It depends of course on the industry, but many businesses can still do better at providing information about their offerings on the web — a simple stage-one technology. Others could think about stage-two strategies, such as interacting with their customers via an app or creating an online marketplace. An example of a stage-three strategy could be to think about what information you can gain from your data that could be valuable for your customers in real time. This could justify a switch to a subscription model, as we see happening in so many markets.
I rolled my eyes when I read the other day that a meal-delivery startup described itself as a “tech company” because they have all that data about their customers. But there might be some truth in it. From my inputs in their app, they know that I like spicy curries and that I don't eat raw fish. If they use that information to set up a just-in-time supply chain for fresh produce but also let me see where my order is at any point in time and maybe also provide me with additional content, for example in the form of tailor-made recipes, then they are actually closer to a tech company than a traditional grocery store.
“What would your business model be if you were founded as a tech company?” This is especially true if you are a brick-and-mortar company. Because if you don't ask that question, someone else will and will roll up your market.
Most businesses need to ask themselves, “What would your business model be if you were founded as a tech company?” This is especially true if you are a brick-and-mortar company, because if you don't ask that question, someone else will and will roll up your market. In other words, companies have to watch out that they don't get stuck in what Clayton Christensen called the innovator's dilemma.2
Alexander: What are some of the mistakes you see that lead to this dilemma?
Florian: Many businesses and organizations realize that there is value in digitalization. But they often just replicate analog processes in digital form, often with the goal of saving physical resources or reducing labor costs. In other words, they are stuck in what I earlier described as stage one of the digital transformation. The companies that are leapfrogging the competition are the ones that don't necessarily try to replicate the analog world, but use the digital building blocks from all three stages to create something completely new — including that customer experience that I just mentioned.
Audi, for example, doesn't give out paper brochures anymore, as most customers peruse Audi's website instead. However, the website doesn't provide that much additional value over a paper brochure. True, you can play around with different configurations, but if you want to buy a new car, you still must haggle with a car dealer over the price.
Contrast that with the experience of buying a Tesla. You can reserve a car and pay by credit card right there and then, just like when you buy a pair of Nike shoes from Zappos. And you never get any buyer's remorse that comes from being pressured by a car salesman.
It starts with the shopping experience, but it doesn't stop there. From the way you contact customer support to providing software updates over the air to unlocking the car with the phone, every rock of the traditional car experience has been turned over to see how it can be improved. Tesla was not successful in breaking into a market dominated by traditional firms because they made cleaner vehicles. Instead, Tesla built the first car for people who think of themselves as digital natives.
Alexander: What will happen to companies that don't level up in digital maturity and organizational readiness?
Florian: As one of my colleagues at Salesforce puts it, it's “digital or disappear.” The best examples are taxi businesses in many countries. Only a couple of years ago you would have thought that, because they are part of the service economy, they are immune to threats by technological innovation. With the rise of the so-called ride-sharing apps, we now know that that was wrong.
But it is a mistake to think that that is only because Uber and Lyft are cheaper. Instead, these challengers successfully built their business models on stage-two and stage-three technologies. They created added value by letting the customer order and pay for a ride with a single click on the app. Compare that with my experience, late at night after a trans-Atlantic flight, having to find a taxi driver at Frankfurt airport who was willing to accept credit card payment. It is mind-boggling that in this day and age many of them still insist on cash payment.
Don't forget the value that the Uber customer gets from having a real-time map showing the suggested route. Anyone who has ever been taken on the scenic route by a taxi driver wanting to squeeze the customer for an extra dollar appreciates this real-time information.
The fate of the taxi industry was not inevitable. The shakeup could have been avoided in two ways. First, taxi businesses everywhere should have emulated London black cabs, with their clean, spacious, and safe cars and their courteous, knowledgeable, and honest drivers.
Second, they should have done earlier what some taxi companies eventually did: they got together and introduced a taxi app.
Alexander: And how can companies increase their digital maturity? Which technologies or digital capabilities are essential for a digital strategy?
Florian: It depends of course on the industry, but it is no secret that machine learning and other forms of artificial intelligence are today's game changers.
I like to say that AI helps organizations “outsource decision-making to computers,” thereby allowing them to automate more of their existing business processes and create new offerings that were unthinkable only a few years ago.
The classic example of process optimization is banks that use algorithms to automatically approve loan applications that meet certain criteria. Some of the more innovative use cases that we have already talked about, whether self-driving cars, ride-sharing services, or smart toilets, demonstrate the potential this technology has for new products in all sorts of fields.
Alexander: But will every decision eventually be outsourced to computers?
Florian: No. While the realm of what AI can be used for will increase drastically over the next few years, there are still plenty of business decisions to be made every day that can't be automated, either because we don't have enough historical data or because we don't feel comfortable surrendering that decision.
This is where the often-cited data-driven decision-making comes in; I actually prefer to call it data-informed decision-making, because at the end of the day it is still the human who will make the decision. You want the human to be able to do so, after having consulted the available data. For that you need technologies that allow everyone in the organization to have access to the organization's data and to make sense of it — business intelligence (BI) tools.
Alexander: What other technologies are interesting besides AI and BI?
Florian: Cloud computing will continue to change things. Here in Europe especially, I see companies catching up in this space. Both in terms of the physical servers that their own app offerings live on, but perhaps even more so in terms of software as a service (SaaS) applications. It started with tools like Workday, which allows you to manage employee leave applications, but nowadays there is an off-the-shelf SaaS tool for almost any type of business process.
Cloud offerings like Amazon Web Services, Microsoft Azure, and Google BigQuery also allow companies to build their own applications and help power a lot of the AI and BI processes that we just talked about.
Besides these broad-scale technologies there are innovations that might be more specific to certain