In my experience when people ask for a digital strategy, or digital transformation, they are not always sure what they want. As such, too often they just get a project plan for a new website.
Digital technologies have been a catalyst to a new ‘industrial revolution’, but your strategy should not focus on those digital technologies. Just as the first Industrial revolution may have been catalysed by innovations in steam, and later electricity, the wise business strategy focussed on ‘machine automation’ and finding ‘economies of scale’ in the production process. Those new sources of competitive advantage were the opportunity, Henry Ford didn’t invent the car, he got rich from the efficient production process that built the car.
Similarly, digital technologies have made new sources of competitive advantage open to businesses, and it this finding this competitive advantage that must be the focus of your strategy, not the technologies themselves. Overwhelming the new source of competitive advantage in a digital economy is no longer ‘economies of scale’, it is something I like to call #CX4CA.
In the past industrial economy, to find competitive advantage you needed to own the means of production. You would organise a factory of many workers to divide their labour and hence increase the efficiency of mass production. Most twentieth-century strategies reflected this deepening the division of labour, across a wider and wider scale. Assembly lines in factories, outsourcing back-office functions, M&A to form global conglomerates, lean manufacturing, the theory of constraints, discovering new materials like plastics, business process reengineering, even the computerisation of business operations was often nothing more than creating a more efficient production line.
Digital technologies changed this location of competitive advantage for most (maybe all) industries. It is now hard to differentiate on efficient mass production; its more profitable to differentiate with empathetic customer experience.
That is what #CX4CA stands for: Customer Experience for Competitive Advantage
In my job I speak to CEOs who built their careers over decades by focussing on efficient production. They know all there is to know about improving the efficiency of producing their product. Be it manufactured products, financial products, government services, packaged holidays, cars, or anything else.
Those CEOs now have to change their organisational structure to focus not around the silos and work-stations of efficient production, but the horizontally integrated experience between a customer and their brand.
Efficient production is still important, but rarely does it offer a sustainable competitive advantage anymore. Just look at the recent news that General Electric Co. (GE) has dropped out of the Dow Jones Industrial Average, after its 110-year stay. Due to its extraordinary success at efficiently producing everything from nuclear reactors, to toasters, TV shows, railroads, and light bulbs, this super-sized conglomerate became the most valuable listed company in the world during the 1990s
Then someone moved their cheese. Competitive advantage is no longer where it was in the twentieth century. Hence, the same strategy that worked in an industrial economy no longer works in a digital economy of experiences. Just as when Apple replaced AT&T in 2015, this is another symbolic ‘changing of the guard’ between those organisations optimised around efficient production processes, and those organised around empathetic customer experiences.
Many traditional companies have a ‘digital strategy’ that has made no impact to their future, because it focussed on implementing digital technologies, not optimising the organisation to create a CA from it’s CX.
The stock market is now driven by the FANG stocks who were all built and optimised around customer experience. For example, Amazon started by selling books, the same books that were available in established bookshops; their point of difference was the way they sold them, their Customer Experience. Netflix, another of the FANG stocks, had the same films as the physical video stores like Blockbusters, they differentiated by offering a very different customer experience for the purchasing the same product. Uber is not successful because it has found a cheaper way to produce taxis or taxi drivers, it simply orchestrates a different customer experience. Airbnb does not more efficiently manufacture hotel rooms, it just mediates the experience of how customers interact with room providers.
If you are a CEO reading this and you have a ‘digital strategy’ or ‘digital transformation’ that does not clearly position your brand around #CX4CA, then you don’t have a strategy to find differentiation in this digital economy.
Digital transformation is more than a buzzword, it is a call-to-arms. Every CEO who wants to give her company a competitive advantage in today’s economy, should focus minds, by demanding a strategy to find Competitive Advantage from Customer Experience.
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