Understanding Your Customer’s "Why?"

I recently delivered a talk to an audience of Project Managers and Leaders at a PMI Chapter in the GTA. We infectiously called the topic “Understanding your Customer Why”, a theme that has been inspiring me professionally in the last several months. The feedback from the session was very positive and this article will highlight some of the thoughts that I shared with the PMI team.

If you are a provider of digital products or services (either on the vendor or customer side), this article was written with you in mind with the objective of providing some nuggets on how to deliver greater impact. Whether you are in technology sales, marketing, service delivery, engineering, or product development, your role exists to impact (internal or external) customers and their businesses. To have a genuine impact, it is imperative to understand your customer's business objectives, technology objectives and the underlying "why" behind their decision to embark on a digital change journey. However, too often, deployment projects of new technologies are initiated with IT Teams with low involvement from Business Leaders and therefore little to no business context with respect to the project's strategic objectives (or said differently, little to no understanding of "why"). The following paragraphs are intended to motivate technology providers, IT Teams and their leaders to invest more time in aligning to the business and the "why".

Let's face it, change is hard, disruptive, and most people tend to prefer the status quo and avoid change, if at all possible. The people who run businesses are no exception. However, experience has shown that people and business are willing to take on the disruption of change when the cost of remaining stagnant becomes greater than the cost (or pain) of change. There are increasing examples of this need to change across all industries, geographies, and markets as technologies such as Cloud, Artificial Intelligence, or Machine Learning (to name a few), disrupt existing ways of doing business and introduce new opportunities for growth and provide a means to retain a competitive position in the marketplace. ?

In the following paragraphs, I will offer nuggets on how to increase the probability of success when attempting to implement digital solutions. The examples provided are inspired mostly by the realities that exist in the corporate space, however I believe that many of the principles that we will review also apply to government and non-for-profit.

With this in mind, we will explore 5 topics:

1. Why digital transformation projects fail.
2. The factors that compel businesses to invest in digital solutions.
3. The Power of Corporate Culture
4. A few words on Cloud Economics and Finance
5. The Promise of Value

Why Digital Transformation Projects Fail:

According to studies conducted by Gartner, IDC, and others, there is a common narrative across all analysts when it comes to understanding success criteria for digital transformation projects. When examining success criteria across strategy, setup, execution, and business expectations, several factors come into play. Let us quickly explore a few of these factors for context.

Strategy: Strong executive vision, alignment, clarity on requirements, and defining business success are critical. While IT Teams play a crucial role in any digital transformation project, the ultimate goal is to impact the business. Therefore, it is essential to have strong business sponsorship and involvement in project leadership.

Set-up: This topic typically includes project-based deliverables such as capacity, tools, and project design. At times tools, don't align to business processes or have inadequate functionality.

Execution: Communication and project management are vital components of success. However, the business's willingness to embrace change often determines the organization's ability to execute effectively. Success in this area is a matter of understanding corporate culture and the organization's tolerance for change.

Expectations: Additionally, the project's expectations should be directly tied to the overall strategy. Ideally, realistic outcomes based on strong financial business cases, achievable timelines, and appropriate funding aligned with ROI expectations should be established. Unfortunately, this is not always the starting point due to silos, business velocity, or inadequate business consulting.

The factors that compel businesses to invest in digital solutions:

To explore this topic, let us now pivot to Business Strategy and begin by covering 4 Business Growth Strategies for context. Success in any digital transformation project hinges on understanding the business goal driving the project. Business goals often fall into one (or more) of 4 growth strategies: Price Strategies, Cost Strategies, Market Share Strategies, or Market Expansion Strategies, to either increase revenue or margins to ultimately drive profits.

Digital transformation initiatives usually support one or more of the growth strategies mentioned above. There are exceptions such Security-driven or Compliance-driven Projects. For now, let us focus on the 4 growth strategies as core value drivers and we'll get back to these last two, later.

Price Strategies: For example, Price Strategies often involve adding features to existing products or services, enhancing product quality or improving customer experience to justify increasing prices.

Cost Strategies: These may focus on increasing productivity, process innovations, or improving spending control.

Market Share & Expansion Strategies: Share strategies often involve enabling sales and marketing, while market expansion strategies might be facilitated by partnerships, mergers, or acquisitions.

The authors at Acquire.io, wrote a good piece on this very topic in their article titled 10 Successful Digital Transformation Examples to Copy. The article offers stories on how Digital Transformations supported growth initiatives in large organization by impacting customers, employees and suppliers in support of growth strategies. For example, United Airlines met customers wherever they are by providing a mobile app that allows customers to book flights, check-in, and track their flights (likely a price or share strategy). In another case, they describe how Ford Motor Company breaks-down barriers by using data analytics to improve its supply chain management (likely cost or expansion strategy). The New York Times is now using machine learning algorithms to personalize content for its readers (likely share strategy) and Starbucks implemented mobile payments and ordering through its app (likely price or share strategy).

Such examples remind us that IT Project are meant to support the digital transformation, and to increase the likelihood of success. It also reminds us that the project's objectives should align directly with the desired business results.

What is important to understand is that such business results are likely to fit within one of the four growth strategies we’ve reviewed (if not, the project is likely being initiated to support a compliance initiative or data security initiative). As such, alignment between IT leaders and business leaders is often critical for the success, with a clear understanding that the goal of digital transformation is to drive business outcomes and impact. Said differently, although IT is the common entry-point for such projects and that the CIO, and their team are at the heart of all digital transformations or change management, the true primary stakeholders of most digital projects are the business, its employees, and customers (not just the CIO or the IT team itself). Reading between the lines, this article is really about enabling CIOs and IT leaders to have better impact on the business by supporting them to establish project cultures, frameworks and tools that align to business, technology and finance.

Coming back to the other value drivers, being Compliance and Data Security, these are other important business outcomes that also need to be considered. In brief, Compliance is usually binary, as many businesses cannot/should not function in any sustainable way if they are out of compliance with regulatory, financial, employment, or Board requirements. While Data Security (and Privacy), on the other hand, impacts business continuity, reputation, and brand equity. As a result, these are additional factors that can impact many if not most digital transformation projects including those anchored in any of the growth strategies. Understanding which value drivers or combination of drivers are being impacted by the digital project is essential to success.

Reading through the Acquire.io article are you able to categorize each of the 10 projects into its rightful growth strategy or strategies? ?

The Power of Corporate Culture:

Understanding the impact across Business, Technology, and Finance (with Compliance and Security as constants), is crucial.

While IT teams are focused on creating capacity and increasing agility from a technological standpoint, understanding business impact means understanding how any digital transformation initiative will ultimately impact your client’s customers, employees, suppliers, operations, and financials.

Culture impacts decision-making, decision-velocity, and tolerance to change. The Competing Values Framework adjacent is a great framework to help demystify a client’s business culture and offer a foundation to develop your Change Strategy.

Yes, successfully deploying technology is an important step in the journey and while that is often the first task at hand on the transformation journey, the eventual priority becomes utilization of the new capabilities. Meaning that often the top objective is having new tools and processes adopted by people while also decommissioning legacy tools and systems. This can only occur with a sound change management strategy predicated on a deep understanding of the customer’s culture. Understanding your customers "Why" means getting deeply curious about change strategy and as we have stated, change is often difficult to manage.

A few words on Cloud Economics (the role of Finance in measuring impact):

Finance offers valuable insights, and the CFO is an important ally! They know that not all dollars are created equally in finance. For instance, one dollar of revenue impacts the profit and loss statement (P&L) differently than one dollar of operating expenses (OpEx). Similarly, one dollar of cash affects the balance sheet differently than one dollar of depreciation.

Understanding finance in our context means comprehending how a digital transformation initiative and its associated costs impact the balance sheet, cash flow statement, and/or P&L.

Be aware of what I call the “cost trap”. Meaning that, not all costs are created equal and should be treated as such. For example, in a typical “on-premises to cloud” migration project, the cost of capital has a different impact on cash flow compared to operating expenses. As the digital project progresses, capital costs should decrease, while operating expenses often increase. This shift in costs affects cash flow.

To achieve business impact and success, it is crucial to understand how these costs are measured, how they evolve over time, and on which financial statement they impact.

The Promise of Value:

In this context, value is synonymous with return on investment (ROI). When an organization invests resources in a digital transformation project, it expects a return on that investment. In an on-premises environment, ROI is often driven by cost reduction, such as lowering the cost of capital, maintenance, depreciation, and labor.

In a cloud environment, costs are variable based on usage, necessitating a measurement of value. To measure value effectively, firms adopting cloud services must better correlate the variable cost of their cloud subscription to the innovative value that such platforms can offer. Digital leaders and IT Solution Providers need to consider how they will correlate value to the cost of their new platforms. It is a matter of quantifying the Impact of the new technology to value drivers like productivity gains, quality assurance, customer/employee experiences, etc. If businesses don’t measure value, how can they prove its existence? If businesses don’t measure value, how do they justify the cost of the project itself? Succinctly, without an understanding of value, ROI and how both can be measured, eventually such initiatives will be considered a failure.

“Cloud costs are like other technology costs, they’re only worthwhile if they’re providing a business capability that is more valuable than their cost.” – Sonia Cuff, Cloud Advocate Team Lead, Microsoft

Conclusion:

In order for technology providers to drive genuine customer impact, it is imperative to understand your customer's business objectives and the underlying "why" behind their decision to embark on a digital change journey. In that endeavor, we also covered that it is equally essential to embrace the financial math driving these projects and stay hyper-curious about the value of your customers’ outcomes. We also covered that it is essential to recognize that the business, its employees, and customers are key stakeholders of most digital projects, along with the CIO and their teams.

By understanding the underlying reasons behind your customer's journey (their “why”), leveraging the power of culture, comprehending the role of finance in measuring success, and delivering on the promise of value by investing in tool and frameworks that support these specific endeavors, technology providers have an opportunity to deliver successful digital transformation projects, and measure meaningful business impact.