Archive for category: Digital Transformation

User Centricity as Driver of Digital Transformation

10 Nov
10. November 2017

Based on the nine pillars of digital transformation and the product transformation framework that I developed a while ago, I thought how to make this more operative and applicable for companies and transformation managers.

Digital transformation is not a trend or a specific phase of a company’s evolution. Much more a clear understanding of the meaning and an implementation into the company’s DNA is an essential premise to make relevant business in the future.

Since 2005, I am working in environments of permanent and ongoing transformation: Transformation from offline software to online services, transformation of digital products to the next level, transformation of business models and complete industries.

In the last three years I had the luck to be active part of a huge transformation journey that is including products, organization and brand of a German media company called WELT. At the same time the whole media industry is facing massive challenges through changes in media consumption behavior driven by free online news content, instant access via mobile devices and domination of Facebook and Google in user’s time spent. That is accelerating a need for transformation especially for those media company that are still depending on a successful, but shrinking offline business. Ten years ago online business was somehow seen as a nice add-on for the classical offline business such as newspapers. Today the challenge is how to finance a whole media organization primary with digital revenues while the revenues from offline business are under pressure.

Axel Springer is a great example how to drive radical digital change successfully without leaving the core values of their brands and organization. In 2007, below 10% of Axel Springer’s revenues came from digital businesses, in 2013, the share of digital revenues exceeded 50% for the first time. In 2016, the share of digital revenues was 67%.

It is always helpful to take a look at some of the famous US success stories. How did Netflix and Amazon Prime successfully take over the business from classical video rental shops?

First of all, online video isn’t new. YouTube started in 2005. In May 2011, already 48 hours of videos were uploaded every minute to the platform. In February 2017, this increased to 400 hours and 1 billion hours were watched every day. YouTube started as free platform for user generated content, in 2010, they begun free streaming of certain premium content. In 2013, YouTube offered the ability to charge a $0,99 subscription fee/month for channel providers. But the most video content on YouTube was and is still free and there was only a very limited amount of premium movie content available. Netflix, founded in 1997 and Lovefilms, founded in 2003 (in 2011 acquired by Amazon and later merged into Amazon Prime Video) were both starting with an online DVD rental service. Building up a large online customer base it was more a technical challenge how and when to switch the business to a video-on-demand streaming service.

The key driver of their success was the changing user behavior and user preferences combined with high-speed internet availability and “cheap” devices with the technological abilities to play streaming content. So an online streaming service was addressing a need that conventional video rental shops couldn’t serve: Easy instant access to premium movie content with the freedom to decide when to watch what. And the offer had a reasonable pricing compared to the offline model including a monthly subscription fee.

When user behavior and preferences are changing, new competitors rise and might address the change better as established companies from that specific market. If this happens whole industries and businesses can be disrupted, e.g. the music industry (from CD to MP3 to streaming) or even the small butchery around the corner in the late 80s when the big supermarket chains rose.

So companies’ user centricity as a clear understanding how preferences of their customers evolve and change is core to drive any business transformation. Based on my experience I identified nine important tasks that help to implement a customer centric strategy as driver seat of a digital transformation process.

The nine tasks are related to three areas: (1) people, (2) organization and (3) tools. People means the employees and managers that are going through the transformation and are shaping the process. The organization is giving the evolving frame for the ongoing transformation process, the tools are supporting and accelerating the successful realization of each single transformation step.

Create a vision based JOINT MINDSET

Similar to what I have described as “mindset of change” in my article about digital evolution you need in all product related departments a similar understanding about vision, mission and goals of customer centricity. Without such a joint mindset there is no chance to establish a working process for a customer centric transformation. Many revolutions started at the base, but to get change fast implemented in the organization the top level management has to be committed from the beginning. Ideally the creation of a joint mindset for change is happening parallel at the top and the bottom of an organization. But the vision and mission statement need already to include a strong message that is signaling change. Anyway a clear understandable and trustable vision is the key to spread the joint mindset.

Add NEW SKILLS to the teams

Based on a joint mindset it is important to add new skills to the teams via trainings, coaching or even by getting new employees with complementary skills into the teams. Such additional skill investments are very positive signals for change and might stimulate employees’ motivation to support the change process.

Create an environment of TRUST

Trust is the key for a successful implementation of a change pipeline. You need trust from the management in the workforce and also trust from the employees in the management and the organization’s vision.

EMPOWER your teams and owners

Trust is also the premise to empower product owners and teams to make decisions. The top management is more taking the role of frame keepers and frame expanders: They provide the strategic objectives, information transparency and the analytical and organizational setup for the teams and owners to make reasonable decisions and prioritize with value.

Install an open and AGILE CULTURE

Scrum and Kanban are known as an agile framework for software development based on empirical process control by transparency, inspection and adaption. But the basic principles behind Scrum can be used also outside of software development in any other department. The idea of an agile culture is so much more than scrum. It is about how things get done and about human interaction in a working environment. Agile culture means that change is a part of the company’s DNA as an ongoing and repeating renewal. It is also a commitment for an open, transparent and honest communication from management to the teams and backwards. Also failing is an important part of an agile culture. The operative team should never be afraid to fail as it is part of a learning and improvement process to succeed in the end. But it is also important to fail fast and to have a lean setup making sure to waste as less money and time as possible. Fail fast and learn even faster!

Implement ANALYTIC PROCESSES for decision making

How to make product related decisions is also something that defines a part of the company culture. Those decisions should not be made by “gut feeling” of single persons, but are also not the result of a grass-roots democratic process. Product related decisions should be mainly based on data and an established analytic process. You will need tools e.g. for tracking, testing and segmentation (or market data), but also need to make the decision process transparent showing numbers that support the results. Of course there might be sometimes strategic decision (also product related ones) that you cannot verify directly with data, but that are based on the company’s vision, mission and core goals.

Use TESTING to prove and optimize

Testing is an important quantitative tool to support the analytic decision process. E.g. simple A/B tests can bring significant improvements in conversion and revenues. But also testing needs an elaborate setup, a transparent workflow process and experienced analytical professionals. A scruffy setup can easily generate wrong data and misinterpretation. The consequence are wrong decisions.

Create PERSONAS to visualize your target groups

Personas are fictitious individuals that are representing typical users of a specific target group. A persona should illustrate core attributes and attitudes of that target group and helps to get a visual perception of users and better understanding of their needs. The tool was developed “offline” in the 80s, but shave great benefit especially for online target groups as the relationship to users and customers is mostly virtual. To give a target group representative a name, age, education, salary and specific user behavior makes it easier to gain understanding for users’ needs and changing needs in the whole organization. Although personas are a qualitative tool, the creation of those is mostly based on deep analysis of existing data from users and customers.

Use COLLABORATION to distribute knowledge and to create joint responsibility

Collaboration between teams and departments is an important part of agile culture. Somehow it is the consequence of applied empowerment and lived trust in organizations with well-balanced digital maturity. All participants in the collaboration activities need to have a similar joint mindset.

These nine tasks do not claim to comprehensively address all important aspects of digital transformation or to be completed. More they hopefully can inspire managers with similar transformation challenges and support as checklist or orientation for user centricity.

Digital Transformation has to become Digital Evolution

19 Okt
19. Oktober 2015

The term „digital transformation“ is a buzzword that is used and abused with multiple meanings. Since 2005 the usage of digital technologies and its potentials have changed markets and industries fundamentally, especially as these technologies give users the choice how to satisfy specific needs. Some call this the „digital revolution“ according to a Kondratiev wave analog to the industrial revolution in the late 18th and 19th century. Digital transformation refers to these changes with a modification of companies‘ existing technologies and business models. Digital transformation is based on people, processes and technologies and is relevant for any company that offers services or products online.
You can split digital transformation in four different dimensions that can apply parallel, shifted or sequential: product transformation, company transformation, industry transformation and society transformation (see Figure 1). Product transformation can be internal related to a companie’s products and services or external related to a specific product category.

Why is digital transformation so important?
Digital transformation should be part of any digital strategy. Clearly spoken, a company without any digital strategy has no future strategy and risk its existence. If companies miss to transform their strategy into digital and leave the market you can call it „digital Darwinism„.

According to a Gartner study in 2020 there will be more than 25 billion connected „things“ such as devices, cars, homes and wearables. So who will buy unconnected things in the future if nearly everything will be connected? Also in 2020 about 80% of revenues will be related to additional services and only 20% to the core product itself, similar as we know it already from existing app and widget ecosystems.

I collected nine pillars that could help companies to prepare and drive digital transformation in their organization (see Figure 2).

1. Mindset of Change
To be able to transform existing and established models you need to install a „mindset of change“. This is not only related to technologies or development, but to whole organization. It should start with an impulse on top management level driven top-down and parallel in specific teams driven sideways and bottom-up. Specific teams means groups that are more open to change and that are less hierarchical organized anyway. Change is often creating resistance as some employees might understand it as a threat for status, role or even their job. It will take time, patience and some distinguished supporters to Establish such a different mindset. Mostly it makes sense to start in one department creating first positive signals of change.

2. New Talents
It is impossible to get everybody convinced and there are often also new skill sets required to transform products, services and organizations. Beside an investment in employees‘ training and coaching you need some new talents that already have some of the necessary new or modified skills to support the process of change. It is very important to have the HR team committed and involved in the whole initiative from the very first beginning.

3. Customer Centricity
The idea to put users of a product or service in the center of concept and development is not new at all. Many product managers might say: „We already do this for years“. But such an approach needs an organizational form and the understanding of all involved teams that is based on a continuous user dialog.  There are multiple methods how to discover what are the most important user needs and what creates user stickiness. All these methods are based on iterative testing and adaption according to user input/feedback and created (digital) value. Customer integration is a clear commitment to focus on existing and future needs of users and supports the process to discover successful disruptive innovation.

4. Business Model
Does the current business model still fit to the existing demand and customer needs? Is there any growth in users and revenues? Are there any new technologies on the horizon that could change user behavior and demand?

A good example is how the way people buy and consume music has changed in the last 20 years. First CD sales shifted from offline stores to online shops in the late 90s, than people started to download music. As there was no common infrastructure and no simple standardized solution in place to buy and download music online, many users shared songs online for free illegally. The music industry tried to protect the existing business model instead of innovating and transforming. Apple’s iTunes was the breakthrough for legal paid music downloads. Currently users switch to subscription based music streaming services such as Apple Music or Spotify. The music CD is already dead and music downloads are riding into sunset.

It is always tough to change existing business models and revenue streams as long as they seem to work „somehow“. It is even more difficult, if the change requires a modification of an established value chain. That is why companies from other industries or even small startups often step successfully into existing markets with a different or totally new approach.

In 2014 Airbnb, a marketplace for renting lodgings founded in 2012, sold more accommodations as the whole Hilton Group, founded in 1919.

5. Agility
Agile concepts are a common toolkit to drive change and serve as a framework for customer centricity. Scrum is an agile framework for software development based on empirical process control by transparency, inspection and adaption. Many of Scrum’s agile principles can be used outside of software development in any department or project. These are cross-functional collaboration in teams, self-organization inside the teams, a prioritization based on (digital) value and an iterative realization process instead of a static long term planning. Agility means for companies and teams also the acceptance to make mistakes and to understand those as a part of their leaning process.

6. Data driven Business
This pilar adds data to the commitment for customer centricity. Any new product idea, feature or potentially improvement of a product or service can be tested with users. There are multiple methods to validate ideas, concepts or prototypes with users or even to discover and create a best-practice option in collaboration with users. Such an approach reduces the risk to fail with an idea or product as the design is based on „measured“ existing or future needs of real users.

General speaking, data does not only help to save money, it is money. Data is a key driver of the mentioned digital revolution. The succes of some of today’s most valuable companies such as Apple, Google (Alphabet), Microsoft, Facebook and Amazon is build on data. These companies produce, collect and analyze data to make decisions and to create (digital) value for their users and their company.

7. Digital Value
Digital value is the validated positive outcome of data driven decisions. Any prioritization of functionality and features has to be driven by its digital value. Digital value means an online driven, measurable direct impact for a company’s value chain such as business value (e.g. direct or indirect monetarization) or user experience value (e.g. engagement) or internal process value (e.g. huge improvements of the velocity of specific tasks). The value is created because a specific new user need was satisfied or an already existing user need was satisfied better or more efficient than before.

8. Reboot Technology
This pilar refers to the fact that digital transformation often includes something radical and disruptive that mostly cannot be realized based on implemented and established technology. How would you build a technology set-up for your company if you could start from scratch today? What is the key difference in such an approach and what is the key USP compared to existing competitors today? The idea of „re-coding“ sounds expensive, but can help to identify the most weak parts in the current technology. Today, a main requirement to software architecture is changebility what means a modular lean structure is preferred over monolithic „all-in-one“ solutions we know from the past. That does not include a kind of total technological flexibility what could be much too complex and expensive. Modularity means to create a core and to build modules around it, to use APIs and also 3rd party modules. The microservice architecture follows these paradigms. Not every feature or service has to be developed from an internal team, especially if there are standard solutions already available on the market, that could be integrated in such a modular architecture.

Simplicity is a second requirement for technology. This could be rated as inconsistent with the requirement of changbility, but it is not. Only a good balance between both is necessary.

9. Collaboration
Collaboration is the connector between mindset of change, customer centricity, agility and digital value and the enabler of a successful digital transformation. Somehow collaboration is a consequence if a companie’s change strategy is supported by the main operative stake holders in key departments. Collaboration inside the company means also to share responsibilities and to work in cross-functional teams. You need to build expert teams with the most skilled people to solve a specific task or create a specific solution, independent from boundaries of departments. Boundaries of departments should be understood as lines, not walls.

Collaboration means also to integrate external partners, suppliers and users to creat the best possible solution. There are many examples of a successful user integration into companies‘ innovation process or even of product innovation communities, stimulating user driven innovations for specific brands or products.

How long is the process of digital transformation?
The time frame of a digital transformation is depending on the specific existing business and the size of the company. It seems more that digital transformation is tending to be a permanent process that is morphing from one wave to the next.

DigIT 2015

HP Managing Director Germany, Heiko Meyer

At the DigIT Conference in Berlin 2015 Heiko Meyer, Managing Director HP Germany, has explained the 5 years plan of HP’s digital transformation journey. Also after 5 years the real journey will rather start than end. Axel Springer SE, a traditional German publisher, has started its digitalization in 2006. In the first half of 2015 more than 60% of revenues are related to digital business models. The whole process was and still is digital transformation. Also companies that have alreday a 100% digital business model need to transform to the next digital level as markets and user requirements are evolving. So digital transformation is only a first step of a continuous change process that could be better described as digital evolution.

A Digital Product Transformation Framework

13 Mai
13. Mai 2014

Digital product transformation is one of the biggest challenges for any company with a Web related business model. No matter how established and successful a company and its digital products and services are, it is crucial to implement rethinking as part of the daily routine. Transformation is based on radical innovations followed by a disruptive change of the company’s business model or/and product portfolio. In some cases product transformation of one company is causing a game change for a whole industry. A framework for digital product transformation can support companies to understand, organize and monitor the individual internal requirements for a continuous process of radical product innovation.

The framework includes:

  • 4 influencing trends (social, mobile, analytics, cloud)
  • 2 enablers (team, technology)
  • Attributes and principles related to an enabler
  • 4 influencing variables (people, process, network, knowledge)
  • 1 external frame (market), 1 internal frame (company culture)

The four most important trends that influence the digital business ecosystem are social, mobile, analytics and cloud (SMAC, source: PwC). Driven by a user-centric vision the core elements and principles of digital product transformation are related to the enabler “Team” and/or the enabler “Technology”.

User integration, agility, collaboration and cross-functionality are attributes of the enabler “Team”. Transparency and bi-values are principles related to the team. Bi-values underlines that values should be always related to the company and the user. User integration can create a bi-value as it is fun for the user and the chance for a more valuable product or service on one side.  Important market research and the chance for a better marketable product or service are values for a company on the other site. There are many examples for successful user integration via online communities such as mystarbucksidea from Starbucks that includes more than 200.000 discussed and voted user ideas – many of those with a bi-value.

The attributes for the enabler “Technology” are an open architecture, modularity, multi-platform and a focus on UX. Iterative thinking is a principle related to the enabler “Technology”, while openness is a principle related to both, technology and team

Influencing variables within the company are the (1) involved people, the (2) disposable knowledge, the (3) established and used processes and the (4) network inside and outside the company (source: TMCnet). The general frame is set by the market (external: e.g. competition, market phase) and the company culture (internal).

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