The value chain within a business comprises of all the activities that need to occur to produce a product or service that holds some value for the customer. The value for a product or service is created by the this unique combination of inputs, and the difference in the cost of producing the product or service and what the customer is willing to pay is where the value is realised, or in other words the margin. For a business embarking on digital transformation the opportunity to create higher perceived value at lower cost is a carrot which is hard to resist!
However, a business undergoing a program of digital transformation will need to take a close look at their own value chain. For some the changes that need to be made will be revolutionary, requiring new processes and retraining of its workforce. For others, the transformation will bring about the early evolution of exiting business strategy and early adoption of new technology. New technology and digital assets will be used to streamline existing processes to simplify information sharing across businesses in the supply chain.
The publishing industry has seen some of the most dynamic and disruptive changes in the publish to distribution value chain. This shift has seen the disappearance of traditional book and music stores. We have watched as our favourite music stores disappeared with the rise and rise of iTunes, cutting out much of the manufacturing and distribution that once dominated the industry. Further disruption in the broadcasting industry was brought about by the emergence of streaming and listening services such as Spotify and Google music. In the print publishing industry, the eBook and digital media has had the same effect, eliminating traditional printing and distribution. Amazon continues to innovate and find new ways of adding value for those who prefer to read printed books. The trial of drone technology with its Amazon Prime Air service to expedite the delivery of physical books is one way it is choosing to reduce distribution costs while adding a new level of excitement to the delivery experience. In all cases, this level of disruption to the traditional value chain it has enabled the author of the original work to reach his or her audience without having to navigate through a complex web of publishing and distribution gatekeepers.
As a consequence, and with less books to print, many in the printing industry have had to digital transform their own businesses. The introduction of printing on demand services, which allows for a just in time and smaller print runs, has reduced the costs and the time to market and in some instances has seen print to paper go directly from the printer to the end customer – cutting out the need for traditional distribution networks.
In these examples, much of the renewed value has been created by adopting a process of automation and centralisation. As with the delivery of digital media, process automation eliminates the need for manual intervention in the delivery of a product or service. However, for process automation to be successful, employees still need real-time data to keep the wheels turning and the business functioning. For example, a customer service executive would need to see the necessary information about an order placed by a customer, not just the customer’s personal details, but information about the customer’s touch-point journey, contact moments and purchase history.
Digital transformation of the physical assets in the value chain
Digital transformation also brings with it organisational agility and provides employees with the freedom to be located independent of the physical processes. Digital transformation helps companies to virtually centralise many of the people functions in order to improve productivity. The rise of cloud applications that enable the sharing and monitoring of data means the core services of a business can be located where costs are low and skilled resources are plentiful. The suppliers and distributors that fill in the gaps in the value chain may also be located anywhere, but to be efficient they need to be able to provide the data connections needed to facilitate a single managed view of the supply chain.
There is no one size fits all approach to the digital transformation of the value chain. Each is going to require a different approach and different level of investment to meet the needs of the customer. The trick is to determine where to invest and what strategy to employ. But a business needs to be wary of spending lots of money to look like they are transforming, when in fact they are just changing the wrapping paper. For example, many businesses invest in CRM systems and marketing automation programs and toast their glasses to the digital transformation of the business. This is not a digital transformation strategy, it is process improvement. Digital transformation comes about when the value chain is disrupted by the need to align touch-points and supporting processes with the customers’ needs. Business process improvement is not digital transformation, because it is an inside out view of customer value. It is a business telling the customer how they should interact with them to obtain their products and services, rather than transforming the business to support the customer’s expectations.
Digital transformation done well provides the tools with which to manipulate the value chain. Improving the visibility of the businesses assets through the integration of operational and financial data provides an unprecedented opportunity to adjust the value chain levers to manage costs and margin. This information helps adjust the investment and activity within the value chain to support the business strategy – providing either a low cost product or service offering, or leverage the assets to deliver high value and differentiated products and services. This digital management of assets in the value chain helps businesses achieve a higher performance and profitability standard, which up until a few years ago was still difficult to obtain.