The Very First Step in Unlocking Digital Value in Your Old-School Business

For leaders of traditional industrial and business service companies operating in eroding markets, the typical daily experience is one of keeping existing customers from leaving, holding onto already scant revenue and margins, and staying alive. Entertaining thoughts of getting lots more new customers or becoming more profitable is a rare luxury amidst constant fear of new digitally native attackers turning the industry on its head, or existing competitors retooling themselves to take away what little of the market is still up for grabs.

If you are a CXO or senior leader of such a company, you already know that the deep and disciplined operating expertise and relationships you’ve built over time are indeed very valuable, but also wonder how you can turbo-charge that with “Silicon Valley magic” so you can become the cool new digital, data-driven kid on the block. At the same time, you are skeptical of the hype around “digital transformation” and suspicious of consultants and vendors pitching proprietary solutions as the way to unlock digital value. All of this can be confounding!

So, what’s the clear-headed, strategic way to get your arms around all of the potential new digital value you could generate if you were to “reimagine” parts of your business, or simply make better use of existing and new data and insights to make smarter decisions on how you operate? How do you know what the right priorities should be, what the key risks are, and what kind of investment and organizational commitment is needed to take on this challenge? 

The very good news is that the first “no regret” step to getting started is actually pretty clear, though surprisingly still a secret for many.

The best way to get started with any digital initiative, however narrow or transformational, is to do a thorough investigation (“diagnosis”) to identify and size all of the potential sources of value that are available to your company, whether incremental improvements or radial changes to how you operate today.

This involves sorting through all of the major activities you undertake to identify key leverage points (“value levers”) where new digital experiences, tools and accompanying data can bring tangible and substantial benefits. When done right, this includes a careful look at key customer interactions you currently perform, activities your employees undertake to serve the customers, and digital tools and techniques that can be introduced to enhance or optimize each of those touch points or activities.

As you do this, the value levers will naturally fall into one of three categories:

• New revenue (e.g., increase frequency of use of your service along with customer lifetime value by introducing convenience via a new or simplified customer app)
• Cost savings (e.g., decrease the number of unnecessary service visits while improving equipment uptime via remote problem resolution)
• New business models -- and possibly, new customers and markets (e.g., create and sell new data products or services, switch to value- or outcome-based pricing contracts, reorient a previously offered product as a subscription-based service)

For each such value lever, you will want to identify and size the specific and measurable business benefits that new digital capabilities could bring. The initial versions of this do not need to be highly precise, as ballpark estimates will do. But the exercise does require thoughtfulness and persistence to make sure you are pulling in reliable sources of internal knowledge and data, considering the right factors that influence various activities, and making reasonable assumptions about the size of the opportunities. One key is to do a number of quick passes through this, with increased levels of “reality checking,” stress testing, and estimate tightening in each successive iteration.

The main output of this exercise is a detailed spreadsheet model with the key levers and their respective value potential, along with assumptions that can be easily modified so you can test alternatives and sensitivities to various factors and changing conditions. The best of these business case models should ideally also support exploring alternative rollout scenarios (e.g., “What if we equipped only half the service locations with new IoT technology?”). While the initial version of this model can be fairly simple, it should be designed with the intent of evolving it into a valuable and reusable navigational tool that lets you to revisit and refine earlier assumptions and incorporate new learnings in the case you decide to move forward with operationally validating some of the value levers through experiments and pilots.

This is pretty detailed work, and requires clear thinking, good analytical and modeling skills, as well as fairly broad and deep knowledge of operational activities and digital value creation techniques. So, you will likely need to tap into the right outside experts to help pull it together.

Understanding digital opportunities and their respective value is of course not enough to set priorities and move forward. You will also need understand the feasibility, challenges, and risks of each opportunity, and get your key leaders onboard and aligned (we will cover these topics in upcoming articles). But doing a quick diagnostic to get a clear sense of where and how much digital value is available to you is indeed the right first step when exploring how to revitalize your business via digital.

[Sugath Warnakulasuriya is the Managing Director of Thalamus Labs, which helps traditional, asset and labor intensive industrial, business and consumer companies find new sources of digitally-enabled growth and accelerate value capture using latest technologies and business-building techniques. He can be reached at [email protected]]