Digital Business: Chasing Rainbows
What Do You Do?
It was a typical evening at a typical networking event. I had just worked my way through some canapés and was sipping my wine appreciatively, when I found myself next to a lady who I recognized from the panel discussion I had just attended. She was a board member at a mid-size company, in the food and beverage business. We exchanged smiles and she said, “What do you do?” “I’m a digital strategy and innovation consultant,” I replied. I could see from the arch of her eyebrows that further detail was required. “I help companies with digital strategy and initiatives,” I continued.
“But what do you do?” she said with a clear emphasis on the last word.
On that occasion, I ended up mumbling something about digital technologies and disruption models, and probably left the lady feeling very confused about what I did. And I remember being angry with myself for a long time after that. This was the classic elevator pitch question, and I fluffed it. Who knows, there could have been a great consulting opportunity at the end of that conversation if it had gone differently. Clearly, I needed to find a better way of expressing what I did.
It also made me reflect on the fact that many clients have had a very different definition of what digital means to them. In fact, for many companies that I have known, digital is a sales and marketing issue, or restricted to the customer interface. For others, it’s just a technology upgrade. As you can see, an immediate challenge for me was to establish the right definition when talking about digital. A part of the challenge of this answer is the frame of reference of the person asking the question. To highlight this problem conceptually, let me tell you a funny story about some classmates.
This young couple went house-hunting in Mumbai in the mid-1990s; they were freshly engaged and freshly graduated from business school. He was working for a leading strategy consulting firm; she had just joined a credit rating agency. A prospective landlord asked him the name of his employer, and then said: “so what do they make?” A little taken aback, he explained that they provided strategy consulting and advisory services but didn’t actually make anything. It took a few rounds of questioning for the landlord to get his head around this. He then turned to her and asked the same question—“where do you work?” and “what do they make?” At which point, the real estate broker who had been patiently listening to this exchange burst out saying “they make gajar ka halwa!1 how does it matter to you?” (Gajar halwa is a popular Indian dessert, made with carrots.)
The point is, how much of a jump are you making in your head to understand digital business? For the landlord in my story, the leap from a manufacturing world of making to a world of services—of doing—was a paradigm shift he struggled to handle. From the time that I started working on web technologies and solutions, I found it very hard to explain to my grandparents exactly what I did. Especially at a time when nobody had Internet at home, so there was no personal experience to draw on.
So … What Is Digital?
As I was saying, despite working in the digital space for years, I was quite stumped when I was asked to define it. Sometimes you can get away with circumlocution (or, to use the technically correct term, waffling!) But given all the hype around digital transformation, I felt that it was a good time to create a working definition. The problem with definitions is the tradeoff between pithiness, abstraction, and comprehensiveness. You can be very pithy but be too abstract, for example, “Digital is the future of business.” Or you can take a whole page to define digital, but that’s a description and not a definition.
I’m happy to say I’m willing to stick my neck out and try and define digital in less than 25 words. Here’s my definition, and I invite you to challenge it, differ with it, or adapt it as you wish. This book uses this definition as a means of structuring the discussion on doing digital.
Digital: exploiting emerging technologies to create customer (user)-centric experiences and data-driven decisions, leading to more agile, competitive, and responsive business models.
(To a nonbusiness person, such as the landlord in my story, a somewhat simpler definition may suffice—using computers to make our lives simpler, and our services and products cheaper and better, but the definition above will work for you as a business person.)
Let’s break this up.
Emerging Technologies
Emerging technologies are the driving force of digital. It’s the reason why we’re having this conversation. But there are many technologies emerging and evolving simultaneously, today.
The frontend: The two big bang events for digital was the creation and adoption of the Internet and the launch of the smartphone. The first of these, the Web and its evolving technologies such as HTML5 and JavaScript associated frameworks, continues to evolve to deliver slick websites and applications. Social media is just one of the places we can see this at work. The latter put powerful computers into people’s pockets. It democratized access and provided a platform for almost all the other innovations.
The next wave of frontend technologies includes Internet-connected sensors and devices. We are seeing a large-scale adoption of the Internet of things (IOT)—connected and smart objects have the potential to change everything, again, in the way we buy and consume goods and services. The majority of these sensors may have no screens. They may have a voice-driven interface, or they may have no human interface at all—being largely used for machine-to-machine (M2M) communication.
Behind the scenes, a set of technologies that I call digital infrastructure is evolving as fast as frontend technologies. Moore’s law is being stretched to the limit, but the cost of computing is still heading down, leading to significant improvement in computational capabilities. We are moving our infrastructure to the cloud, creating better means of connecting digital applications to legacy systems, and witnessing the everyday evolution of security-related technologies.
Customer-Centric Interfaces
All this fantastic technology would simply not be usable if it wasn’t for design thinking and service design methodologies. Some of this is commonsensical should have been the norm. But the mind-shift is seismic. Industry leading businesses have recognized the need to be customer journey driven. I use the word interface in a broad sense here and not just restricted to screens. The question to ask is “how do your customers, partners, and even employees interface with your business?” Historically, businesses decided how they wanted to run their processes and designed systems and interfaces to match those desired processes. If a bank’s preference was for the customer to be in the branch while opening an account, that’s how the processes and systems were defined. In the digital world, those interfaces are conceptualized outside-in. This means the starting point is the user. How does the prospective customer want to open the account? What are her constraints? What would make her choice easer and her experience better?
Data-Driven Decisions
Implicitly or explicitly, every decision we make (what to wear to work, for example) is made on the basis of data that we process (what meetings do I have? What is the dress code? What is the weather?). Complex decisions require more sophisticated data. Historically, this data has not been available to us for many large and small decisions. How much to spend on the marketing campaign? Where to open the next store? Who to hire as a program leader for a new business area? How to implement a hot-desking policy? As a consequence, most businesses have relied on experts for these decisions, whether they are from within the business or consultants brought in for the purpose. Experts use their wisdom, which is often an implicit accumulation of data from deep experience in that area. What we are witnessing, thanks to digital interfaces and instrumentation, is a collective shift to more explicit data-driven decision making. To do this, we need tools that can store and process gargantuan volumes of data being gathered and processed at ever faster rates. If you’ve read Michael Lewis’s 2003 book Moneyball, this is exactly what he speaks about in the context of baseball, and how Billy Beane used data and metrics to assemble a competitive team for Oakland Athletic, despite a modest budget, when everybody else was still working off their experience and instinct.
Competitive and Responsive Business Models
Stripped down to its barebones, a competitive business is simply about serving customers better, faster, cheaper (than your competitors), or some combination of these three. Digital native businesses tend to be better at all three. In part, this is just the benefit of more contemporary tooling. But it’s probably more significant that digital businesses are also more responsive. We are used to stability and to treating change as a temporary disruption between periods of stability. Not dissimilar to moving home. Increasingly though, we find ourselves in a state of continuous change. The disruption is not a passing inclemency, but it is the new normal. Think of moving from a house to a caravan, for example. The combination of technologies, design thinking, and data surfeit allows us today to build a responsive and adaptive business model that is able to keep pace with a fast-changing environment. The idea is to not just go get ahead, but stay ahead. Agile methods, and the continuous optimization of businesses and functions, are some of the areas we discuss later in this book.
Connect, Quantify, Optimize
A conceptual understanding of digital is useful, but an execution model is probably more valuable. Connect, quantify, optimize (CQO) is my execution model for digital, and this is why I’ve structured the book around the CQO model. This model didn’t come out of academic research or a moment of epiphany. It came out of dozens of projects and programs with progressive waves of new technologies, out of which the patterns emerged.
In a nutshell, it looks at a cyclical pattern. Good connections—that is, digital interfaces such as the Web, mobile, or sensors lead to high-quality, abundant, and granular data. Companies that reshape themselves by putting this data at the heart of their businesses can optimize their entire business for the digital world. You can also optimize a single process or function. The CQO model works at a project level. But you can apply it to the idea of organizational transformation as well.
Eric Ries in his excellent book The Lean Start Up refers to a startup business as a learning machine. This is because they are able to run this CQO cycle at speed and at scale.
The CQO cycle is virtuous. The more data you get, and the more innovative your optimization cycles, the more powerful your new interfaces and digital connects. Consider the example of Amazon Alexa, and just for the moment, put aside the privacy concerns for the sake of this illustration. Alexa is an almost purely voice-based interface. But thanks to the echo, if you regularly listen to music with a sleep timer often, Amazon knows what time you usually sleep. If you listen to the news in the morning, Amazon knows when you’re up. There’s a lot of available third-party analysis that can probabilistically deduce things about you from your music choices, including for example your political leanings, your socio-economic status, and your age. Amazon already knows your address and your taste in books and what kind of products you buy online, how many kids you have at home and their ages and genders. In fact, Amazon has a patent for anticipatory shipment.2 In other words, they ship products to a location near you before you’ve actually ordered them. It is likely they will travel on Amazon’s own planes, and possibly, in future, get delivered to your doorstep or your balcony within 30 minutes of ordering, thanks to Amazon’s drones. The point is that Amazon can continue to optimize its business successfully because it’s getting the connect and quantify stages right. This is data-driven and industry-shaping digital transformation. For the record, Walmart or Tesco would also know almost as much about you as Amazon does, if you shopped there regularly.