, we recommend a thoughtful review of the market and business based on those stalwarts of economic analysis, supply and demand.2 2. Angus Dawson, Martin Hirt, and Jay Scanlan, “Economic essentials of digital strategy,” McKinsey Quarterly, March 2016. It’s important that any analysis be dynamic and forward-looking, based on an understanding of how digital technology could lead to changes in the future.

Almost every notable digital innovation we’ve seen has been based on using connectivity and data to transform the customer experience or to reshape products and services by allowing customers to interact with them in new ways. So that’s a good basis for thinking through the possibilities. Incumbents can also look to approaches used by digital innovators—both within and outside their sectors—to spur fresh thinking.3 3. Angus Dawson, Martin Hirt, and Jay Scanlan, “Economic essentials of digital strategy,” McKinsey Quarterly, March 2016. Innovators have used a range of approaches, including rethinking the nature of customer demand, tapping into previously underutilized sources of supply, launching wholly new value propositions based on reimagined business systems, or leveraging new digital platforms.

While analysis is crucial, it is no substitute for imagination. C. S. Lewis called imagination “the organ of meaning,” and CEOs need to tap into it. One approach might be to imagine how the industry would work if it were completely digitized.4 4. Chris Bradley and Clayton O’Toole, “An incumbent’s guide to digital disruption,” McKinsey Quarterly, May 2016, offers a structured framework for analyzing the potential impact of digital technologies on an industry. Often, a creative leap is needed to identify how the firm might serve customers in new ways across their entire journey. We have found 24-hour hackathons with senior leaders to be a very effective way to break through old thinking and encourage executives to adopt completely new ways of doing things.5 5. Ferry Grijpink, Alan Lau, and Javier Vara, “Demystifying the hackathon,” October 2015.

GE is an example of an incumbent that envisioned how its industry would evolve and acted in response. CEO Jeff Immelt noted that “15 percent or 20 percent of the S&P 500 valuation is consumer Internet stocks that didn’t exist 15 or 20 years ago. The consumer companies got none of that … If you look out 10 or 15 years … that same value is going to be created in the industrial Internet.”6 6. Interview: “GE’s Jeff Immelt on digitizing in the industrial space,” October 2015. Based on this insight, GE launched GE Digital, a software and analytics group that works closely with all the company’s business units, and Predix, a branded digital platform that invites developers to build new applications using GE data.

DESIGN—Create a plan for the digital transformation.

Decision 2: Who will lead the effort

A program that will deliver the needed degree of transformation is not something CEOs can delegate; they must lead the charge themselves.

Some CEOs, like Daniel Gilbert, cofounder of Quicken Loans, serve as the public face of the company’s digital-transformation program. Gilbert was the primary evangelist for Quicken’s Rocket Mortgage initiative, touting it as the “mortgage industry’s iPhone moment.”7 7. CNBC, “Get a mortgage ‘Rocket’ fast: Quicken Loans chairman,” January 2016; Matt Burns, “This could be the mortgage industry’s iPhone moment,” Techcrunch, November 2015.

CEOs, however, can’t do this on their own. Like the conductor of an orchestra, the CEO provides vision and ongoing direction. But a group of other senior leaders needs to drive the effort day-to-day. Thus a key decision for the CEO is selection of the members of the orchestra, based on the skills needed to be harmonious and effective.

One criterion for inclusion, naturally, has to be skill in and knowledge of digital. That’s why some CEOs turn to a chief digital officer (CDO). Appointing a CDO is the right answer for many companies, but it’s only part of the solution.

This decision needs to extend to putting in place the right team of people to drive the change. Since digital affects almost every aspect of the business and requires an unprecedented level of coordination across the entire organization, any leadership group has to include executives from multiple functions. While it can be important to have people who are visionary and inspiring, the team will also need respected executives with a deep understanding of the mechanics of the business, as well as expertise in change management. In addition, the CEO should select leaders who embody and will forward the key values of a digital culture: customer-centricity, a collaborative mind-set, and a tolerance for risk.

This leadership team doesn’t need to be large. In fact, it can be quite small, as long as its members, and the people working with them, have the requisite skills. At Starbucks, for example, Howard Schultz had the CIO and CDO guide a decade-long digitization effort that has driven widespread adoption of mobile payments at North American stores, tightly coupled with the company’s customer-loyalty program.8 8. “How Starbucks Has Gone Digital,”Sloan Management Review, April 2013. At a European energy company, it was a COO, CMO, and CSO (chief sales officer) who led the charge.

Decision 3: How to ‘sell’ the vision to key stakeholders

Any change effort requires active communication of the vision and an explanation of why it’s necessary. For this reason, the CEO needs to decide not only what to say but also how—and how long—to communicate.

One approach is to think of the change program as a product and brand it. When Angela Ahrendts took over as CEO of Burberry, she launched a bold Art of the Trench campaign and an aggressive move into digital, which signaled her high level of ambition and rejuvenated the organization. In early 2014, Ralph Hamers, CEO of ING Group, announced his vision for the company, called Think Forward, Act Now. Its goal was to deliver a differentiating customer experience through faster innovation and better use of analytics. Late in 2016, Hamers updated the vision with Accelerating Think Forward, which focused on mobile banking.9 9. “ING strategy update: Accelerating Think Forward,” ING Newsroom, October 3, 2016, 7:30 CET.

It’s crucial to decide when to communicate and with whom. The CEO should focus first on winning over influencers both inside and outside the company, then on propagating the change to their networks. CEOs also need to adopt a campaign mentality. This means delivering crisp and clear messages, in a steady cadence, using all relevant formats and channels. It’s an influencing program, so messages need to be tailored to each audience—from employees to the board to shareholders.

A bold, long-term orientation, well communicated to all key stakeholders, can be a crucial counterbalance against pressures to hit short-term financial targets once the transformation program begins.

Decision 4: Where to position the firm within the digital ecosystem

New companies are able to challenge established businesses because an ecosystem of relatively cheap and plentiful resources—from technologies to platforms to vendors—is in place. This has been a boon to disruptive attackers, but the same resources can be used by incumbents, too.

CEOs need to figure out which capabilities, skills, and technologies available in the ecosystem complement and support their business’s strategic ambitions. How much to rely on these relationships and how to structure them, are also crucial decisions. Making them requires a clear sense of how to secure the company’s most valuable assets, such as relationships with customers or data.

Michael Busch, the CEO of Thalia, Germany’s leading bookstore, systematically evaluated the entire supply chain before launching his company’s digital book offering. He created a network of alliances with other book retailers and partnered with Deutsche Telekom, which provided the technology and digital distribution backbone. He did not, however, make any agreements that separated Thalia from its customers, which it saw as its core value.

Over the past decade, BBVA Compass, a Spanish bank with a growing global presence, has aggressively remade itself into a digital organization.10 10. “Francisco González on reinventing finance in the digital age,” Wired UK, July 2015. In 2016, it launched an API marketplace, which allows fintech start-ups to build apps that interface with BBVA’s back-end systems. This arrangement channels the energy and creativity of entrepreneurs while ensuring that BBVA retains a leadership position within the ecosystem.

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The case for digital reinvention Read the article

Decision 5: How to decide during the transformation

As boxer Mike Tyson once said, echoing Joe Louis, “Everyone has a plan ’til they get punched in the mouth.”11 11. http://www.mightyfighter.com/top-30-greatest-mike-tyson-quotes/ No matter how well a transformation effort is designed, there will be surprises and unforeseen developments. To deal with this reality, the CEO and top team need to decide on governance and escalation rules to allow for inevitable course corrections.

Frequent check-ins—at least weekly—with senior leaders should be planned to gauge whether the digitization effort is on course and institute changes if it is not. That sounds like a lot, but devoting even one hour a week to a program that transforms the company is just 1 to 2 percent of a CEO’s time. The challenge is to book this time and stick to it.

To support this approach, the CEO needs a dashboard developed to track progress on key initiatives that reflect the ambitions of the transformation. A digital transformation is a long-term effort, and as a result, yardsticks that focus on the short term, like ROI, can be misleading. Nontraditional metrics that evaluate digital adoption, such as new registrations on digital channels or digital-engagement levels, are better gauges of the progress of a digital transformation.12 12. Karel Dörner and Jürgen Meffert, “Nine questions to help you get your digital transformation right,” October 2015.

DELIVER—Execute the transformation plan, allowing for ongoing adaptation and adjustment.

Decision 6: How to allocate funds rapidly and dynamically

The key lever CEOs and senior teams have to drive a digital transformation is resource allocation. This isn’t just about making sure resources get to the right places, a decision CEOs already make as part of their everyday work. With a digital transformation, the CEO needs to decide what the allocation process should be and at what tempo it should operate.

Our research shows that raising a company’s Digital Quotient, or DQ®, requires targeted allocation of both capital and operating expenditures.13 13. Tanguy Catlin, Jay Scanlan, and Paul Willmott, “Raising your Digital Quotient,”McKinsey Quarterly, June 2015. The CEO and top team should act like venture capitalists by following a digital initiative’s progress closely, pulling the plug for projects that lag expectations, and investing more in those that do well.

This requires speeding up budgeting processes, which at large companies tend to follow annual cycles. During a digital transformation, budgeting should shift from annual to quarterly or even monthly cycles.

Succeeding with a digital transformation often requires cutting budgets for legacy operations. In the midst of its transformation effort, a large bank realized that even after making massive investments in digital, branches still accounted for 90 percent of its operating expenses—and that 70 to 80 percent of the transactions done in branches could be executed digitally. In response, they shifted almost all future capital spending to digital, closed a number of branches, and launched a program to migrate customers who relied on branches for routine services to ATMs or web/mobile channels.

DE-RISK—Increase the transformation’s prospects for success.

Decision 7: What to do when

More than 70 percent of transformation programs fail.14 14. “How to beat the transformation odds,” April 2015. While the decisions covered in this article go a long way toward improving the odds, loss of momentum can undo even the best transformation efforts. To forestall that possibility, CEOs should carefully decide how to sequence the transformation for quick wins that yield revenue payoffs and reduce costs, gains that can then be reinvested. One e-tailer, for example, unlocked $300 million in just five months by prioritizing initiatives with the fastest payback. That turned into more than $800 million within a year, thanks to momentum from the early windfall.

 

Effective sequencing requires clear criteria to evaluate the potential payoff of various parts of the transformation initiative. These should include a hard-nosed assessment of projected benefits, the time needed to capture them, dependencies, investments required, and impact on the overall transformation journey. Sequencing with an eye toward cumulative effect is also necessary, so the business builds towards a cohesive digital whole rather than a jumble of loosely affiliated programs, which can undermine the ultimate benefits of scale.


Digital is the defining challenge for today’s generation of CEOs. And the decisions they make will determine whether their businesses thrive or fade.

About the author(s)
Peter Dahlström and Driek Desmet, both based in London, and Marc Singer,based in San Francisco, are all senior partners and leaders of Digital McKinsey.