Most executives consider digital transformation to be a strategic imperative. Sadly, too few digital transformation projects meet such aspirations. Much have been written about examples of digital transformation failures. What has been of interest to me is the other side of this phenomenon. Namely, what do innovative companies do differently regarding digital transformations.
As it turns out, innovative organizations, that have successfully deployed digital transformation projects, manifest noteworthy – and perhaps path breaking, commonalities in their deployment of digital transformations. I call this phenomenon the paradigm-changing digital transformation approach. I found that the digital transformation projects of innovative companies tend to have five major commonalities. I argue that these commonalities provide a basis for understanding the reasons why innovative organizations have been able to implement admirably successful digital transformation projects. I will describe these five commonalities in the rest of this article.
ANTICIPATING FUTURE CUSTOMER NEEDS
They anticipate changes in customer needs and preferences. Across the innovative companies that I studied, several of the executives seem to have deeply embraced the central message of the Davenport et al.’s HBR article – Know What Your Customers Want Before They Do (Thomas H. Davenport, Leandro DalleMule, and John Lucker, November-December 2011). The executives of innovative companies focus much effort into the task of discovering or anticipating future needs of their customers. Hence, in thinking about customer value, such executives do not merely assess how well their current products and services are meeting customer expectations. Rather, they ask deeper questions such as: what might customers need in future that we can anticipate now? How could we extend what we are providing to customers that would make a significant difference in their experiences or in their ability to deliver value for their customers? In other words, innovative companies make decisions to change their customer value equations as they make commitments to offer extended services and or future new services for anticipated customer needs. So, one might say, innovative companies prioritize the creation of new customers when defining the “why” question that would drive their digital transformations.
FOCUSING ON PARADIGM-CHANGING CONCEPTS
They purposefully pursue paradigm-changing concepts which have the potential to revolutionize customer experiences. One of the first things that one notices in the digital transformation initiatives of innovative companies is that they strive to create paradigm changes that will, relevantly and significantly, improve customer experiences. This is in sharp contrast to digital transformation initiatives which prioritize efficiency improvements and/or cost reductions. Consider the case of John Deere. For several decades, the company was known for the agricultural products that it delivered to customers. Its tractors and other equipment made it possible for farmers to perform all kinds of critical farming activities. The company focused on producing the most efficient tractors and other tools. As the era of digitalization became more dominant, the firm added sensors to the engines and drive systems of its tractors. The tractors were connected remotely to the technology monitoring systems of John Deere such that the company could remotely monitor the performance of the engines of its tractors.
It was at this point that John Deere’s (JD) engineers came up with a paradigm-changing concept. The concept was called John Deere FarmSight. It was a powerful vision of what John Deere thought the future of farming was going to look like. This concept was unveiled in 2011. This concept proposed a paradigm shift which I call the shift from product centricity (focus on the tractor and tools) to a farmer experience centricity (focus on making the farming activities more effective and the experiences less burdensome).
Once this concept was embraced, it became the roadmap that guided the digital transformation efforts of John Deere. These new directions caused John Deere to create a lot of digital innovations that reduced what the farmer needed to operate and manage their farms. GPS technologies and digital cameras were integrated into tractors. Furthermore, technologies were added that enabled the tractor to automatically gather and sample soil properties. Also, new technologies enabled the tractors to map the land that was being tilled.
This concept resulted in several John Deere transformations. For example, via John Deer’s Link (JDLink) farmers were able to track and monitor machine health, maintenance, and the productivity of both the machine and the operator. FarmSight™ initiative created a full suite of technologies that was designed to make the farmer’s work efficient and farming experiences less onerous.
Other innovative companies frame new paradigm-changing concepts as new use cases. For example, Scott Stephenson, the then CEO of Verisk Analytics, spoke of new use cases that are emerging in the insurance industry. In 2015, Scott explained how new use cases would reduce the labor intensity of the claims adjusting process. Furthermore, he discussed other use cases in which one could make use of remote observations which are precise and fast. Also, the insurance companies would be able to use imaging to assess the age of roofs, monitor large commercial construction sites, automate the mapping of the interior of buildings, and enable the crowdsourcing of insurance inspections.
ACQUIRE NEW DIGITAL CAPABILITIES
They acquire capabilities to implement paradigm-shifting concepts. Having clearly identified the opportunities of new use cases or of a paradigm-changing concept, innovative companies typically identify the capabilities that would be required to implement the paradigm changing concept.
Consider the case of Verisk Analytics. After the then CEO, Scott Stephenson, had identified the paradigm-changing use cases that the company wanted to achieve, he described the four key competencies that were required to accomplish them. They included, competencies in multi-tier and multi-spectral imaging, large-scale data integration, stochastic modelling, geographic localization, and data visualization. Under Stephenson’s leadership, Verisk Analytics analyzed these needed capabilities and competencies to determine what capabilities should be develop internally and which capabilities should be acquired from external partners. For example, Stephenson considered data to be a distinctive of Verisk Analytics. Hence, the company had to acquire the necessary internal capabilities and competencies to perform large-scale data integration. However, regarding multi-spectral and multi-tier imaging, the company did not see itself as becoming a major source of images from satellites, unmanned aerial vehicles, airplanes, and handheld devices. Hence, Verisk made the decision to partner with other companies that have such capabilities and act as an aggregator. In order words, the CEO of the innovative company differentiated three classes of capabilities: what a company was good at; what a company must be good at; and what others are good at. Hence, the internal digital transformation capabilities development plan at Verisk Analytics focused on things that they were good at and things that they must be good at to remain distinctive.
DEVELOP AND DEPLOY DIGITALIZED PROCESSES AND PRODUCTS
They embed data platforms within customer workflows to improve business controls, decisions and actions. Innovative companies are also usually focused on having significant aspects of their digital transformation efforts connected to or embedded within the workflows of their customers. This requires a kind of reverse thinking and actions. First, these companies must understand the customer’s workflow. Innovative companies think carefully to determine where in the workflow is the most meaningful spot to embed their value delivery system. In other words, they tend to believe that it is not sufficient to have the most detailed proprietary data or system in the world, if customers are unable to easily access the system from within their own workflow.
One also observes this approach in John Deere’s transformation project. To achieve its FarmSight vision, John Deere’s engineers integrated sensors, GPS, and other wireless components into their tractors and equipment. This enabled major equipment to gather operational data and to send these to the JD Operations Center for analyses. After the analyses, results were sent to farmers in real time. This meant that John Deere’s service was now integrated in the workflow of the farmer in a most productive way. The equipment, the operators, dealers, and agricultural consultants were all connected digitally. This enabled farmers to make decisions based on data rather than hunches. It also enabled them to diagnose operational problems while they were on the farm. Furthermore, the integration to the John Deere’s JDLink enabled farmers to remotely monitor machine performance, fuel consumption, and operational and output information.
SCALE DIGITAL TRANSFORMATIONS
They scale digital transformation by extending the scope of their paradigm-changing concepts. Innovative companies typically develop a set of paradigm-shifting use cases in successive steps as they undertake the journey of digital transformation. John Deere revealed its new paradigm-changing concept in 2019. It was called the Future of Farming. The vision imagines that electrification, automation, and artificial intelligence would play a stronger role in farming. The company has also developed the first series of products that one should expect as John Deere pursues this vision. For example, the zero-emission compact tractor (John Deere 1R Series). The large battery operated Volodrone. The large drone was a joint-venture between John Deere and Volocopter. It has a fully electric drive with replaceable lithium-ion batteries. Furthermore, John Deere’s autonomous drone sprayer is equipped with a weed scanner and crop sprayer. This permits weeds to be scanned from the air and then pesticides could be specifically applied. The company also unveiled its autonomous and semi-autonomous electric tractors. These machines depend on electric drives, hence there are no operating emissions, wear and maintenance costs are low and noise levels are extremely low. John Deere also acquired Blue River Technology to gain access to its See & Spray technology.
As digital transformation ventures become a strategic imperative that carries significant implications for the success of companies in different markets, executives can no longer be content with digital transformation ventures that merely re-assign business applications between on-premise and public cloud platforms.
This reality suggests that executives would increasingly be under pressure to show how their digital transformation projects are creating value for customers, employees, and stockholders. Executives need to reframe the purpose of their digital transformations from being a tool for reducing operational costs and for reducing process complexity, to purposes which prioritizes the transitioning of organizations from their status-quo capabilities to paradigms-changing concepts which improve customer value and transform customer experiences.
Written by Adenekan Dedeke.
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