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Digital transformation involves turning the business around

Jan 17, 2019

digital transformationThe single most important message we’ve been trying to get across in all of our previous blog posts is that Digital Transformation processes are not linked to technology itself, but to the manner in which we use this technology to boost business (cost saving mechanisms, revenue, customers, etc.). Technology is a tool that must be used to its fullest potential, but properly. Investing in technology just for the sake of it or doing it without having previously assessed its impact and the return on the investment, is useless spending.

Therefore, from this perspective, the first thing to do if you intend to perform a (serious) transformation that goes beyond customer service or marketing initiatives (i.e., one that significantly changes the manner in which business and product offering is handled) is to carry out a comprehensive analysis to determine the reasons behind the transformation process and the extent to which the range of products and value propositions the company brings to the market must change.

As we have already mentioned in other posts on value proposition, the purpose of digital transformation is to leverage technology to improve company processes, equip existing products with digital features, and create new digital products/services that supplement the ones available (thus broadening the offer).

This leads to:
1) Creating a new value proposition: New products or services based on available solutions are offered to customers. This constitutes a radical change in the business model, since the value proposition is different.
2) Broadening the value proposition: The value proposition is maintained, and significant improvements are made in products or services, leading to a potential shift in the business model.
3) Improving the value proposition: The value proposition is maintained, and small changes that could have particular significance for users are added. This, however, does not constitute a transformation of the business model.

At first glance, this may seem no more than marketing jargon without any practical application. However, there are very clear examples in the market of how various companies from the same industry implement digital transformation differently in order to adjust their value proposition to market requirements. The automotive sector provides one of the most crystal-clear examples of the three items mentioned above:

1) Jiangnan: Improving the value proposition
Example of a company whose value proposition is to offer rudimentary cars at a very low price and invest in the technological transformation of its manufacturing process to add features to their models (making the product slightly more attractive whilst keeping the prices down). Thus, they became the cheapest car in China. Its value proposition does not change, but its differentiating factor (low prices) and product characteristics improve significantly.

2) Porsche: Broadening the value proposition
Car manufacturers first realized they had a problem with sales years ago. The latest economic crises have forced people to use their cars for longer periods than initially forecasted, while new trends attach greater importance to the use (and not the ownership) of assets. Ultimately, all car manufacturers have undertaken a transformation of their value proposition, allowing their customers to not just buy a car in the traditional way, but through monthly payments with service charges (such as insurance and maintenance), and also to trade in their old model for a new one every three or four years – which is something that every customer wants. This requires sophisticated changes to their internal ordering and billing systems and technological changes in the integration with dealers, insurers and workshops, which have entailed a major digital transformation in these companies’ businesses. The truth is that we could essentially have used any company from the sector as an example. In the case of Porsche, however, this action is particularly significant because not only has it meant an expansion of their value proposition, but also a diversification of their customer base to markets segments that were not accessible before.

3) Volkswagen: New value proposition
Volkswagen has implemented a huge and complex digital transformation process, introducing a new and revolutionary value proposition for their Transport and Trucks company – to the point that they have defined a new digital brand: RIO. In this process, Volkswagen has created a complete logistics platform that connects all players in transport and logistics (logistics agents, manufacturers, transporters using their trucks, and customers), giving some the opportunity to get a better price for their transport rates (e.g., by sharing routes) and others the ability to generate new customers. There is also an overall improvement in delivery times, since everything is managed from a cloud platform that allows route adjustments and processing new orders in real time. The origin of this platform is clearly to offer an added service so that transporters acquire Volkswagen trucks – which have it onboard as standard equipment – and, as they say, become the first step in a fully integrated logistics chain, which, if you think about all the players in this market, is something that has innumerable economic and strategic advantages.

Whichever model is chosen, one thing is certain: each of them will create changes and friction within the organization. In the first case, the rumpus will be milder, but in the last case, the organization is likely to go through a complete business transformation – not just a digital one –, significantly improving its business processes and results. And it will usually be for the better, which is what all companies embarking on this kind of process want. Or, at least, that’s what we at Teldat think. Stay tuned.


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