August 20th, 2014
bengilchriest

Digital and Business Cases - is it a leap of faith?

Digital and the Incompatible Business Case

Unlike traditional investments, measuring ROI for digital has proven to be difficult. For example, during the rapid growth of Facebook marketing in 2011 a lot of effort was put into trying to quantify the value of a “like”. Despite this effort the figures varied massively from $0 (Forrester) through to $136 (Syncapse). This struggle has continued through to today as businesses continue to face challenges building confidence in a benefits case to invest in digital.

And it’s clear why this is a difficult task. Looking at traditional business cases these generally have a clear linkage between the change that’s being made and the impact that this change will have. The complexity isn’t defining this relationship but being able to predict how much impact it will have; a 5% improvement? Maybe more? Even this is relatively straight-forward since it’s supported by a back catalogue of case studies that are similar to what you’re doing. These provide a good grounding to make confident assumptions and, ultimately, get the go ahead from the Board. When it comes to digital investments, however, complexity exists on lots of levels;

  1. Customers are making decisions differently;
    Google call this the ZMOT (Zero Moment of Truth). Customers are making decisions about brands at the precise moment when they have a need, intent or question they want answered. This could be when they do an online search, read a review on Yelp, get location-based marketing message etc. It could be any one of these moments, with the relationship between how one influences the other, for that particular customer, varying almost infinitely. How can you model this with any confidence to define the benefits of a digital transformation?
  2. Case studies are rare…;
    Unlike more traditional technology implementations a large proportion of digital investments are in emerging technologies. Whether it be big data analytics (customer and operations), social media, mobile apps., enterprise collaboration, the internet-of-things etc.; the number of cases studies is comparatively few. Because of the reasons described above, benefits are either rarely included or not directly quantified.
  3. …and get outdated quickly;
    Things move so quickly with digital that by the time something is near being an established way of working it’s been superseded by a new innovation (see Page 2 in this summary of “The Second Machine Age”). This means available references points are often lacking. Moreover, since the investment often includes a new way of working ,the precedent you’re looking for is the one you’re about to set yourself.

A Leap of Faith

Whilst this might seem like a challenge that’s confined to the finance department, this is often the biggest barrier to getting digital transformation started. So it’s not just important to get past this, it’s essential otherwise you might never begin. So how have the world’s digital leaders, the ‘Digirati’, made this step to lead the market both in their application of digital but also in financial performance? Often it’s the result of a visionary CEO who’s seen how customer’s expectations have changed and how digital is at the core of responding to this from a channels perspective, but also at the core of the solution from an operations perspective.

Take Angela Ahrendts, CEO of Burberry from 2006 until earlier this year who is widely credited with taking the 155 year old company from one that actively shunned digital to the world’s leading luxury brand, pushing innovation after innovation in digital; Burberry Bespoke, Burberry Kisses, The Art of the Trench, TweetWalk etc. But this isn’t just about being a digital innovator. Since 2006 the company’s share price has risen over 250% and they’ve consistently outperformed the rest of the sector. Digital is credited with much of this success.

In Burberry’s case the CEO saw the direction digital was taking the world, set a vision (see this video) and focused the resources of the company into achieving it. Boards that make this step have often “seen the light” of digital and make that leap of faith. This isn’t without some sort of understanding of the benefits of making this leap, it’s just more heavily driven by vision than business case.

However, many companies are waiting until they “feel the heat” before they react holistically to digital. As such current initiatives require a detailed business case before they can proceed and thus are often muted or never go ahead. The challenge with digital disruption is that it moves quickly and unexpectedly and this strategy can leave a company exposed to catastrophic impacts (see diagram).

Responding to Digital - Seeing the Light vs. Feeling the Heat

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So, is it a leap of faith? Right now, in the absence of well documented case studies to support business cases, in some ways it is. However, with the pace of change continuing and established companies and ways of doing business constantly being challenged or even disappearing completely, can we really afford not to take it?

June 18th, 2014
bengilchriest

Our Digital Future

In the past decade the world consumers and companies operate in has changed. From the fundamentals of established business models and how we work, through to the ways in which we interact on a daily basis. However, although the pace of change feels rapid, it’s easy to lose sight of exactly how different the world is as new technologies move rapidly from something on which we focus and are very conscious of using to just another part of our daily routine that somehow seems like it’s always been there.

Smartphones are a great example of this. In 2004 they were an expensive device, limited to work or an affluent few who could buy one of the Nokia 9000 series. In 2014 they are a ubiquitous and essential item that we check that we have on us before we leave home in the same way that we ensure we have our house keys. This is just one of many examples of rapid change that has slowly evolved and yet, dichotomously, seemed to have explosively appeared. Looking to these, and many other examples, it’s clear that were in a time of change to rival the industrial revolution.

But what does the past tell us about our future? Considering how digital has changed the world over the past ten years and reflecting on where we are now, it seems that digital is affecting change in a series of patterns. A set of themes of impact that started over ten years ago, are driving a rapid and new age of disruption now, and will continue to impact businesses over the next decade. These are all at different stages of maturity; some are well established and are the modes of disruption we’re experiencing and are familiar with right now. Others are just emerging and will be the engines of disruption and opportunity through to 2024. There are five in total;

Disaggregation

The traditional delineations between different types of organisations and actors will continue to be blurred. A customer can be a supplier, a competitor can be a customer. For example, for Amazon AWS, NetFlix is both Amazon’s biggest video-on-demand (VOD) competitor but also their largest VOD customer on AWS.

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Connectedness

This enables Disaggregation through increasingly connected individuals, devices, & machines (the “internet of things”). A shift from connecting information, people and business to connecting people, data and machines. For example, Santander’s Smart City trial with over 12,000 sensors in bins, streets, the ocean etc. that allows the city to be smartly managed.

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Disintermediation

The deconstruction of established chains and movements of goods. Connectedness facilitates new business models and interactions and enables new disruptive intermediaries. This is an area where we’re most familiar with the disruptive effect of digital right now and this will only continue. For example, Good Eggs and FarmiGo remove established intermediaries by connecting customers directly to farmers, or AirBnB disrupting the travel industry, or the much publicised disruption that Uber is bringing to the taxi industry.

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Frictionless Technology

Our interaction with technology will move from the foreground (interaction with a device) into the background (automation). Our data will work for us without direct intervention. For example, IFTTT allows you to define conditions under which certain actions are performed. There are tens of thousands of pre-defined options that connect data and devices. For example, IF I sleep less than 7 hrs. (measured by FitBit / JawBone Up etc.) THEN switch on the coffee machine at 7am (using a WeMo connected plug). This is just the beginning of what will be possible.

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Intimacy

The type of data that is collected on, and is available to, us will be increasingly intimate. It will extend from location-based to our physiology (e.g. health), values, & biology (e.g. facial recognition). For example, BioStamp is a flexible plaster that can collect data on your sun exposure, heart rate, blood pressure, body temperature etc. Not to mention the growing list of health related devices, like the Athos bio-suit, the Vessyl that tracks hydration and connects to health devices and the ever present rumours of Apple’s iWatch.

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So how do we prepare for Our Digital Future? As Neils Henricks Bohr, who defined the fundamentals of the atom and quantum physics in the early 1900s, said; “prediction is very difficult, especially about the future”! And certainly determining the specifics of the future, the exact definition of what customers will want, or what our digitally-enabled world will look like, is very hard.

However, whilst we can’t predict the future, this doesn’t mean we can’t prepare for it. If we regularly consider these themes and the implications for existing business models, established chains of goods, and customer needs, it’s possible to maintain the continuous iteration of a corporate strategy that’s needed to stay ahead of an increasingly disrupted world.

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To find out more follow the #OurDigitalFuture tag on Twitter and watch out for the upcoming publication “Our Digital Future”. These themes were developed by Ben Gilchriest, Jean-Baptiste Vincent, Mark Anderson with contributions from Mani Thiru, Andrew Stubbs, and Mathieu Hege. 

May 20th, 2014
bengilchriest

The Path to Digirati

Over the past three years Capgemini Consulting and the MIT Centre for Digital Business have been in a joint research partnership to understand the common patterns of digital winners, the ‘Digirati’. These companies have a significant advantage over their peers, with +26% net profit, +9% revenue, and +12% market valuation.

Following on from a recent KeyNote that covered these topics we worked with Glenn Stephenson at Padl Design, with help from Paula Calvo Lopez on the content, to bring together some of the main insights from this research partnership. The outcome of this is the attached poster; a continuous reference point as you go through your own digital transformation journey.

April 22nd, 2014
bengilchriest

Our Digital Future Series (Part 1 of 5), Intimacy and BitCoin

Last week, Australia’s first BitCoin ATM was launched. This is significant in itself as it marks the first time the average person can easily buy and sell BitCoins. Whilst this makes the currency more accessible to the masses, the potentially worrying aspect for banks is that the ATM allows you to exchange BitCoins for cash, connecting it firmly, and more conveniently, to the Australian dollar. The disruptive effect of this on banks may be a way off yet, but it is evident it will have an impact.

The second, and arguably more interesting part of this announcement, slightly hidden away, is the inclusion of biometric scanning to both setup and access your account. Facial recognition, cross-referenced with a government issued ID, like a passport, is used to verify your identity so you can setup an account. Account access is managed through your palm print.

Biometric scanning isn’t something new for the Australian banking sector, with the ATM management firm Armaguard using it for some time to access ATMs on their regular rounds. However, this is the first time it’s been available to consumers in Australia (though many other countries, particularly in Africa and Asia use it widely).

So why is this significant? It’s another piece of evidence to support one of five, major trends that will characterise how digital will enable transformation of business models, and ways of working and interacting, over the next decade. The BitCoin ATM is just one example of how the type of data that we generate is becoming increasingly intimate. A few examples to support this;

  1. The explosion of wearables; there’s been massive growth in this category with devices like the FitBit, and the JawBone Up which collect data on your activity levels and quality of sleep. Or the LumoBack which tracks your posture. And the much rumoured iWatch which is expected to include blood haemoglobin and oxygen levels amongst other physiological data. Or the Athos full body suit that measures muscle group activity level when you exercise.
  2. The Internet of Things; new, mass consumer products are emerging which can turn any activity into data. For example, the Sense Mother uses a network of sensors to track location, how frequently you brush your teeth etc. You re-configure these sensors to determine what type of activity it should measure.
  3. Our Values & Opinions; we’re already well versed and comfortable with using social media to share how we feel and what our values are through the companies and causes that we ‘like’. We’ve been sharing this for almost a decade already.
  4. Our Location; as micro-location based services, like iBeacon, begin to become more present and established social media platforms make this easier (e.g. Facebook’s soon to be launched ‘Friends Nearby” feature) our exact location will be available to those we choose to share it with. 

So in combination, the data we’re generating is becoming increasingly intimate and we’ll expect to be able to not only control this (much more than we currently can), but also for companies to use this in a way that’s meaningful and valuable to us as consumers.

Ultimately for businesses this means thinking differently about how they both gather and use data;

  1. Collection & Curation; as a consumer, gathering more data doesn’t equate to insight and value. The role of businesses will be to help consumers make connections between the different type of data they share. For example, combining what customers buy at the grocery store with their activity levels to provide valuable insights on health that a customer can act on with a suggested shopping list.
  2. Mutuality & Respect; there’s a temptation to use all this new information on customers to forever refine marketing messages and how well we can target them. Though with data becoming increasingly intimate the sense of ownership customers have of this data will increase. If they share it then there’s the expectation that the business will use it for mutual value, not to push back a marketing message. First and foremost, businesses should consider how it will add value to the customer first.
  3. Insights into Action; having data is useless without insight. This insight has no value if it doesn’t drive action. Building new capability and reorganising processes so that data can be turned into something meaningful for customers will be key. This isn’t a new idea, use of plan - do - review process and balanced scorecards have been around for a long time, but looking forward there’ll be a new level of immediacy needed in how a company reacts.

I’ll share more on this theme, and the four other, major digital themes that look to be the drivers of disruption over the next decade over the course of the next few weeks.

What do you think will shape our digital future over the next ten years? Follow the conversation at #OurDigitalFuture.

 

April 11th, 2014
bengilchriest

Tipping Point (1)

Looking forward there are some digital trends that feel like they’re on the cusp (in the next 6 months) of making that transition from the “much talked about” to the “fully here”. These are all things we’ve heard about before, and the odd great example has emerged, but they haven’t quite passed that tipping point of scale and value that pushes them into the mainstream and, shortly after this, to something that feels like it was always here.

As Niels Henrik David Bohr said, “Prediction is very difficult, especially about the future”. With that caveat in place, these are the ones that look likely to make that transition soon;

Micro-Location Services (iBeacon etc.); from novelty to value

To date companies have struggled to really integrate these into effective, end-to-end offerings. The application of micro-location is still predominantly focused on passive interactions; a customer arrives at a certain point and they’re sent  a piece of content or a marketing message. The system doesn’t really know who they are so the trigger point is the arrival of “a device” at given location. The interaction lacks prior context making it at best a novelty, at worst, impersonal and clumsy.

Use cases that are designed from a customer point of view are starting to emerge though, shifting micro-location services from novelty to value. Location will just be one piece of data considered in what’s presented to the customer. Actions a customer may have performed before arriving at a given location (purchases, locations, preferences etc.) will be merged so that what’s presented through the app has more context, relevance, and, ultimately, value.

The Internet of Things; will, at last, make sense to the mass market

This has been around for a little while but it’s been confusing for consumers and, from their perspective, a meaningless term. This is changing as consumer-grade products are emerging that concentrate on customer value, pushing the technology, and the concept of the Internet of Things, into the background.

Will keep an eye on how these waves evolve over time and re-visit it every so often to see how they’re progressing. What do you think?

April 11th, 2014
bengilchriest
Reblogged from Glenn Stephenson
April 10th, 2014
bengilchriest

How digitally-led companies outperform the market

The world we operate in has fundamentally changed

We hear about the growth of social media, mobile, big data, the internet-of-things etc., every day but behind this commentary is a transformational and systemic change that the onslaught of statistics may belie. In their most recent book (summary here), Andy McAfee and Erik Brynjolfsson term this systemic shift as The Second Machine Age. That the current cycle of disruption, driven by digital, is as significant as the changes felt during the industrial revolution. Now, as then, the nature of work, interaction, commerce, and broader society are all changing.

Unsurprisingly, making sense of this is complex and challenging with many businesses feeling the pressure from customers and shareholders to react. Often the response to this isn’t systemic in nature; it’s often relegated to a series of projects silos, or owned by a single department. And it’s easy to see how this might happen with online representing just 6.5% of Australian retail sales. And isn’t social media just a fad? (see Dionne Lew’s recent post that addresses this and other myths about social media).

When viewed in isolation digital may appear to have a low business impact. That it’s something tactical that needs to be responded to because the market demands it not because there’s a real belief that it’ll drive value for a company. When we look at it more closely though, the difference between taking a systemic versus a tactical approach is key. Based on joint studies by the MIT and Capgemini, a company’s response to digital is characterised by“what” they are doing, and “how” they’re managing it. Considered together these define “digital maturity” at four levels;

  • Beginners; carrying out some experiments though largely skeptical of the value of digital.
  • Conservatives; strong in the “how” but with few investments in digital.
  • Fashionistas; doing a lot in digital but with little focus  on the “how” means this are not cohesively managed.
  • Digirati; these are the companies that understand how to drive value from digital, balancing both “what” they do and “how” they manage it.

Getting this balance right really matters as the Digirati out perform their peers in every industry. They have higher revenue, +9%, better net profits, +26%, and greater market valuations, +12%, than their less mature peers. Moreover, if you look at the Fashionistas, whilst they enjoy +6% revenue it’s at the expense of net profit (-11%). Doing a lot in digital without a focus on the “how” isn’t enough. It’s inefficient and net profit is impacted.

So what should we do about it? Amongst the continuous stream of cases studies and examples of “what” companies are doing it can be difficult to distill “how” they’ve done it. Looking to the Digirati, as companies which have successfully they exhibit common patterns that we can all follow. Regardless of industry, they follow three common approaches to realise their Digital Advantage;

Equal focus on the “what” and the “how”

  • Digital is a systemic challenge and should be therefore addressed as a cross-business, systemic program of work. Responding requires transformational, not tactical responses. This means;
  • Defining a clear vision that drives the whole organisation, not just a few digital channels.
  • Putting cross-business governance in place that balances freedom for each business unit whilst ensuring each investment in “what” they do is complimentary.
  • Creating a strong IT / Business working relationship.
  • Building new capability. Ultimately it’s about people and a fundamental shift is needed in the type of skills a business has in place. In a recent Capgemini study over 90% of companies stated they didn’t have the right digital skills.

Make strategic decisions on where to invest in digital

  • Whilst Digirati don’t try to do everything, they aim for excellence in a few targeted digital domains (one or more of six domains).
  • Even more crucially they actively ensure these are connected so that customers-side digital capability (social, mobile, online) are linked with operational-side digital capability (data analytics, enterprise collaboration etc.).

Balance investments with clear ROIs with those that don’t

  • Whilst the ROI of many digital investments can be clearly defined, in some cases they simple can’t.
  • Take enterprise social for example; defining the specific benefits is less direct than for a CRM system. And whilst rigour is still needed, it needs to be balanced with progress. ‘Fashionistas’ attempt to experiment their way to success, whilst‘Conservatives’ applying so much rigour that little is done in digital. ‘Digirati’ take a balanced approach.

So what does this all mean for you? Whilst it varies across industries, only about 25% of companies are ’Digirati’, leaving 75% of us with a huge opportunity and much to do. Taking the time to understand your digital maturity, find focus and a take a balanced approach is key as the noise around digital will only continue to grow.

May 3rd, 2012
bengilchriest

Mobile apps, devices and consumer control; what this means for businesses and customer experience design

During the past week I’ve used apps and devices to help manage multiple social networks and communities, checked the carbon footprint of my travel for the past year, and tracked a hike and compared it to others who have done the route in the past. All the while my exact location has been available to those I chose to share this with. This is just a small sample of how, as consumers, we’re increasingly able to generate data about ourselves and what we do, and use quite advanced tools to analyze, gain insights and manage our experience to a level that’s highly specific to our interests and needs. Moreover, the sophistication of what’s available is expanding with a new vantage point, biological data. For example, SceneTap uses facial recognition technology to determine the gender mix, average age and number of people in a series of bars across Chicago.  It aggregates this in an app along with deals and events in these venues, to help you make choices about where to go to. These new devices and apps are designed for the mass market, do a lot of the work for you, and are social. Nike+ Fuelband, for example, tracks any activity you do via a wristband using an algorithm to convert this into a normalized activity value so that you can compete and compare with others, regardless of what sport they do.

Whilst this is based on automatic data about “us”, gender and age, this is progressing further with devices and apps reaching the market that are about “us” at an even deeper biological level, gathering information about our bodies that we can use to manage our experience to a new level of personalization. Whilst the concept of this isn’t that new, heart rate monitors such as the Polar range have been around for a while, they have largely been the realm the prosumer or the highly enthusiastic athlete; either expensive or requiring a degree of technical knowledge or understanding to interpret the output (e.g. heart rate zones, intervals etc.). JawBone have a new device, called “Jawbone UP” that, coupled with an app, measures your activity levels, sleep patterns and what you eat, and pushes you to get active if you’ve been immobile for too long so you can better manage your general well being and health. 

And Lumoback, which is currently in production, links a device you attach to your lower back to an app. that manages and improves your posture. Together these apps form part of an emerging class of technology that help you manage your experience at a very individual level.

As consumers gain an even greater understanding of their needs and the level of personalisation they can achieve increases, even down to the biological level, this changes the way we need to think about managing and designing customer experience. Some key approaches to consider;

  1. Think “outside-in”; define the experience completely from a customer’s perspective, looking at the business from outside the organisation, in, and covering the full breadth of needs that might even span products and services that don’t generate direct revenue but do make the experience more captive. For example, Barclay’s in the UK and Commonwealth Bank in Australia have created apps that fulfil a broader need in a customer’s banking experience, to be able to make payments on the move to others, despite it not being something generates revenue.
  2. Simplify value propositions; as the desire for personalisation increases the degree to which consumers expect niche, clearly defined products or services will rise. This is not about customisation, however, but defining simple, clear products and services that consumers can clearly fit to a need with little effort on their part. Jawbone Up, Nike+Fuelband, and Lumoback are all examples.
  3. Focus on need, not technology; with so many exciting and interesting new technologies available it’s easy to get distracted by this and lose sight of the customer need you’re looking to fulfil (i.e. “we need an app for that”). This risks an approach of thinking technology, then business value, and finally customer value, rather than the reverse, where customer need comes first. Which technology will fulfil the need is the last question that’s asked, rather than the first.

Our definition of, and how we use data, has fundamentally changed as internet access, social networking, and digital devices become further integrated into our daily lives. And as this increases and we seek to use it to manage our own experience more specifically the question might be less about what business does about it but whether we are becoming our own customer.

October 24th, 2011
bengilchriest

How digital is changing the way we expect to be able to work, at work

Like a lot of people that work in the digital space I’m a big user of digital tools to enhance the way I get things done; whether that be to connect with friends, organise social events, capture, share and edit content, visualise and share ideas, research new purchases, or manage finances. The outcome is that I can do much more in less time and with less effort. The late Steve Jobs, with his skill for simplifying and distilling concepts, described this very well; “computers are like a bicycle for the mind”. Namely, they greatly improve our ability to do a task without getting in the way of it.

There’s a wide range of tools available to do this; file sharing, video sharing, photo editing, smartphones, laptops, tablets, and so on. An enormous number of applications, and devices that enable us to achieve more. Conceptually this idea isn’t new. Steve Jobs first made this thought public in 1990 and has not been alone in evolving the computer over the intervening 21 years to help us do this. Much of this evolution has been defined by a clear compartmentalisation between “work” and “play”. Devices and applications that you use in work, and ones that you use at home. Purpose, design, and thus platform and function have been largely separate. However, in the same way that digital transformation is blurring the boundary between digital and physical it’s also blurring the boundary between work and play.  This is being driven from two directions;

  • Professionalisation of consumer tools; for example, Vimeo’s on-line video service orYouTube were designed for consumers but their ease of use has meant that they’re used by amateurs and professionals on equal terms. Services like iStockphoto have seen the reverse trend, originally designed for professionals, the ease of use has meant a lot of consumers use the platform to showcase and sell their photos.
  • “Consumer-isation” of professional tools; professional grade tools and devices are now in the hands of the consumer. As a consumer we now have access, for example, to affordable devices that can record broadcast quality video. Just three years ago these were beyond the reach of even the most enthusiastic amateur. Equally, digital has opened up professional grade tools such Adobe’s Creative Suite who recently announced that it’s making this packageavailable on a subscription basis, lowering the entry point from thousands of dollars to hundreds.

This is not just about tools and platforms though, it’s about how we’re using the internet more generally.  We now expect to be able to interact with other customers to solve problems, review products or services, and share ideas (peer-to-peer).. If we have a problem we want to find the person who has the best answer through communities and forums rather than going through a company hierarchy. For example, at the mobile company giffgaff, customers market, sell, and provide service to other customers. The company plays only a small role in these activities.

In addition, consumers are increasingly making the shift from push to pull. We only want content that’s relevant to our interests at a time that’s convenient to us. For example, on-demand services where you create your own viewing schedule rather than being tied to one defined by the network, such as Deutsche Telekoms “Entertain” service. Or tailored news applications, like Zite, which not only allows you to customise the content you get but learns which articles you like and increases its relevance to you over time. We no longer want to filter what is sent to us, we want intelligent systems to filter before we receive it.

In short, the boundary between professional and consumer is become less of a boundary and more of a spectrum. Take ;Kachiwachi, a Logictech customer who made over 40,000 posts to help other customers on the Logitech community, saving the company an estimated $100,000. Is he an employee or a customer? This is also happening in the opposite direction as we increasingly take our expectations and ways of working outside work into work. So what are the implications of this? As our comfort with working  peer-to-peer increases we want to get to the right individuals to solve a problem shifting away from hierarchies and corporate structures to communities, wikis, and other social tools. So rather than employees organising around functions there’s an increasing movement to organise around problems, regardless of where you sit in the business (perhaps someone in Finance has the best answer to a problem in Marketing). Equally, push-versus-pull means we want to move away from e-mail, intranets, newsletters, and noticeboards, towards personalised feeds that are exactly relevant to our interests or the topic we’re working on. Whether those feeds are news, conversations, or people we follow.

All of this is very uncomfortable for “the enterprise” as, in the same way that true social media adoption requires a relinquishing of control to customers, it requires a relinquishing of control to the employee. The challenge is that whilst we may want to take time to think about and manage the introduction of this Enterprise 2.0 way of working, many of the platforms that enable these approaches are already creeping in. For example, enterprise social networking tools like YammerSocialcast, and Chatter are all web-based with an entry point that’s free so they can be ‘installed’ without going through either the normal IT or budget review processes.

It’s clear that digital transformation is having an impact at a much broader level than just the business to consumer level. We need to understand and address these challenges because, whilst not all companies will choose to go down the social / digital route, increasingly the world out there is affecting the world in here. The blurring of the boundary between all these perspectives, work and play, physical and digital, consumer expectations and employee expectations, means that it’s unavoidable.

June 19th, 2011
bengilchriest

Will the next wave of digital transformation change everything for Australian retail?

As we’ve discussed both on this blog and at various conferences over recent months, ”digital”, fuelled in part by the incredible rise of social media and its maturation from a social to a real business tool, is having a resurgence. There are many echoes here of the early days of the internet with some commentators re-predicting the demise of bricks-and-mortar as large brands like BordersAngus & Robertson and Blockbuster go into receivership. Will this next wave of digital transformation really bring these predictions to life? Or are we looking at an evolutionary shift in the way that retail companies need to think about their operating models? Our starting point may seem an unlikely place to explore these ideas.

Since moving to Australia lots of people have asked me whether it feels like a long way from everything (we’ll get to the answer of that question a little later). Granted, it’s a hefty plane ride to anywhere, however, this geographic isolation makes it the perfect case study to explore how digital might be helping to shrink distances and allow retailers to enter new markets.

In a post-GFC (global financial crisis) world, home markets in the US and Europe have contracted sharply and although they’ve looked to maintain domestic sales, to find real growth many have started looking beyond their own borders. Australia is finding itself at the forefront of this expansion; the Australian dollar is at an almost 30 year high, fiscal growth rates far exceed that of many advanced economies, the population is culturally similar and the existing big brands are familiar even if they aren’t always available, helped in part by the record number of immigrations from the UK.  All of this adds up to Australia being a logical and attractive country for European and US companies to find growth. Gap, Zara, Costco and other familiar brands from both the US and UK are taking a traditional route to this, opening physical retail stores at an aggressive rate. Gap is looking to open between 10 – 15 stores in Australia over the next few years, Zara is expected to open up to 40 stores and CostCo has marked Australia as a key growth market. Whilst this gets the brand visible it subjects them to some of the challenges that local players are facing right now; high competition for retail sites, a known limitation for Costco’s growth plans, and some of the highest retail rental rates in the world.

Other retailers are looking to different, digital routes. Recently US retailers Macys and Bloomingdales both stated that Australia is a key market for them with localised websites in place. Australia is now the No.2 overseas market for on-line sales from the USA, second only to Canada. The UK shirt-maker TM Lewin is another example which has recently made the jump to a localised website for Australian buyers. John Lewis has also cited that its strategy is focused on taking advantage of the strong Australian dollar through a 100% on-line entry into the market. All of these companies are looking to tap into an on-line population that’s growing at 17%/annumis online much more than their US and UK counterparts and spent an estimated A$12bn last year (at per capita rates that’s comparable to the UK). Common to all of these companies is that on-line has allowed them to leverage existing strengths to take advantage of changes in economic growth between geographies.

The success of these ventures relies on the creation of a hybrid digital operating model, focusing on the core strengths of the existing, physical business, be that brand, supply chain, logistic etc. and then merging these with a digital offering to allow rapid expansion into new markets. For example, John Lewis is targeting expats familiar with the brand as a starting point, bringing us back to the influx of Brits, and through this build on existing brand and customer relationships strengths. In addition, it will use its not insignificant procurement strength to source the products, and manage the delivery (i.e. logistics) though partners, neatly side-stepping the need for any local retail presence or staff. TM Lewin has adopted a similar tact; focusing on the strength of the brand and customer relationships though diverting the existing supply chain and logistics run out of China Southwards rather than Westwards. In both cases they are able to react relatively quickly. At least much more quickly than a multi-year retail expansion plan, and at comparatively lower risk.

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Hybrid digital-physical operating model components

So what does this mean for Australian retailers? The local digital presence has a long way to go. Some commentators place Australia’s e-commerce market three years behind the US and UKand nearly 50% of Australian’s look to overseas sites to buy products on-line citing limited options from local retailers. In fact, many of the country’s largest stores have only recently added e-commerce capability to their websites. Harvey Norman, a major national electronics supplier, launched an online store just three months ago. David Jones, a local equivalent of John Lewis, made a similar move but again only in November last year. Competing through on-line alone will be a challenge given how far they have to go and how much further ahead and more experienced overseas competitors are. John Lewis, for example, has had an e-commerce site since 2001; moreover, it’s one that has won multiple awards, including being voted the best high street website last year. Local players have a lot to be worried about.

The main advantage local companies have are  physical retail outlets. However, digital still has a key role to play since on-line remains the main entry point for most consumers (over 70% of Australia’s internet users read reviews or discuss products on-line). The key is to capture the customer in the digital space and bring them into the physical via this channel. For example, Westfield is using an iPhone app to help their customers navigate and explore its Sydney malls, in essence blurring the boundary between physical and digital. Some companies are using other tools like augmented realitydigital signage, and ping marketing to blur this line even further.

So back to the original question; does Australia feel like a long way from everything? With the digital retail battle brewing and innovative hybrid digital operating models emerging right here, the short answer is, not anymore.

February 15th, 2011
bengilchriest

What can we learn from small businesses about social media and customer engagement?

We often look to “big business” for ideas on how to develop customer engagement; how Tesco use customer data to create relevant offers, or how airlines look to build loyalty through points schemes. There are several well documented examples of how the use of large volumes of data can drive customer insight and understanding. However, this is only part of building a customer relationship. As enterprises increasingly look to build trust and loyalty by replicating elements of human interactions through social media, what else needs to be considered and what can they learn from small traders? Where better to start than lunch?

There’s a counter that many people from our offices get their lunch from that also draws in a long line of people from the local area. Like most business districts the block is crammed with competition, all essentially selling the same product at the same price. And yet this little spot, tucked away on a side street, is always consistently busier than the competition. So what’s driving people to make the extra effort to reach this small corner of the city to buy highly commoditised products; sandwiches and coffee? The business is run by just two people, one front of house and one in the kitchen. For the front of house they apply three key principles to engaging with customers;

  1. Know who I am; know my name and what I like / don’t like.
  2. Respond appropriately; consider my current mood. Am I looking for a quick purchase, do I have time to explore new products, do I have time to engage in a more lengthy conversation.
  3. Make me feel valued; make me feel like a valued customer and reward me for my loyalty (but make this sincere by building it over time so I feel like I’ve earned it).

These are delivered through a social interaction with customers that migrates the association over time from transaction to connection and then relationship. Through this they’ve created loyalty for the outlet that transcends the product. The learning here is not so much the information they maintain about customers – CRM systems and loyalty schemes have been around for a while to achieve this – but what drives it, namely, an authentic and genuine desire to create connections with people. Clearly the targeted outcomes are repeat business and more revenue, but the objective is a real relationship with customers.In this case the success of the business is largely down to the individual who builds a rapport with his customers face-to-face. This isn’t the exclusive realm of the small trader though. Virgin Atlantic recently won an award for Best Airline – Transatlantic (from a poll of 17.5 million people);  much of this success being down to its frontline staff. It has achieved this by translating a fun, caring brand into reality by recruiting the right people and giving them the right training. However, when we take interactions that are dominated by a person-to-person contact and transfer them into the digital realm via social media, building relationships with customers is much harder to get right (and very transparent and viral when it goes wrong).

In a recent address the Pope made an observation that; “In the search for sharing, for ‘friends’, there is the challenge to be authentic and faithful, and not give in to the illusion of constructing an artificial public profile for oneself.” Although he was referring to the use of social networking sites for personal use the message applies to any application of social media tools. The challenge is to define a social media strategy that’s authentic objective is the development of a relationship with customers and remains true to the attributes of the company. This is not to say the business outcomes are forgotten, they are merely shifted down the hierarchy.

This requires a movement away from thinking about social media as another outbound channel, managed by PR, marketing or a small team of Gen-Ys, to something that’s a real strategic platform that requires some thought and a measured approach. This does mean slowing down to take the time to think. Which can be tough when there’s so much pressure to implement and it’s so easy to jump into social networking by switching on a Twitter account or setting up a Facebook page. However, as Laurence Buchanan points out in his blog. “The fast easy path to social media success; “just because you can do something fast, that doesn’t necessarily mean it’s the right thing to do.

So next time you’re heading out to your favourite lunch spot consider what makes the relationship authentic (or what’s missing that means it isn’t). There’s much to be learnt from the core of these and other exchanges in a business world that’s increasingly transferring highly human interactions into the digital realm.

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@BenGilchriest

A blog on on how businesses can respond to digital disruption and prepare for our digital future.

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