Continuous Digital Innovation

Companies that don't innovate on the digital experience and assets will die a slow death, but doing it right is harder than most think.

Everywhere you look, you see companies providing new and different digital means for customers and employees to engage with the organization.? Years ago, experts said technology leapfrogs organizations and their people every 5 years.? After a dearth of technological advancement preceding the internet, then that number shrunk to 3 years, quickly to 18 months, and now organizations just tell their customers and employees to get comfortable with constant change.? Technology is everywhere and individuals who cannot demonstrate tech fluency will quickly become expendable in the workplace.? Organizations that fail to create ways for their most digitally savvy customers to manage the company’s entire value chain on digital channels will see themselves on a fast path to declining revenues, maturity in their sector, and ultimately acquisition or even worse, closure.? We all know this as business leaders and yet organizations across every industry fail to invest in technology, advance the digital agenda, and innovate to serve their customers and employees better than with their current channels.

Many organizational leaders ask me when I meet with them, “what does digital innovation really mean?”? Like any good consultant, I answer the question very simply, “it depends.”?

• It depends on your industry, sector, and competition.? If you work in a customer – centric industry like travel, retail, or banking, your competitors have already set the expectation for what good digital interactions looks like, so you likely can’t catch up without major investments.? If you work in a B2B environment like large scale manufacturing or utilities, you have more grace with your digital enablement for the time being, because the expectations remain relatively low.? Your industry, sector, and competitive landscape dictate the need to have an E2E omni – channel experience that spans your entire value chain or simply offer “lipstick on a pig” digital enablement that allows customers to interact with what feels like a digital experience, with no downstream digital integration.
• It depends on your customers’ expectations.? If you’re customer segments trend on the younger or more digitally savvy side of the customer segments, you should probably enable their experiences at least partially through digital channels.? If your primary segments trend on the older side or less technologically savvy, you can get away without significant digital presence for now.? In regulated monopoly situations like say your local utility company, the customers have no choice to but to adopt whatever solutions you offer and it least until some of the low-cost of entry regulations go into place, your regulated monopolies have little to no incentive, with captive customers in the markets they serve.? Your customer’s expectations determine the level of digital interactivity you must provide, whether that’s a fully integrated system that allows for personalized experiences and customer lifecycle planning or simply an app that goes to a data input team that enters orders into a legacy OMS sitting in an AS400 infrastructure.?
• It depends on your board’s comfort with current performance and your overall organizational risk tolerance.? One could argue that risk exists on the top line and bottom line, particularly if your industry has methods that allow low-cost entrants to join, but boards more often than not look at bottom line profitability, focused more heavily on leaning techniques, rather than growth techniques.? Your Legal and Risk teams also play a role in your level of comfort with digital enablement, with many organizations preferring to operate legacy systems in self-contained data centers and holding off on their adoption of generative AI solutions, because they know how to contain what they have today.? Your organization’s risk tolerance will absolutely inform what digital presence you offer and what additive tools you use to drive a more dynamic digital experience.
• Lastly, it depends on the level of effort to transform your legacy technology into a digital organization.? The notion of digital experiences and modern tech stacks sounds appealing…until you assess your current tech stack and realize the investment required to transform your digital experience.? Many CIOs and CTOs recognize the short runways they have to deliver something meaningful for customers and employees, leading them to take shortcuts to achieve some level of digital innovation.? This many times comes at the expense of taking the right approach, fixing the foundation and then building on top of a solid foundation, but the time horizons for full scale digital transformation in a legacy company usually last longer than the technology leaders’ lifespan at the company.? Digital native companies certainly have an advantage in this realm, because they started with a modern code base, with modern tooling, in modern environments, but many digitally native companies have experienced short lifecycles, as competitors upgrade and update faster than they do.? So, your level of effort / investment to upgrade your current tech stack certainly dictates your organization’s willingness, comfort, and readiness to offer a more digital adaptive experience for your customers.

Let’s look at a few stories to talk about the spectrum of digital innovation and the challenges or successes organizations experience when making the commitment to digital transformation.?

In the first story, I’ll tell a story with tremendous opportunity, but a great cautionary tale of lost patience with long-term technology investment.? A successful regional bank that operated in traditional branch model in a limited footprint wanted to grow.? They evaluated acquisitions, regional expansion, and digital transformation, deciding that digital transformation made the most sense, given the reduction in branch traffic across all financial institutions.? They hired a dynamic technology leader and asked her to put a strategy and roadmap in place to digitize the bank and create opportunities to expand the customers beyond their chartered footprint.? The team decided moving to the cloud made tremendous sense, because that provided more flexibility for fast development projects, promoted better business continuity, and allowed for easy access to modern analytical tooling.? They knew their data lived in disparate sources, so they invested in the development of a modern data warehouse and platform to enable better business integration.? They knew taking a platform approach offered a faster path to the technology objectives, so they selected Salesforce for its modern CRM and modern capabilities, as well as the simplicity with which developers build custom objects on top of the platform.? The plan seems sensible and while the business case showed a substantial overall investment to modernize, the long-term ROI exceeded the initial investment.

When the work started, cracks started to show in the legacy tech stack that the team didn’t really know existed.? As they assessed the current application portfolio, they struggled to convince business owners to give up their legacy systems for more modern, cost-effective solutions, a major premise of the initial business case.? As the organization started the migration to the cloud, the team determined many of the organization’s legacy applications couldn’t operate in a cloud infrastructure.? When they conducted workshops with business and technology leaders together, they consistently made decisions to hold onto legacy applications, rather than selecting more modern solutions that performed the same workflows, forcing the team to move most of the application portfolio into an infrastructure as a service model.? As they built out the modern data tooling, they quickly recognized data quality issues that plagued the new platform’s ability to deliver accurate data sets.? And as they moved to a more modern core, they realized that many of the business apps present across the organization provided niche functionality, making it difficult for business owners to part ways with the tooling.? As time wore on and the ability to deliver on true digital innovation slowed, the board took a different direction and retrenched into a traditional community bank, with some (but not holistic) modern tooling.? I share this story not to show failure, but rather to show the importance of setting realistic expectations with your board and investors early in the process, so they don’t get disillusioned by the time it actually takes to transition a legacy organization into a digital – first company.

Now let’s look at a very strong organization, the second largest organization in a very large retail sector, which continues to struggle with its digital transformation, despite many years of effort and investment.?

Following the housing crisis and economic downturn in 2008, many retailers saw a need to create digital experiences that didn’t exist in their current value chain.? We saw major investments from organizations like Walmart who purchased jet.com , in an effort to accelerate their digital transformation.? We saw major investments by Home Depot to clean up their data and make better use of it to serve all customer segments.? In probably one of the best case studies for transformation, Macy’s doubled down on their digital presence and became a leader in the ecommerce space, all while using their stores as localized distribution centers for faster service in metropolitan areas.

During this time, the retailer decided to explore additional store expansion, building additional stores in the United States, exploring international expansion in North America, embarking on store design changes for urban areas, and entertaining expansion into challenging European markets.? Unfortunately, during this same period, the housing crisis proved much worse than expected, the entire retail industry suffered, and adding stores to the portfolio proved to be unworthy investments.? The expansion attempts in Canada and Mexico faced scrutiny and in Mexico, political instability, ultimately forcing a retrenchment in the United States.? Exploratory efforts in western Europe challenged supply chain operations and store design options, forcing the organization to simply make the decision not to explore expansion into potentially profitable regions due to unfamiliar circumstances in those markets.? All of these physical expansions occurred while their competitors advanced their data, digital offerings, and omni-channel integrations, better positioning them to push the proverbial puck forward when the economy returned.

Playing catchup in the second decade of the 21st century, the organization evaluated application rationalization, cloud mobilization, and data remediation to attempt to catch up to their closest competitors.? Unfortunately, the application rationalization proved challenging, because many app owners preferred their niche applications that served specific purposes over enterprise solutions with customizations that honestly cost more to operate the value delivered.? Unfortunately, the cloud migration proved challenging, because like many organizations, legacy applications didn’t run effectively in an IAS scenario, and they stopped halfway through the migration process.? Unfortunately, data quality proved so poor across all Enterprise data sources, the organization couldn’t build valuable data sets that helped improve top or bottom-line improvements, without a major data cleanup effort that the organization couldn’t justify.? Ultimately, due to poor performance outcomes from the physical investments, the board grew weary of large capital investment, and the organization found themselves unable to deliver an on-par digital experience to other retail competitors.

Rather than investing for the long haul and positioning themselves correctly for long-term success by completing the foundational investments above, the organization took short cuts, building an application that only leverages the previous 1 year of customer data to provide a dynamic shopping experience, without a tremendous amount of historical data.? They upgraded the UI / UX on the website, but still struggle with store fulfillment and inventory accuracy, frustrating customers looking for a seamless omni-channel experience.? Recently, they expanded loyalty programs, in an effort to correct missed loyalty opportunities in the past, and while the program seems to add value to the customer experience, trust in the failed loyalty experiences in the past leaves customers skeptical about the long-term value.? Since the organization’s initial success in 2021 during the early pandemic period, the company has seen their overall performance follow the retail market decline, while the company continues to fall further behind their key competitors in ecommerce performance.

Since I mentioned them as a great example of digital transformation success earlier in the blog, let’s go a bit deeper into the Macy’s story.? A long-time stalwart in the department store market, Macy’s opened its flagship store in New York’s Herald Square in 1858 and grew over time by opening stores in large, affluent cities.? As the middle class started to move outside of cities into the suburbs, Macy’s quickly took advantage of the suburban mall craze and added stores in suburban markets to augment their urban footprint.? Over the years, the organization certainly fell on hard times, going into bankruptcy, selling the business, merging with other department stores, closing a number of key properties in the second decade of the 21st century, and in 2018, valuing the three flagship property in Herald Square higher than the entire rest of the business, according to a Wall Street journal article I read at the time.? At that point, Macy’s had two choices…evolve or die…and they decided to evolve.

Evolve they did, and quickly.? Before I begin, let me acknowledge that this story is not a perfect example of a long running strategy that continued to evolve and respond to market conditions as the blog series discusses. ?However, the story tells a great resurgence, by transforming the organization digitally in a measured, methodical, and precise way, delivering greater value than the company ever experienced in the past.? Back to the story…Macy’s knew it had to evolve.? The suburban mall craze ended, many of those malls converted to other mixed used facilities or became dangerous places to visit.? Macy’s urban stores competed unfavorably against their department store competitors and the brand value continued to plummet.? So, they acted, taking control of their digital destiny, and evolving the company into one of the best run ecommerce organizations in the world.? Let’s look at what Macy’s did that helped them become such a successful ecommerce organization.

1.?????? They returned to their merchandising core.? Macy’s had prospered as a mid to higher-end brand seller, without all of the distractions of allocated space to partners, rented units inside stores, and other short cuts to make money.? On the digital front, they returned to the core merchandising strategy, focusing on the brands and products that middle and upper-middle class professionals desired.

2.?????? They took control of their inventory.? Unlike the retailer discussed above who continues to struggle with inventory management and product hierarchy, Macy’s conducted system – wide audits to understand existing inventory, demand profiles, and supply needs.? This enabled rapid redistribution of products to the right locations when customers ordered products.

3.?????? They simplified their application portfolio.? Much of this effort occurred prior to the desire to digitally transform (see financial issues throughout the company’s history in the above summary), but they made sure they didn’t have legacy applications in the portfolio that would hinder digital evolution.?

4.?????? They moved to the cloud.? Recognizing the flexibility and advanced analytical tooling offered by cloud providers, the organization moved to the cloud.? The flexibility of the cloud enabled their front-end developers to quickly develop customer-facing applications that enabled dynamic interactions and provided enhanced business continuity they didn’t always have in their wholly owned data centers.

5.?????? They recreated the dynamic shopping experience digitally.? The organization always known for amazing customer service, friendly in-store smiles, and easy shopping experiences made the same possible in digital formats.? With simple changes like shipping from the closest location, simplifying their delivery partnerships, and making everything available online, they made shopping digitally as dynamic as shopping in stores.

6.?????? They honored their commitments to customers.? They communicated openly with customers online and in the mobile app about inventory stockouts, wait times, delivery concerns, and other key data points that kept customers abreast of the shopping experience.? Then they worked with their delivery partners to update customers on delivery timelines, once the retailer transferred the product for delivery to the customer.

7.?????? They expanded their distribution network to get even faster.? As they saw results, they invested in additional distribution centers to increase proximity to their customers.? Many of these centers ended up in rural areas, so all customers could easily access Macy’s great products.

In the end, Macy’s digitally transformed right.? They put the right foundational pieces in place, ensured that they cleared potential blockers to dynamic customer experience (e.g. inventory controls and app rationalization), and then evolved further as they saw their competitive advantage in this space increase.

So, you’re a leader and your organization needs to digitally transform.? You’re wondering what you can do to replicate the success of places like Macys.? You have two options: buy a really good provider out there like Walmart did with jet.com to accelerate your digital journey; or take the steps to build your digital foundation, evolve it over time, and expand when the right pieces are in place.? Here are some immediate thoughts, using the positive examples as our model.

1.?????? Modernize your backend.? That means upgrade your infrastructure, with a likely move to the cloud, modernize your core platforms, buying existing platforms where you can and integrating in your custom applications, and adoption integration vehicles like Mulesoft that simplifies how the systems interact with one another.

2.?????? Rationalize your application portfolio.? When you rationalize applications, you go through the painful process of working with business application owners to sunset low value apps and replace them with more scalable, better price solutions to fund the digital transformation.

3.?????? Optimize your data.? For many legacy organizations, this requires them going back to the basics, setting up data dictionaries, installing data quality standards (and potentially a data governance tool like Collibra), remediating your data (or abandoning legacy data that requires more effort to modernize than its worth), and modernizing your data warehouses.? Once the organization remediates the data, organizations need to put that data into consumable tooling that allows for the data to seamless transition to where it needs to go when it’s called.

4.?????? Learn with a product mindset.? Product methodologies tie everything back to customer value and business outcomes.? They also rely upon prototyping exercises to test value on a small scale to baseline potential value, before investing heavily in the products.? When organizations define the desired value and create these prototypes for rapid testing, they learn quickly, advance things that work, and quickly stop investing in products that add little value.? When organizations assume they know what customers want and simply build technology solutions for the sake of competing with other industry partners, they typically overspend on technology and / or take shortcuts like our example that continues to struggle above.

5.?????? Develop high – value customer and employee products.? Products must deliver value, or they should not exist.? In addition, the products should deliver value to both customers and employees, any organization’s two most important stakeholder groups.

6.?????? Delivery with agility: Organizations can question the value of agility, based on the results of many agile transformations and in full transparency, agile delivery doesn’t work for all platform types.? It does work for front-end development though and the digitally native players like Meta and LinkedIn deliver actionable code multiple times a sprint.? You can see these by the subtle changes that happen with extreme regularity and if your organization does not evolve your customer – facing applications regularly, you won’t remain competitive long.

7.?????? Invest in your people.? Digital transformation is hard.? Many people grow comfortable in legacy ways of working and digital transformation requires organizations to work in completely new ways.? You cannot expect your people to join you on the journey, if you don’t invest in their skills, redefine the roles they place, and encourage them to adopt the changes.

Digital innovation is never as easy as organizations and leaders assume.? Taking the methodical approach, planning up front, defining the desired outcomes, reinforce the infrastructure, data, and platform core to ensure ongoing sustainability of your products, building products that enable those outcomes, and measuring to ensure your organization delivers continuous value leads to the best results.? Companies that take shortcuts, fail to invest in the early-stage efforts to modernize the legacy elements of their tech stack often fail to deliver the intended value.? They deliver fast results that quickly erode, once issues within the infrastructure, data layer, or APIs cause issues that erode trust in the platforms.? So take the time required to do it right or you’ll find yourself in the same position as the regional bank we discussed who had to stop their transformation after spending tremendous dollars to fix an unstable core or even worse, the retailer who continues to put lipstick on pigs to try to and provide their customers some sexy front-end solution that doesn’t have the sustainable back-end to ultimately support the long-term objectives.