We Need to Stop Talking About Digital Transformation

Within the past five years, players such as Google, Amazon, and Netflix have elevated consumers’ expectations with digitally-enabled, seamless experiences. However, these digital natives were inclined to design experiences that did not previously exist. What’s more impressive are traditional businesses that have transformed their customer experience model to reflect the world of engagement that is rapidly being redefined.

The winners in this world prove that digital isn’t an end in itself. It’s part of a holistic transformation that shapes everything from product development to the point of sale. Take, for example, the company e.l.f. Beauty. The organization asks a group of its most loyal customers for new ideas, then works with a manufacturer in China to develop a small quantity to test in physical and online stores, with the product development process being 60 percent faster than the competition. These enthusiasts then get to test the ideas they’ve created, sharing their feedback on social media, which then informs product ideas for the next concept. The company has deployed social media, an integrated online and brick-and-mortar strategy, and a rapid supply chain to enable a business model that’s resilient, nimble, and responsive to customer needs.

To keep up with the rapid pace of innovation being set by these disruptors, many organizations turn to digital, frequently adopting “digital transformation” as a strategic imperative.  In fact, a recent study showed that 96 percent of organizations believe that digital transformation is an “important” or “critical” priority.  However, as our research shows, these digital initiatives are typically managed within a silo—with 67 percent of survey respondents stating that their IT department is “primarily responsible for executing digitization.”

Herein lies the problem with “digital” transformation. Digital initiatives often take the form of standalone projects, departments, and teams tasked with championing a siloed product or program. Realistically, every part of the organization—including budgeting processes, incentive models, hiring strategies, operational models, and marketing tactics­—will have to absorb some change if you expect to realize the long-term value of integrating digital strategies to meet customers’ needs. Examples from fast-moving sectors bring this reality to life.

For incumbents in the grocery industry—facing estimates that online purchases will comprise 20 percent of the grocery market by 2025—transformation may be the make-or-break factor in survival. Following Amazon’s purchase of Whole Foods in 2017, the retailer’s distribution network is significantly more robust with a network of physical stores—supplementing inventory, enabling higher-quality, faster food delivery, and resolving pain points in the in-store shopping experience. For example, Amazon is piloting the use of self-driving cars to improve the cost and efficiency of home grocery delivery. In addition, its AmazonFresh Pickup service allows customers to order groceries online and have them delivered to their car at the nearest Amazon store, effectively solving for challenges at the point of sale, including long lines, and the frustration of being unable to locate a product on the shelf. The online retailer has an opportunity to extend the reach of these strategies to over 400 Whole Foods stores.

In response to competitive threats, Albertsons Co. recently announced that it would purchase Plated, a meal delivery service. Others, such as Kroger, offer online grocery delivery with in-store pick-up. While this is a start, these legacy players will have only successfully transformed in response to Amazon’s disruptive impact once they’ve looked across their business—including channel experiences, the point of sale, supply chain, and buying strategy—to embed digital where it adds value and enhances the customer experience.

In the big-box retail industry, Best Buy once seemed doomed to the same fate as H.H. Gregg and Circuit City. In its strategic renewal, leadership focused on fixing the company’s internal systems to ensure the accuracy of inventory data – helping associates better serve customers in-store. It also focused on aligning its store pricing with Amazon’s to keep those customers in-store through the point-of-sale. Best Buy also focused on infusing online ordering with physical store locations to enable a seamless, faster delivery experience. Previously, online orders shipped from one of six standalone fulfillment warehouses. Now, store locations serve a dual purpose as warehouses, increasing the likelihood that a product is in-stock, and enabling shipment from the location that will deliver an order most quickly.

Most importantly, the organization understands that the physical store is one of its most critical differentiators. It has invested heavily in employee training to ensure that its associates can offer added value in-store. For an organization that was once on the path to likely bankruptcy, Best Buy is thriving, with stock prices up about 49 percent since January 2017.

In its turnaround, digital played a role, but it was not the solution. Herbert Joly, the CEO credited with Best Buy’s revival, has attributed success to a seamlessly blended approach: “We don’t see ourselves as a brick-and-mortar retailer, we’re a multichannel retailer that combines the stores, Best Buy’s website, and its phone app to boost sales.”

In today’s world, “digital transformation” is nothing more than “transformation.” Rather than turning to “digital,” organizations must ask what the customer wants. The odds are in favor of digital playing a role. It’s a key ingredient that must be integrated across people, processes, and functional teams to drive higher-value interactions in an age where anything less simply isn’t enough.