Back to the future

This post is also available in: German

Digitisation, urbanisation, globalisation and resource scarcity are all megatrends forcing people to change – and companies to embark on digital transformation. Sharing economy businesses have grasped that what’s hip today and successful tomorrow might not even exist in ten years’ time. For this reason they’re constantly reinventing themselves, hand in hand with their customers. The ability to change requires courage, innovation, self-criticism, and plenty of staying power.

The success of the sharing economy rests on a combination of smart strategy and the ability to rapidly visualise this strategy.

Stress-free co-consumption

People have become so tired of politicians claiming that ‘there’s no alternative’ that in 2010 ‘alternativlos’ was chosen as Germany’s Non-Word of the Year. Indeed there are so many alternatives these days that people are no longer prepared to commit to a single option, but would rather be able to decide according to their moods and needs. Property has become passé because it means stress. “The real luxury is that you no longer have to possess things – you only have to be able to use them,” says Olivier Kofler, head of PwC’s Experience Center. It’s better to leave the boring job of maintenance and administration to other people.

That’s why so many services are now sold on a ‘pay-as-you-go’ basis. This freedom of contract meets a very modern desire for flexibility of options, and is ultimately one of the key factors in the sharing economy. Another key factor is people’s innate inertia: they’re reluctant to move into the future of their own accord. People tend to focus too closely on what will happen in the next twelve months; very few are seriously wondering what will change in the next twelve years. Another factor helping make co-consumption such a success is the scarcity of non-renewable resources.

All these factors have enabled the establishment of a digital economy that doesn’t need any new resources, doesn’t tie people down, and relieves them of responsibility. Consumers are prepared to pay for this – and in some cases pay more – provided they no longer have to bear the burden of ownership, maintenance and administration.

A good example of this mechanism is the electric drill. If you own a drill you’re unlikely to use it for more than 10 or 15 minutes at a time. In the meantime the drill can sit gathering dust for weeks, if not years, before the next DIY job. Earlier attempts to share everyday objects like this unfortunately faltered. It was only with the advent of the sharing economy that platforms – digital platforms, of course – were created that did away with the stress of ownership.

Unique in many dimensions

Digital transformation is creating momentum in more than one dimension. If you want to harness all this momentum, you have to contend with several forces at once: content, commerce and community. Creating new products and services and offering them to existing or new groups of consumers is nothing new. What’s more of a challenge is entering into permanent dialogue with all the different stakeholders, including your own employees, doggedly finding out their needs, and translating these wishes and requirements into newly designed products and services. Highly digitised companies process their entire knowledge of their dialogue groups in the form of smart data, and then use this data intelligently. This way they’re able to cater to a huge range of changing user needs and refine the user experience on a permanent basis. The sharing economy has thus consummated the transition from the classic business-to-consumer (B2C) model to business-to-people (B2P).

Another huge opportunity created by digital transformation lies in self-cannibalisation. If you embark on digital transformation you have to scrutinise your own raison d’être and ask what you’re there for in the first place. Cannibalising your own revenue model is extremely healthy, because if you don’t do it yourself, someone else will. Look at sharing economy newcomers whose digital platforms have taken the place of conventional intermediaries such as distributors. Alibaba and eBay are prime examples. The middlemen could have initiated this transformation themselves rather than having to deal with the consequences after the fact. If you challenge yourself you can set the pace of innovation and progress and perfect your own competitive agility.

The way the impact of digital approaches is monitored also differs from conventional models. In the digital world, what used to involve phased projects with milestones and acceptance certificates is now done iteratively on an ongoing, simultaneous basis. For this reason you can’t apply proven key performance indicators (KPIs) like profitability and conversion rates directly to digital business models. They require new yardsticks measuring attributes such as entrepreneurial endurance, customer satisfaction and the development of growth or innovation. Measuring performance in a digital context isn’t about defining an unalterable target state. Instead you allow your goal to change, and measure performance in terms of inventiveness, prototyping, customer and employee interaction.

Of mavericks and lateral thinkers

A functioning digital economy rests on people – and a digital culture. To establish a digital culture you need strong leadership that takes in the business as a whole and is able to turn anxieties about imminent transformation into enthusiasm, and risks into opportunities. This way you can develop approaches that unleash enormous potential by bundling the creativity within your organisation and making it available to new markets.

The fact is that companies led by digital-friendly people that actively address digitisation are more successful than those that don’t see the necessity. Of course you can go too far. Simply hiring a chief digital officer and trying to ordain a digital culture from the top down is rarely enough to establish your company as a genuine pioneer. By the same token a middle-aged management that fears new forms of collaboration can become the number one obstacle to new digital models.

Evolution or revolution

There are two forms of digital culture. It can take the form of evolutionary development, with an organisation improving step by step, primarily in terms of processes and costs. The art of progressing in small steps is nothing new, but it can certainly get you to your goal. The second form of digital corporate culture is revolutionary and disruptive. It unleashes a huge amount of innovatory power and is driven by the courage to question and reinvent yourself. Companies taking this approach have to be prepared to completely rethink their market offering and target segments that have previously lain fallow. They have to make everything revolve around interaction with customers and staff. And they have to believe in the power of their disruptive idea. This form of transformation requires a lot of staying power, which can only come with exponential growth.

Where do Swiss SMEs stand?

Large companies are digitising their customer relationships and processes, and are prepared to invest accordingly. In our latest study, ‘Digital transformation: How mature are Swiss SMEs?’ we wanted to find out how far digitisation has advanced at small and medium-sized companies. There are several key findings: The degree of digitisation at Swiss SMEs varies widely. Digital maturity correlates positively with the size of the organisation, and negatively with the age of its management. The companies covered by our study have made internal processes and training staff on digital matters a firm priority. Customer involvement and the customer experience, by contrast, are further down their list of priorities.

This is because redesigning a business model constitutes a more radical departure for an SME than adapting existing processes, and because decisionmakers are still largely overlooking the opportunities presented by new business models. Organisations that have opted to transform their business model now see themselves as more competitive. Most highly digitised SMEs believe the financial investment was worthwhile. Further, more than 80% of study participants predict that the market will change fundamentally in the next five years because of digitisation.

On the basis of our findings we advise Swiss SMEs to take bolder action on digitisation and keep a close eye on their market. Digital transformation can affect the entire customer interaction, all processes and every business model. This means digital transformation has to be a C-suite responsibility. Small, simple digital steps can be enough to achieve significant efficiency gains. Just as important is the experience of industries that have already gone digital, and dialogue with innovative start-ups. It follows that digitisation is not a purely IT concern, but has to be placed firmly on the management agenda. This inevitably leads to the question of the appropriate business model. Ultimately the focus has to be on the customer experience and customer value.

Customers seize power

While we’re on the subject of utility: so-called loyalty programmes are a good way of achieving the right blend of customer experience, added value and digital culture. When designing a programme of this sort you first have to recognise and understand the main drivers of customer value. The goal of any loyalty programme should be to motivate customers to behave in the way you desire and reward them for doing so. At the moment too many loyalty programmes reward customers for something they’d be doing anyway. Experience shows that at most companies a small number of customers account for the lion’s share of profitability while unprofitable customers consume the most benefits. The loyalty programmes offered by certain Swiss banks are a good example of how on- and offline benefits can be skilfully combined. These banks give their clients access to exclusive offers via a specially designed online platform. On this platform private clients can take advantage of discounted leisure packages, while corporate clients get to benefit from innovative solutions for their clients or staff.

The sharing economy provides plenty of opportunities for companies to completely overhaul their business model and make sure everything revolves around the customer. They have to take people’s inertia into account. Is a user really prepared to travel 20 kilometres to pick up an electric drill? They also have to pay attention to the risks to their organisation and balance these out in their business model. If a company outsources specific links in the value chain to other market participants it loses part of its control, and the other players have to take responsibility. Uber drivers, for example, have to take responsibility for paying all their social security contributions. Other risks are that privacy may be jeopardised or automation fails to work properly.

In a nutshell

Sharing economy providers have given life to digital transformation. They foster a digital culture where they’re permanently communicating, interacting with their stakeholders and trying out everything at once. They allow their customers and staff to take part in this process, and work with prototypes. Switzerland has always held innovation and creation in high esteem. Take the process of industrialisation in the machine or textile industries. Now the challenge is to take this sense of responsibility and initiative into the digital age and measure it by the rules of this new economy. The success of the sharing economy rests on a combination of smart strategy and the ability to rapidly visualise this strategy. This way companies can transcend regulatory, geo-economic and intercultural boundaries and open up unique growth opportunities.

 

Contact

Holger Greif
Partner & Head Digital
Office.: +41 58 792 13 86
Email: holger.greif@ch.pwc.com

Published by

Holger Greif

Holger Greif

Holger Greif
PwC
Birchstrasse 160
Postfach, 8050 Zürich
+41 58 792 13 86

Holger Greif ist seit 2008 Partner bei PwC Schweiz und seit 20 Jahren Management Berater. Er leitete über 5 Jahre das Management Consulting und fokussiert sich seit Juli 2016 auf die Buisness Unit „Digital Transformation“, zu welcher das PwC Experience Center für digitale Lösungen gehört. Zu seinen Projekterfahrungen gehören digitale Strategieprojekte und deren Umsetzung in verschiedenen Industrien - inkl. kultureller und organisatorischer Veränderungen. Holger Greif hat einen Doktor in Experimentalphysik von der Rheinischen Friedrich-Wilhelms-Universität.