Rethinking Digital Transformation In The Context Of Value Creation

It was a sobering moment during a focus group conducted among digital-savvy bank customers. During the first part of the conversation, customers described the new convenience that the digital tool provided them, from personalized experiences to transaction conveniences and the fact that they hardly needed to step into a branch.

“Now, with full utilization of the digital tools, how would you rank the value delivered to you by the bank?” I asked.

The average was 5 out of 10. A 40% drop from their ranking of a high-touch experience involving bankers.

The executives in the room were stunned. Customers just ranked their over $300 million investment in digital transformation as inferior to the old experience.

“I am now serving myself, and therefore, I don’t see what value the bank brings,” explained one of the focus group participants.

As companies are rushing to deploy a plethora of digital tools, from artificial intelligence to personalized experiences to predictive analytics, all served on self-service platforms such as apps. But there is a major blind spot they all ignore. Their efforts, often driven by scare tactics of biased pundits, are predicated on several assumptions.

Assumption 1 – Digital transformation is what customers want

Assumption 2 – Digital transformation is what ALL customers want

Assumption 3 – Digital transformation is better than the current experience

Assumption 4 – Digital transformation will replace existing experiences

Assumption 5 – Digital transformation will increase value to customers

Although all of these assumptions are flawed, the last one is the most critical one. While there is no doubt that digital experiences enhance the overall customer experience and provides more cost-effective ways to service customers, it does not equate to profitable experiences. In fact, our research on behalf of a major retailer demonstrated that online-only customers are far less loyal and far more price sensitive. Combine that with the higher return level (on average 33% of online purchases vs. 9% of physical retail purchases) and you can see a very unprofitable picture emerging. On the contrary, customers who fused the online experience with the retail experience demonstrated a stronger fidelity to the brand and purchased more. Similar results were evident in a study we conducted on behalf of a major newspaper. Digital-only subscribers were far less loyal than those who combined home delivery with a digital subscription.

It is time to think about digital transformation in the context of value creation and test the different options not only based on increasing (not always profitable) sales or reducing costs, but rather on evaluating and shaping the digital transformation in the context of increasing customer value. Simply reducing customer efforts and transaction times, while important, are often perceived as a hygiene factor and do not correlate with greater profitability.

One of the key benefits provided by digital transformation is time. Customers are saving time conducting rudimentary tasks, and employees are gaining time as traditional processes are automated. Here lies the opportunity to turn time into meaningful experiences. Digital addresses the essence of time spent on tasks, and it will reduce many of the tasks we hate doing. The question is: what will they do with their newly-found time? This is where the future of value is time as meaningful/purposeful interactions. As employees’ time frees up, there are opportunities to upskill them to create new value for customers through personal human interactions, contextualizing experiences, learning more about them, and addressing unusual situations and needs.

The eternal rule of profit never changes—the profit belongs to those who serve me. If I serve myself, I keep the profit and pay very little. Companies must find the formula to add value in the digital transformation era. Otherwise, they risk delivering the most advanced digital platforms while eroding their profits and financial sustainability.

Read more: 4 Strategic Questions To Ask Before Launching Your Digital Transformation