The power of digiratis
George Westerman, from MIT, on his study on digital transformation. Google, Apple and Amazon aren't the only digirati; most big, traditional companies are already investing in digital technologies.
George, you are a research scientist at MIT Sloan's Center for Digital Business. What – of all things – led you to do a study on digital transformation?
There was a lot in the press about how companies were using social media, analytics and mobile devices. But we always seemed to hear the same stories about high tech companies like Apple and Google or Amazon. We didn't see many stories about large traditional companies, like manufacturers or insurance companies that have been in business for 50 or 100 years. We knew they were powerful users of technology, but we weren't hearing about them. So we decided to find out what these traditional companies were doing. How were they succeeding with these new technologies? Our team motto was to find "boring companies doing interesting things.
What have you found out?
Using interviews and surveys, we studied more than 400 companies over two years. We discovered that most big companies are investing in these new digital technologies. They are applying them in broadly common areas but are getting wildly different results. We have identified a class of companies that we call digirati. These companies manage digital activities differently. They see digital not as a technology problem but as a transformation opportunity. They do it through two types of capabilities. They not only invest in digital technologies to change customer experience, operations, or their business models but, very importantly, they also invest in leadership capabilities. By putting the two types of capabilities together, digirati can do things that other firms can't. And our analysis shows that they are 26% more profitable than the competitors in their industry.
Could that be seen as a pattern every company can follow?
The number one thing we have seen is that wherever these activities start in a company, the transformation really works when it's driven top down. Transformation needs to be organized around a unified vision that people can relate to. A really interesting example is the French yellow pages company Pages Jaunes. They make those big, thick, local business directories that are delivered to every house. I don't know about you, but I haven't used one of those in years.
By chance, I got one sent recently, but as you said I sent it back straight away.
That's the situation Pages Jaunes was in. Revenue was declining 10% every year because people no longer use these directories; they use Google or other services instead. The company's CEO tried to move the company into digital services but didn't get much traction until he came up with a new vision. He said: "Listen guys, we are not in the business of making yellow books. We are in the business of connecting small businesses to local customers. Books are just a technology, and that technology is dying. That's why we need to go digital". That grabbed people's attention and helped them understand the need to change. Executives then invested in helping people make the change. They told workers "We are going to teach you how to sell webpages, we are going to teach you how to develop online content instead of paper content." You see, vision is incredibly important.
Is there a protected business area where Digital Transformation is out of the question?
We were surprised. We found that every large industry we studied already has one or more digirati. That means, even if you are in the slowest-moving industries, you need to start thinking about what you are going to do.
What if I don't see the big idea for a smart new business model?
You may not need a new business model. You may find opportunities to change your customer experience or transform your operational processes. The important thing to realize is this. If you don't see it, that doesn't mean it's not there. One of your competitors will find it. Or maybe a startup will develop a way to do your business better than you do. I'm fascinated by how startups are using new technology to transform the nature of old industries imaginatively. Amazon has transformed the book industry and the travel industry is nothing like it used to be. Now peer-sharing networks are really catching on. AirBnB allows anyone to turn their home into a hotel room. Hailo and Lyft are invading the taxi industry with easier and cheaper services.
What is a good way to start to act?
Be alert to what is happening around you. Many companies get their employees, and even their customers, involved in idea generation through contests, internal conferences, and social media; they then experiment with some of the ideas. Some companies set up small innovation groups to identify opportunities and conduct experiments. That allows you try some new ideas out while letting most of your people focus on getting their current work done. Another very important first step is to build up your leadership capabilities. How will you coordinate and govern digital activities across the firm? How will you develop your digital vision? Do you need a digital unit? A chief digital officer? Should each business unit do its own thing, or should the corporate office invest in some capabilities?
New technologies have bridged the gap between producers and customers too. Is there an observable trend that companies extend their activities from B2B to B2C?
We have started to see some B2B companies moving to B2B2C. One example is Volvo. Volvo manufactures cars and sells them to dealers. So Volvo doesn't know much about their actual customers. But they had an opportunity when they introduced "push-to-talk" functionality in their cars. They are developing apps for your phone and services that you can access from your car. You can start your car from inside your house, help arrange your maintenance, get roadside assistance, and so on. None of these new services is radically new to the industry. But they help Volvo's corporate office get closer to the people who drive its cars. I've seen this happening in many industries including manufacturing, mortgages, and other financial services.
There are still companies who claim to have hardly any data about their customers.
Every company has data. The question is whether the data is in a usable condition. One of the really important things we found in the study is that strong IT capabilities are even more important in the digital world than they were in the previous world. If you have very strong IT systems, an integrated view of your customers and operations, and strong relationships between your IT and business people, then you can do things a lot of companies can't do.
What possibilities and developments do you see for the future?
Let's look forward ten years. Companies and jobs are going to change in ways we can't even imagine. So just think about when the Google driverless car becomes a driverless taxi service. When Airbnb sells more hotel rooms than hotel chains do. When IBM's Watson starts to work in my doctor's or lawyer's office. These kinds of things are already starting to happen. They'll start slowly but, when they do come in, we are going to see some major changes.
About George Westerman:
Dr. George Westerman is a research scientist at MIT Sloan's Center for Digital Business and faculty chair for the school's executive education course Essential IT for Non-IT Executives. He is co-author of the book The Real Business of IT: How CIOs Create and Communicate Value and other publications that help executives make the most of their technology capabilities. He talked to New Frontier Group over Skype: a lively connection between our home base in Vienna and Westerman's in Cambridge.