How and Why to Speed Digital Transformation

For chief executives in the early or middle stages of establishing digital strategies, it is easier to describe what that journey is not, rather than what it actually is. It is not just creating an e-commerce site. It is not just about hiring a chief information officer. It’s not just about creating a technology road map and allocating a budget. It’s not just about Big Data. It’s not just about letting Artificial Intelligence (AI) get involved in improving relationships with customers.

The CEOs who attended a recent roundtable on digital transformation mostly represented companies in traditional sectors of the U.S. economy, such as furniture and lubricants and batteries and electrical connectors. They were hungry for insights from each other and from AlixPartners, the restructuring firm with a digital consulting division that sponsored the roundtable. Drew Carter, a managing partner, has been personally involved in two dozen digital restructurings of companies.

The CEOs in attendance generally concurred that they want their companies to move into the digital era, but they are not sure how to do it. Some have agreed with their top managers and employees that they are going to make a push to go digital but then momentum has stalled. The right skill sets may not exist inside the company. Employees are reluctant to do things that might either double their workloads or restructure themselves out of their jobs. If a company spends money on a digital project that fails, people may seize on that failure, get cold feet and back off. It seems far harder for a traditional company to undertake a digital transformation than it is for companies such as Amazon or Google or Facebook, which were built on the Internet from day one.

Consider PPC Lubricants in Jonestown, Pennsylvania, a distributor of lubricants and motor oils to car dealerships and similar outlets. “I am really pushing my business to the digital side,” Dave Klinger, the company’s president, said. “But the struggle I have personally as head of the company is that I put out these initiatives, these goals, about where we want to be digitally. Everybody says, ‘We get it. We want to get there.’ But I don’t seem to know how to get to the next step.”

PPC has hired a director of information technology and software programmers to support that position, but even that was not enough. “I’m having a struggle,” Klinger said. “Everyone internally is on board. They all want it. But I don’t have a champion to get to the next level.”

Not surprisingly, there is no single answer. Companies have to completely understand their customers’ needs and desires, Carter noted, and any digital strategy has to be built around that. At the same time, a company’s operational excellence is what allows it to change the way it does business, so CEOs have to pay attention to that as well.

Pivot or Perish
One of the most commonly used words at the roundtable was “pivot.” The history books are filled with examples of companies that did not pivot to face a new challenge. “There’s the unfortunate example of Blockbuster,” Carter said. “They were aware of Netflix, but they couldn’t pivot their model to face the Netflix challenge. Their feeling was that
customers would never come in to a Blockbuster store and not be able to get the movie they wanted. So they would keep coming. But they didn’t. Your operational excellence is being able to change what you do.” Blockbuster, of course, has ceased to exist.

Pivoting requires rethinking processes and practices that have long been in place. New metrics may need to be established to measure different kinds of performance. New people
savvy about technology may need to be hired and integrated into the corporate structure—and leapfrogging loyal employees in the process. When consultants and executives use the term “business transformation,” they are not exaggerating.

“You are never transformed. You always have to be transforming,” said Clifford Lindholm II, president and CEO of Falstrom, a Passaic, New Jersey-based maker of rugged military electronics. “The minute you think you’re there, you’re left behind. You have to continue the investment and education, and you have to think of it as part of your ongoing operations. It is not just a side project.” Any digital transformation effort affects the customer experience. As an example, Carter pointed to Amazon.com’s “recommender engine.”

It tracks a customer’s purchases and recommends other products that would likely be of interest to that customer. Those algorithms “get a bit smarter every day,” he said. “Artificial intelligence and machine learning will replace the majority of the functions we have today because they are just better than people at assimilating information and providing recommendations.”

But some CEOs questioned whether AI can always replace a human touch. Farooq Kathwari, CEO of Ethan Allen, the furniture and interior design chain based in Danbury,
Connecticut, said it was crucial for his 1,500 interior designers to maintain personal contact with customers and to make sure they have positive shopping and buying experiences. He offered insight into how a traditional player in a traditional sector of the economy is incorporating digital elements.

“For us, the issue has been, how do we create a great consumer experience that our interior designers offer and also use digital?” Kathwari said. Just a few months ago, the company began training its interior designers to chat live online with potential customers. Customers can view products (which will soon be in three dimensions) on the company’s website and can experiment with different design looks. “The objective is to have them come in to our design centers and have a great experience, but today you cannot assume everyone will [do that],” Kathwari explained.

The designer connection with customers is important because a full half of Ethan Allen’s sales have been the result of a house call by a designer to a customer’s home, which is why Kathwari calls his business “high touch.” The Internet is now changing the nature of that interaction.

“Folks are chatting at midnight or 6 a.m.,” Kathwari said. “Now we have a designer in Michigan live-chatting with a customer in Florida, who wants a piece of furniture delivered to their house in California. We have to connect to customers in the way they want to.” The company has had to redesign the concept of shifts for designers because of the different times of day when customers choose to communicate.

Ethan Allen and other traditional retailers also are having to respond to the rapid service that Amazon.com, in particular, has established. “The concept of speed today is so critical,” Kathwari said. “We can’t say we are going to deliver our products in three or four months. Now we’re delivering anywhere in the country in 30 days.”

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