By Tom Archer
Today’s digital transformation affects the very nature of how companies interact with their customers—and how their customers view them. Huge shifts in technology are occurring quickly, fueling increased volatility across established business ecosystems.
The consumerization of IT, the growth of mobile applications, the expanding role of social media in driving commerce, and the benefits of big data analytics and cloud computing are all pivotal components of this dynamic environment. As a result, CEOs need to continually re-evaluate their business models to ensure they are harnessing these tools correctly to maximize customer experience, identify growth opportunities, drive efficiencies and build market share.
PwC’s 16th Annual Global CEO Survey reflects this sentiment: Seventy-four percent of technology CEO respondents indicated that they expect to change company strategy this year.
The core of the decision-making process involves understanding how your organization operates within its ecosystem of customers, partners, suppliers and marketing channels. Before the digital revolution, business relationships were relatively simple and driven by clear product lines and direct relationships with suppliers and customers. But companies don’t exist in a vacuum any more, and ecosystems are continually changing and intertwined.
At one end of the spectrum are companies that offer only products because they have not developed services or experiences to accompany those products. At the other end of the spectrum are organizations that focus entirely on experience without selling products in any conventional sense.
Between these two extremes is a considerable range of offerings, with many possible variations. Some companies have added services to their products; others also sell an experience. But to stay relevant in the changing digital environment, all businesses need to offer experiences to their customers, if not focus entirely on services or experiences.
Companies that try to rely on their old product model will become outdated as their competitors move ahead. But this doesn’t have to be bad news. Shifting to a new business model can open new areas for growth. The key is to deliver a premium experience that meets the customers’ changing expectations, while ensuring that the economics of the model make sense for your business.
Customer expectations are being driven by interactive purchasing, personalization, digital presence, agile and quick response times, key performance indicators plus value and 360-degree feedback. At the same time, evolving engagement pathways complicate the picture. Companies should consider different delivery models, changes in discovery and self-service, cloud orchestration, and co-creation and co-delivery.
Some businesses have already begun to achieve success by taking advantage of the new digital ecosystem. Here are three examples:
· A tax software company moved from offering products and services to experiences and products. In its mature market, the company had already reached most of the manual tax filers, but needed to penetrate the professional tax-preparation market. To do that, it had to meet the expectations of the new digital era. Users wanted shareable documents such as Google Drive, a Netflix-like consistent experience on every device, and a capability such as Amazon’s to know what customers want before they do.
The tax software company is turning this challenge into an opportunity and taking advantage of the digital transformation by looking for alternative distribution models (e.g., professional preparation software) and enhancing its existing software to deliver new features, a more-tailored customer experience and tax assistance that can meet all these demands.
· A major technology company is making a similar transition from a product-and-services model to a focus on experience and product. Its consumer support organization handles more than 12 million calls and two billion views on its support site annually—and employs more than 5,100 engineers in 57 countries, yet the company has been directly interacting with less than 5 percent of consumers. It needed a way to extend its reach to the other 95 percent of consumers who were handled by the rest of the ecosystem.
The company is now executing a strategy that should provide an unparalleled consumer experience. It has co-created its strategy across its entire ecosystem and mobilized the organization to put the strategy in place. Currently, the company is preparing to launch this initiative to customers.
· A wireless technology business faced a different type of challenge. It was struggling with its payment system, in which third parties sat in the middle of the money flow between its vendors and customers. The business needed a way to reposition itself at the center of the money flow to help control the experience, take ownership of the customer and vendor relationships and data, and lower its costs.
The business successfully put in place a new legal entity structure and tax model, a global payments service with accompanying capabilities and processes, and a payments organization. Early indicators point to positive results for both customers and developers. The business is now able to expand more rapidly into other digital goods and services, and it’s projecting a margin benefit of 30 percent. That will add up to $24 million during the next two years.
These are just a few examples of established companies with strong products that are upgrading their business models to better serve their customers and harness growth in the new digital environment.
The digital transformation will inevitably affect your business. The only question is whether you adapt to change by developing a service- or experience-oriented model that will enable your organization to move ahead, or you stick with your tried-and-true business model and get left behind.
Tom Archer, based in San Jose, is a partner in PwC’s Advisory services practice and serves as the U.S. technology sector leader. He is also PwC’s U.S. leader for the digital transformation initiative.