Steps to digital transformation success: start small and fast. First Steps to Digital Transformation Success: Small, Quick Start, the first in the Digital Transformation Process: Keys to Success guide, helps you understand the importance of transforming your business model through digital transformation (DX, DT, Industry 4.0) and emphasizes the importance of an incremental approach with success stories from Starbucks and Rolls-Royce. Learn how to start your DX journey with Small, Fast Steps.
Contents
Understanding the success and importance of digital transformation
Most organizations that are interested in digital transformation (DX) often set fairly ambitious goals from the outset. This is because the digital transformation success stories that have been shared in the market so far have focused on business model transformation. There’s also a sense of expectation on the part of executives that DX will do something magical. But like all things, the DX journey is a step-by-step process.
A successful business model transformation story: Starbucks
Let’s take a look at some of the best examples of successful business model innovation through DX. (DX examples) First of all, in the B2C field, Starbucks is the best example. Starbucks added a mobile service called “Siren Order” to its business model of selling coffee in offline stores. The idea was to move from in-store, face-to-face ordering to mobile ordering.
Starbucks also created Starbucks Pay, which allows you to make deposits and use them to pay in-store, as well as a loyalty program and various rewards programs, all through a mobile app. Now, Starbucks is naturally collecting customer information and will find new ways to use it.
Several recent research reports have called Starbucks the most powerful fintech company in the world. In addition, with the recent increase in drive-through stores, Starbucks is now offering a service that connects your license plate to your existing Starbucks membership, allowing you to pay by simply scanning your license plate without having to open the app. DX is at the core of Starbucks’ mobile-centric business.
Innovation in B2B: Rolls-Royce’s approach
The next example we’ll look at is in the B2B space, with Rolls-Royce‘s aircraft engine business. Unlike automobiles, aircraft engine sales work on the basis that when an airline places an order to build an airplane, it specifies which engine it wants to use, i.e. when Korean Air buys an airplane from an airplane manufacturer like Boeing, it orders the airplane to be built with a specific brand of engine. Like most manufacturers, Rolls-Royce’s business model is to manufacture and sell aircraft engines and then provide maintenance services.
More recently, however, the company has been adding a variety of sensors to its engines and using the data it collects to provide maintenance services. An aircraft engine generates 20 terabytes of data in one hour, which is a huge amount of data if you assume that an airplane has two engines and flies for an average of six hours. The idea is to use this big data to diagnose aircraft engine faults.
This is a very important service that can save a company a lot of money in terms of preemptive checks before an actual engine failure occurs. Rolls-Royce has also created a business model that is tied to a performance system that rewards airlines for reducing their losses due to engine failures, meaning that if they can reduce what could have been a week of downtime through big data analytics and proactive maintenance, they get a share of the airline’s revenue.
It could be argued that they are actually charging for the time an aircraft engine runs. Rolls-Royce has created a new business model by moving from the traditional model of manufacturing and selling airplane engines to charging for time spent in service.
An incremental approach to digital transformation
As you can see from the DX journeys of Starbucks and Rolls-Royce, their business model transformation didn’t happen overnight. It took a lot of trial and error and constant execution to refine it. Whether you’re a mid-sized company, a large enterprise, or a startup, these business model shifts are based on years of investment and experimentation.
While it would be great if all companies could follow the same steps and navigate the DX journey, that’s not the case, which is why we recommend that manufacturing companies start by digitizing the product itself. It’s about connecting your product to the internet and thinking about what information it can collect and, conversely, what information it can provide.
In the case of Rolls-Royce, we’ve already seen how the company transformed its business model from engine manufacturing to a data-driven service business. They started by connecting their products to the internet, which is to say, they started with what they were good at and gradually incorporated digital technologies and ultimately transformed their business model.
What if you’re struggling to digitize your flagship product internally? If so, you may want to consider DX as a way to streamline your operations, not as a new business model. Operational streamlining means reducing various costs in a company’s operations. If the application of technology in the value chain of planning, development, operation, production, quality, and marketing improves productivity and reduces costs, this is also a great DX journey. Automating production processes centered on the know-how and experience of skilled workers by utilizing digital technology, even if it improves the yield of the production process by 1%, will result in tremendous added value for the company.
Other activities include analyzing customer review data after a product has been produced and sold, or tracking usage data of internet-connected products to detect abnormalities early and prevent quality incidents such as recalls. In addition, predicting the number of sales of flagship products and estimating the storage period of accessories for product repair are other areas that can be streamlined through DX. For companies producing consumer products such as food and cosmetics, instead of conducting FGI (Focused Group Interview) in the market research process, they can mechanically collect various comments on SNS and analyze them to derive insights. This is also the journey of DX.
Digital transformation starts with small goals
The ultimate goal of DX is to create the conditions for a company to always be able to shift to a new business model that allows it to continue to grow. However, if you aim too high from the start, you can end up spending money and not seeing results, or failing to implement DX due to internal resistance. Instead, it’s best to start with small goals that you can implement in a short amount of time and see immediate results.