Wed 24 May 2017
News - The one thing Directors must ensure their companies do to succeed in a digital world
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The one thing Directors must ensure their companies do to succeed in a digital world

As digital technologies disrupt industries, the winners in each industry will be the companies which understand and respond to their customers best. This characteristic, much more than their technological prowess, is what separates Amazon, Google, Apple, Facebook, Uber and other digital leaders from the rest. They use digital technology to really understand their customers, and ensure that the product or service they deliver is tuned to drive the customer behaviour that builds their business.

Amazon’s customer obsession as an example

Consider Amazon. Their whole online store is set up not only to enable customers to buy products, but to capture information about what customers are searching for, what they look at before they buy, what they almost buy, but then decide not to buy, and what sort of information about any particular product is most likely to result in a buying decision. If, after buying, the customer leaves a review, contacts customer service, or returns the product, that behaviour can be correlated to the original purchase. In fact, they can even collect information about their customers’ behaviour and preferences from their advertising on other sites.

All of this information is used to continuously tune not only the offers shown to any particular customer (for example, listed under “recommendations for you”), but in every aspect of how they adapt and grow their business. They use these customer insights to decide which brands and products to sell, what information to list with each product, as well as what price to offer the products at. They track customer interest in different regions, to have valuable data for driving decisions on which countries to expand into next. They even use Big Data to study the impact of different shipping promises on customer behaviour, to prioritise investments in logistics capabilities.

Amazon are on the cutting edge of using digital technologies to understand customers. Internally, they obsess over customers. Their first, and most important leadership principle is “Customer Obsession: Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.” This, more than anything, is why they’ve been able to grow from nothing 23 years ago into a $US136bn revenue company today, with 27% YoY growth, and are valued at $US450bn, the fourth most valuable public company in the world.

How have Digital technologies enabled this?

Digital technologies enable companies to know their customers better than ever before: There is no way a conventional brick-and-mortar shop can have the kind of customer knowledge that Amazon can, no matter what their scale, and particularly not down to the individual customer level. It was the use of data that enabled Amazon’s customer-first developments.

Digital also enables companies to deliver value to customers in ways never previously possible: A conventional brick-and-mortar shop simply cannot provide instant access to personalised recommendations from tens of millions of products from anywhere you can access your smartphone, all for delivery within days.

Digital affects customers as well: customers can now compare and change suppliers much easier than ever before, with so many ways to share and aggregate recommendations, reviews and both positive and negative experiences. There are even businesses whose sole service is to help people choose and change suppliers in an industry. Banking and Insurance have already been disrupted by the growth of comparison sites in many markets – a trend which will only grow and become more powerful.

The net effect of this is that digital technologies enable companies to compete for customers — our customers — better than ever before.

What should we do?

Mere digital transformation is insufficient to compete in this environment. Boards need to ensure they focus their digital efforts firstly on increasing their customer understanding (all the way down the value chain), and secondly on delivering greater value to customers based on this increased understanding. In short, to profit as digital companies in a digital world, Boards must ensure their companies are obsessing over customers. Using digitalisation to decrease costs may help create the budget to deliver this real benefit, or may help win customers by competing on price. However, it will rarely create lasting competitive advantage, because competitors can do the same. A deep understanding of customers, and an ability to deliver what they really value, however, is not easily copied, and can create the same kinds of advantages that Amazon enjoys.

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For more on this topic, please consider attending the “Introduction to Digital Business for Directors” Training course - REGISTER NOW IN THE LINK BELOW:
Introduction to digital business for directors

Richard Russell is an independent consultant specialising in Digital Innovation and Product Management, formerly holding senior management roles at Amazon and Google. He now runs a boutique consultancy, Russell and Company Sarl-S, helping companies innovate, execute and scale with digital technologies.