SDI English Edition Newsletter : The value chain in the Digital Transformation Age

What are the impacts of digitalization on the value proposition of companies? How to anticipate transformation to offer new services to the customer?

We are in the "Digital Era", where everything is changing very rapidly, in society as in business, where in just a few years the way of relating and communicating with the customer, the way of doing innovation, competition and the very nature of competitors has changed, all the way to the way decisions are made, increasingly driven by data that has become a strategic business element.

The biggest change characterizing the business world is inherent in the digitization of the value chain in which the company operates; from the creation of the product/service to delivery/delivery to the end customer and after-sales relationship services. With digitization, the forms of the value chains in which companies operate, the actors involved in them, and the power relations among them have been radically transformed. Digitization changes the value that the enterprise "delivers" to the customer to create new actors and new values very rapidly. These profound impacts force organizations to rethink in order to anticipate transformation and continue to deliver value to the customer.

Customer Total Experience

In the past, it was brands that determined how they were contacted; today, however, to the customer must be guaranteed the maximum freedom of choice. Presiding over different channels and offering consistent service across them all, however, is not always easy. The truth is that there can be no corporate moment today that is not customer-oriented.

All touchpoints must be organized to build a single workflow, overcoming the limitations of a compartmentalized view into different areas of expertise such as sales, marketing or customer service.

There is a need to connect all the resources of the company and their third parties, to achieve cross-cutting systems with data and processes shared by all business functions. This process will be able to realize optimization of services, Cost to Serve, produce reports to measure the achievement of business goals and ROI.

Companies that succeed in the endeavor achieve concrete benefits. Increases in Customer Service productivity, improved service level and resolution of customer inquiries during the first contact, whether it is providing the consumer with relevant information or, even, closing the sale.

Satisfying the customer also increases revenue, the so-called consumer loyalty that grows by making them return to purchase. Giving voice to the customer, a seemingly trivial concept that conceals, however, complex mechanisms of automation and intensive digitization, which allow for the efficiency of many steps benefiting the consumer himself and the employees who relate to him.

The Covid pandemic years, introduced momentous changes not only in consumption patterns but also, we all know well, in the world of work. Employees are increasingly inclined to use smart tools that can facilitate them in carrying out their tasks, especially when consumer satisfaction is at stake.

A consumer who, let's remember, is clamoring for exclusive and personalized experiences. Brands embracing Total Experience models today can count on the fundamental support of technology: Real Time Analytics, Machine Learning, Deep Learning, Robotic Process Automation, etc.

Through AI, artificial intelligence, it is possible to deeply understand the behavior of each, individual and respond to their needs proactively, suggesting the Next Best Action to take.

Customer Experience is perhaps the toughest battleground for brands today. However, many organizations are still struggling with compartmentalized IT systems that are not yet aligned with new market challenges, which end up penalizing business agility and competitiveness. There is a need to focus on the "customer experience," while being clear about what value our offerings provide, focusing on the customer experience.

Digital tools help in implementing these processes on a large scale, in different countries, taking into account regulations and peculiarities affecting local culture and lifestyles, in an increasingly inclusive way.

With digitalization, the strategy and ways of relating to customers have totally changed; customer networks have emerged, where customers communicate with each other and no longer receive information only from the company that produces the product/service, but interact with other consumers through digital platforms.

The competition on "customer experience" is getting tougher and to the so-called law of "equivalent experience," the best experience lived by our customer is always a benchmark even if "lived" in other markets. The challenge today is to reinvent ourselves, comparing ourselves not only with "symmetrical" competitors in the same market, but also with the experiences offered by completely different industries.

Excelling in customer service

A brand's success is defined by its ability to achieve personalized and strictly omnichannel engagement, adapting in real time to consumer demands and constantly innovating processes. To achieve tangible results quickly, however, certain best practices cannot be ignored. First, customer and employee journeys must be mapped to identify intersections and possible areas for improvement. The second step is to break down activity silos, creating cross-functional teams that can collaborate on shared goals and practices.

Crucially, then, centrally manage data, creating what some analysts call a system of record, to understand where automation can come in. Last but not least, constantly monitor quality, not only the quality delivered but especially the quality perceived, operating with a view to continuous improvement. Two other aspects have important reflections on the Customer Experience, security and business continuity. These approaches require the company to be open to multiple channels and systems that must also be managed from a security perspective. This is why companies need to equip themselves with solutions that protect the integrity of the company's and customers' data through the use of management and monitoring services provided to protect the brand image.

Be Platform Oriented.

The platform business model impacts all sectors, and can be taken as a reference for a business model that can generate value by facilitating direct or indirect interactions between two or more different types of customers. The platform facilitates the relationship between different types of customers, creates the service experience, and most importantly, leads to scalable business models where, in fact, one does not own the "means of production" but the "means of connection," enabling new ways of responding to customer needs. Having a strategy that incorporates elements of typical platform business models, understanding and anticipating the impacts that existing or potential platforms will have on the market in which you operate is now inevitable.

Focus on Customer Value, whereas until a few years ago the main objective of the enterprise was to generate profit for shareholders, today the main objective is to create customer value, because it is important to monitor and anticipate the value changes that technological innovations enable in order to keep the enterprise "relevant."

This way of thinking is not yet so widespread, and an example known to all comes from the world of music, where if we focus on the value chain we see how radically the value proposition of the market has changed, new actors enable the enjoyment of only the favorite tracks and not the entire album, enjoy them on demand and everywhere, suggest new tracks to the consumer to his taste, and so on. Some players have disappeared and new ones have emerged. The overwhelming power of the record companies has decreased dramatically and, in fact, the power of the two ends of the chain has increased: the content creators on the one hand, that is, the musicians who can more easily self-produce their music and reach the customer through digital platforms, and on the other hand, the distribution platforms to the final customer. In fact, the value chain from the creation of content to the forms of its enjoyment has changed, and it has been created with much broader and more articulated, personalized and tailored value "benefits," which have brought about a change in consumers who have adhered to the new value propositions that the traditional industry was not offering.

Pandemic has completely revolutionized the relationship between the company and the consumer, who never more than now is looking for rich, unique and unrepeatable experiences that make them feel connected to brands. The very concept of customer experience has changed. The focus is no longer solely on the consumer and on his or her increasingly complex and changing needs; the buying experience is more multifaceted, complex and multidimensional, extending to include the interactions, digital and otherwise, that the customer carries out on his or her own and the services that are provided to him or her in various capacities by the company's operators-agents, consultants, technical support and customer care operators.

What Gartner in its "2021 Digital Business Acceleration Survey" calls Total Experience is gradually spreading throughout enterprises. A strategy that merges Customer Experience, Employee Experience and User Experience approaches: by linking these disciplines together and managing them in an integrated way across different touch points, it is possible to improve the quality of services, create engaging experiences, and maximize satisfaction and brand loyalty. Digital has empowered a new generation of smart, hyper-connected consumers. Customers who have more sophisticated expectations than their predecessors and are constantly looking for companies that can best meet them.

Having the Overall Vision of the Company.

Ignoring the real value of a company's intangible/digital assets when assessing economic value is a fairly common mistake. In fact, there may often be much more value attached to digital assets than would result in the first instance. Digital assets, especially intangible assets, account for much of the value of a digital enterprise to date. The process of valuing a digital asset turns out to be one of the most complicated processes in an M&A deal.

Be agile.

The enterprise must adapt quickly and be truly agile: it is not just a matter of adopting fashionable agile practices and organizational models, but of thinking agile.

The change of mindset is crucial. Analog companies operated in a linear world of "planning and control," where it was possible to predict the future, you could be in control of your environment and replicate "best practices." Today this is not the case, given the unpredictability of business, the digital mindset abandons the logic aimed at replicating past successful formulas, and incorporates the need to continuously innovate, experiment and learn. It is not just about replicating the past, but creating a new future.

Be Smart. In other words, "Be Data Driven." It is necessary to have clear strategic business objectives as a prerequisite to be able to focus on and select relevant data and have support from it in defining the direction and decisions to be made. Being Data Driven means promoting a Data Oriented culture as the core of business life, as well as using architectures and methodologies to produce, obtain, and exploit data in business logic.

Growing Human Capital.

The shortage of talent and specialized skills is a barrier to the adoption of emerging technologies.

Companies need to invest in skills. Consultants help companies untangle themselves within today's increasingly complex technological landscape by best directing investments and implementing an effective strategy together, but the soul of the company must come from within the company; driving the transformation, thanks to the consultants' suggestions but creating the new digital company using product know-how and internal processes.

Business development in the digital era does not only come through investment: it comes through the skills and know-how of the people who make up the company; to govern change and foster the diffusion of new technological tools. The obstacle that makes the road to achieving this tortuous is the scarcity of such digital skills.

Technological development runs faster than the system's ability to produce human resources capable of implementing it. Many innovations are in danger of having no development.

Many companies to acquire skills rely on universities, developing contests or joint projects to fish for the best innovation talent; a viable alternative turns out to be the acquisition of startups. This phenomenon defined as open innovation is also gaining momentum in Italy.

There is no doubt that the world of work is changing at the same time as increasing digitization and will certainly need new professional figures and corporate roles such as that of the CIO; companies no longer need the mere IT manager, who governs and runs the systems, but a liaison figure with the CEO and managers in charge of the business. He is not only responsible for directing the IT network, but will have to manage many other strategic areas for the company.

It should not be forgotten, however, that people are the beating heart of Customer Services and that technology is a powerful amplifier of their skills and abilities. That is why the importance of Employee Satisfaction cannot be underestimated. If the operator feels fulfilled in doing his job, if the company is able to support him with effective tools in his relationship with the consumer, he will be more likely to transfer this satisfaction to the customer by enhancing the brand.

Retain rather than seek, better to keep one talent in the company than to have to look for another to replace him; seeking talent is a cost, training him is a cost, "bringing him on board" is a cost. Listening and giving opportunities to people on staff costs less than replacing them.

Change Management

Change Management is a critical success factor of an ongoing Digital Transformation and should be considered as an essential component for success.

Digitization is bound to "revolutionize" the roles, figures and tasks of people in the company. This entails, on the one hand, the emergence of new professions and, on the other hand, the decrease of a certain type of employment, without disrespecting these figures.

Suffering will only be felt by those who do not understand the importance of evolving and learning. The real challenge that digitization brings is therefore learning to learn. This will probably also call for a rethinking of what are the school and training systems currently in place. We are living in a very interesting period, where what was relevant until yesterday is not relevant today, and where what will be relevant tomorrow will not be relevant in a few years.

Total Quality

Digital transformation puts Quality back at the center in all its declinations: quality of business processes, products and services delivered, and quality of the people who support organizations, offering challenges but in particular enormous opportunities to produce innovative products with excellent levels of quality, more efficiently. It is crucial to ask some useful questions. How will Quality be designed, built, and verified, starting from the product conception and development phase to After Sales? What new skills for people to be able to take advantage of all the opportunities provided by new technologies? What new roles to be included in organizations?

Model and value chain and the retail world

The retail sector is facing a moment of change, the adoption of a new digitized value chain model that combines multiple internal processes and data sources, from demand forecasting to pricing.

Indeed, when it comes to digitization, end-to-end process management is among the most important areas of investment for organizations. The result aims to have stronger, more stress-resistant companies that can navigate today's volatile business landscape.

Many retail companies have improved individual value chain processes with digital technologies. But back-end systems and fully integrated workflows are still a long way off.

One reason is that relatively few standard applications are designed to optimize the end-to-end value chain.

While new companies offer solutions that address certain activities such as purchasing, first product allocation, replenishment, and store transfers in a value chain; almost no single solution covers the entire value chain.

Therefore, brands must identify solutions that solve their weaknesses or custom applications, which require many resources.

At the same time, development costs remain high and companies face gaps in their technology stacks and talent pools.

Processes in the critical workflow in the retail value chain lend themselves to end-to-end integration, product performance, category performance, supply chain optimization, inventory management, and purchasing and demand forecasting.

Integration of key parts of a value chain pathway could speed to market faster, sell better, yes more , or at full price, and produce less by following inventory trends.

Product performance, or evaluating which products are selling well, shows the impact of end-to-end integration in practice.

A siloed pricing and promotion application could use artificial intelligence and machine learning to determine a product's promotional price by analyzing current stock, seasonal price, seasonal period, and expected elasticity.

Conversely, investing in end-to-end integration would broaden the scope of the application to also consider similar products already in store or coming soon, as well as expected returns or a range of competitors. Each of these data impacts the expected sell-through and thus the appropriate promotional price, which can ultimately increase gross margins.

Data-driven knowledge sharing has also helped Levi's determine the best locations from which to ship its products by identifying the store or distribution center closest to the shipping address, helping it control logistics costs and manage store inventory smoothly.

Integrating key parts of a route into the value chain leads to a marked improvement in speed to market.

New online retail players emphasize these concepts. The ultra-fast fashion player, Shein, has not only integrated its internal processes, but also linked those internal processes to those of its suppliers. This enables a fast and efficient ordering and replenishment journey. Using AI modeling to evaluate millions of social media posts across all platforms to determine which products to produce, while advanced analytics helps its design teams review the performance of design attributes down to details such as zipper and fabric.

With a vertically integrated supply chain using integrated supply chain software, Shein's designs could reach customers within about three weeks of their first conception.

Enterprise-wide machine learning, combined with a cloud-based data repository containing internal and external sales and inventory information, provides multiple processes with resources to make better decisions on everything from pricing to consumer marketing.