Following the panel discussion we had a special presentation by Professor Mikolaj Jan Piskorski, who often goes by Misiek, Director of the Digital Business Excellence Diploma and Co-Director of Leading Digital Transformation Program at the International Institute for Management Development (IMD) in Singapore and Switzerland, who will be presenting the digital transformation tool box for organizations in the digital era.
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While we all understand the importance of engaging in digital transformation, the implementation part is extremely difficult. In fact, when we look at the cases of what goes wrong with digital transformation projects, implementation is often the root cause. Research on the success of digital transformation at IMD revealed that there are several things you need to get right; you need the right strategy, the right speed, the right organization design, the right people, and the right culture. From this, you could already imagine a million ways in which you could get digital transformation wrong, while there exists only one way to get it right.
Professor Misiek then presented a case study of how Nike achieved success in digital transformation. Nike started from selling shoes before undergoing digital transformation. While it may not appear to be obvious why a shoes company would want to undergo digital transformation, Nike decided to shift a large amount of advertising expenses into digital transformation. Nike began by engaging its customers on its Nike+ platform. This way, Nike created an ecosystem with three different components: utilizing sensors installed on their products or sensors installed on phones to gather information on how people are using their products, creating new values to customers by enhancing the ways in which they could use the products, and allowing users to share their successes on social media channels. These three components have greatly enhanced their customers’ experiences. This is an example of how a shoe company created real values from utilizing data collected by undergoing digital transformation.
Essentially, this changes the way Nike market their product. With their sensors and application, Nike is now understanding how their customers are using their product, and therefore able to predict when it is time their customers may be wanting to replace their shoes. Marketing efforts can then be targeted towards the customers who are more likely to make the purchase to replace their old shoes.
Moreover, Nike could also utilize the data to decide which products are they going to target towards a specific customer. One problem with buying shoes is that people do not know what kinds of shoes they should be wearing if they are to be running on specific surfaces. By extracting location data and knowing where their customers are running, Nike could then recommend specific shoes that are suitable for the running surfaces of specific locations. As a result, Nike managed to increase their sales without spending a tremendous amount on their marketing budget.
Nike also discovered from their sensors that most of their customers are actually not using running shoes for running. In fact, vast majority of their customers are using running shoes for walking. From this data, Nike realized that shoes are actually used as a fashion accessory. This insight fundamentally changed the way Nike conducted their R&D and the way they created their products. From a running shoes company, where most of the R&D investment is focused on the bottom of the shoes to enhance running performances, Nike now focuses their R&D investment on the top of the shoes to provide comfort for walking and more fashionable designs. As a result of all of these actions, Nike’s sales increased by 30%. Here, Nike has demonstrated that with a clear strategy, utilizing data analytics from digital tools to get better insights could pave their way to increased business growth.
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After the strategy has been clearly defined, the next factor is speed and ambition. In order to succeed in digital transformation, we have to be extremely ambitious and we have to work very fast. Professor Misiek explained that digital transformation should be taken by steps. The first step is digitalization, which is to take every working processes and digitize them and consolidate those data in one platform. Nike took 4-5 years to get this done. The next step is digital transformation of functions. In Nike’s case, they changed their marketing functions through digital transformation, and they changed their R&D functions by applying data analytics. The third step is digital transformation of business, where we are creating new business models for more profit and growth. This third step is very difficult to do, and most companies jumping immediately to this step are failing. One of the companies struggling in this phase is General Electric (GE). The reason being that GE went directly into the digital transformation of their business by charging their customers for added service based of deep analytics technologies.
Therefore, the underlying implications of the cases Professor Misiek demonstrated in his presentation is that companies should not be jumping ahead and should be taking digital transformation step by step. One excellent case in Thailand is the case of SCB, who has started developing a lot of digital products, but is cautious in making digital transformation jumps. Likewise, Nike has been doing very well in taking their digital transformation steps cautiously. Many other companies had either stopped too early or gone too far.
Another factor contributing to Nike’s and SCB’s successes is that both of these companies chose a very particular organization design separating Nike Digital from Nike Shoes, with the Digital division reporting directly to the CEO. Nike allotted a huge amount of budget from Nike Shoes, forcing the two division to work together by delegating more power into the digital division based on budget. Nike then made Nike Digital a cost center rather than a profit center, therefore the people under the digital division are paid on completely different criteria. This allowed them to experiment on unusual ideas such as movement monitoring badges without any hindrance from the other departments. However, Nike soon realized that without the integration of the two departments, they cannot achieve their goal. Thus, they began transferring people from Nike Shoes into Nike Digital for more integration.
Several organizations in Thailand have also taken this approach. Professor Misiek gave an example of SCB who separate departments such as the SCB Data Science Department and SCB Digital Ventures who also reported directly to the CEO. Additionally, SCB also set up a new Data Science Organization called SCB Abacus. Although this seems like a very ambitious and expensive task, yet SCB is placing a bet by setting up a more distributed center of power to transform the organization.
The next factor for a successful digital transformation is having the right people in the organization. The most important people to hire are data scientists with complex skills who is also able to communicate on business terms.
A data scientist with all these qualities are extremely difficult to find no matter where you are in the world. Nike new found insights on what their customers are using their shoes for was also discovered by a data scientist who not only was a good data analyst or a statistician, but also had a good sense of business. Thus, it is important to find teams with overlapping skills that can communicate effectively. The key is to attract talents into your organization and retain those talents. Establishing employee branding from the inside out is one of the most effective way to attract talents, by having the people inside the company themselves acting as a brand ambassador to attract new talents. It is thus very important to educate everybody in the organization and make sure that they understand digital transformation.
Source : TMA_ Digital Transformation Forum 2019