It’s good but it’s not a digital transformation

b+ on exam paperThe digital age brings the threat of disruption to all industries and organisations. And companies that cannot or do not make significant changes to their business model (and make these changes quickly enough) in response to a disruption are unlikely to survive.

Earlier this year a global survey by Forrester found that 93% of business executives believe their business would be disrupted by digital within the next 12 months. It follows therefore that every organisation should be transforming for the digital age so that it has the best possible chance of surviving when the seemingly inevitable disruption happens.

But transforming into a digital business is not just a defensive move; research by MIT Sloan Management Review and Capgemini Consulting found that companies recognised as digital leaders generated 9% more revenue and 26% more profit than their industry average. They also achieve a 12% higher market valuation. By being first to transform, these companies are proactively redefining their business models, products and services; they are the disruptors.

Hotel operator Accor recently published a global digital strategy in response to the growing challenges it is facing from competitors, consumer expectations and online services such as comparison sites, booking services and platforms that provide alternatives to the traditional hotel room (e.g. Airbnb).

Announcing the strategy, CEO Sebastian Bazine said, “Accor is transforming on a strategic, digital and managerial level. The plan addresses the full range of digital challenges and aims to make Accor the leader in a fast-changing industry. And Vivek Badrinath, Deputy CEO responsible for marketing, digital solutions, distribution and information systems explained how Accor had “decided to act on all of the levers that make up the Accor experience. All our stakeholders – customers, employees and partners – will benefit from this wide-reaching digital transformation, which is built around migration to mobile devices, a more personalised service and a seamless customer journey.”

The launch of the digital strategy comes a year after Accor announced a new business strategy and a redefinition of its business model to focus on two key areas; operating hotels, and investing in and owning hotels. The digital strategy will be delivered through eight programmes comprising four customer-focused programmes (mobile first, customer centric, seamless journey and digital solutions for businesses), a programme aimed at employees (simplifying tasks, online training and experience sharing through the internal social network) and another for partners (dynamic pricing and revenue management solutions and a dedicated partner portal), and two that will focus on the IT infrastructure, tools and systems to make these more robust and agile and to enhance the company’s business intelligence and analytics capabilities.

To oversee these programmes Accor is establishing a dedicated governance structure led by a Digital Steering Committee with each of the eight initiatives having its own programme committee. And the company has committed to invest €225m over the period to 2018 to fund the initiatives.

On the surface this seems like a near-perfect plan for a digital transformation with many of the key requirements being in place:

  • Support from the top: by launching the strategy the CEO demonstrated the strategy has support and engagement from the board downwards.
  • Nominated digital leader: the implementation is being led by a senior executive (the deputy CEO).
  • Governance: formal governance structure established to oversee and co-ordinate the eight programmes, which have clearly defined goals and deliverables.
  • Internal and external focus: the strategy covers all three main stakeholder groups whereas many organisations primarily focus on the customer and do not consider its own staff or its relationships with partners, which all have an impact on the overall customer experience.
  • Funding: by committing significant investment Accor has ensured the programmes have the necessary resources available to make the required changes. It is also a further demonstration of the organisation’s commitment to digital.

Given the above it would be easy to view the Accor announcement as being the beginning of its digital transformation. However, whilst the company’s plans and approach to executing the strategy are impressive and will give it every chance of successfully delivering the eight initiatives, they will not lead to a digital transformation of the business as there are at least two key elements required for digital transformation missing from Accor’s approach.

The first missing element is the lack of an overarching vision of Accor as a digital business; numerous studies have shown that digital transformation starts with a clear and compelling vision for the organisation in the digital age. For example, research by The Apigee Institute found that of the organisations in the top quartile of digital performance, 88% had created and shared a compelling vision for the digital transformation of their organisation. In the second highest quartile this number was 86% while in the third and fourth quartiles – those that are lagging behind in terms of digital – the number that had a clear vision fell to 47% and 35%, respectively. Whilst the Accor digital initiatives have clearly defined goals and deliverables, these have been shaped and driven by the organisation’s existing (non-digital) vision.

The new business strategy and redefined business model announced by Accor last year were no doubt the product of the traditional inside-out approach of looking at the current activities and capabilities and using these to define a future state. Hence Accor’s digital initiatives have been constrained by a traditional (non-digital) strategy and business model.

Becoming a digital business requires a new perspective on the organisation. It is about looking at the business from the customer’s viewpoint – an outside-in approach – and using this perspective to reinvent the entire business model to meet customer needs and expectations. The failure to take an outside-in approach to redefining its business model is the second element missing from Accor’s plans.

In a previous article, Are you really transforming for digital?, I talked about the stages of digital maturity. These are summarised in the diagram below. To create a sustainable digital business the organisation must reach the final stage of maturity; it must be digitally transformational. This involves reinventing the company’s business model for digital and not simply running digital initiatives within the existing (non-digital) business model as Accor is doing.

Stages of digtial maturity

Accor’s plans, if implemented successfully, are likely to take the business to the strategic stage but it will not transform the company into a digital business. Unless the organisation is running an additional exercise – to redefine its vision, strategy and business model for digital – in parallel to its digital initiatives, it will still be facing the risk of disruption. And that disruption could happen at any time, led by a company that has taken the outside-in approach to create a new business model that better meets the needs of Accor’s customers.

So, whilst Accor’s plans to establish itself as market leader are good, they will not result in a digital transformation and they will not save the company if someone else redefines its market in the meantime.

If your organisation wants to develop a vision and strategy for its digital transformation, or if it wants to reinvent its business model for digital then please contact me or visit my website, axin.co.uk.

Comments

  1. Interesting read – your point re the failure of organisations to be “looking at the business from the customer’s viewpoint – an outside-in approach”…that’s a really tricky thing to do, so I can see why it doesn’t happen. It’s all about incremental rather than transformational thinking I guess – regardless of what the in vogue disruptive opportunity is (internet, SOA, cloud, digital etc).

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