In our previous post we talked about the importance of Digital Transformation and how it is more than just going paperless or implementing new technology.
It means doing things differently in an increasingly connected world — using new mindsets, skillsets, technologies and data to benefit people, society and the economy.
This week we look into the importance of strategy for successful integration, look at how age can be a barrier, and explore a well known business who went bust not because they didn’t explore digital, but because they didn’t evolve the way their business operated.
Digital transformation is not just about buying a new piece of technology, turning it on and hoping for the best as that ignores two key details:
1. Technology is not an outcome. It is simply a tool which enables an outcome. Despite what it promises on the package, no system will transform your business overnight. It has even less chance of doing so if a solution is purchased without any understanding as to why it is needed.
When it comes to digital transformation it can be difficult to determine what are the right tools for your business. This could result in a purchase that will not meet your requirements.
A solution should only be chosen as part of a sustainable strategy that clearly defines the business outcomes and problems which need to be solved. A digital Transformation strategy needs to look at a range of factors, including:
Unless you address all of these, any strategy is incomplete
2. There’s often a legacy environment you need to deal with
Most organisations use legacy applications and systems that continue to serve critical business needs. Digital transformation requires balancing keeping the legacy environments running with delivering newer, more efficient systems that makes use of current and emerging technologies.
It’s not always possible to integrate the legacy environment into the new model presented by digital transformation – and it gets harder the older a system gets. This can lead to rising costs as various constraints are uncovered through the process.
In addition to the strategy above, any transformation exercise needs to include a review of the existing technology to understand what constraints may exist and how to overcome them. Failure to do this cloud the overall picture and could end up with you continuing to operate in the old world far longer than you planned.
Digital transformation is a multi-layered approach. Planning is a significant step in the journey as you will ensure that your outcomes will be achieved.
The 2010 bankruptcy of Blockbuster is frequently cited as an example of a company that lost market share due to the introduction of an online streaming service, Netflix, which they weren’t able to compete with due to their business models being reliant on brick and mortar stores. While it is true that the rise in Netflix coincided with the fall in Blockbuster, it was not the business model that was the problem: it was a revenue model that relied on penalising the customer coupled with a mistaken belief that technology wouldn’t disrupt Blockbuster as fast as it did.
When Netflix first started out in 1997 their business model focussed on DVD Rentals via mail – they had heavily reliance on the postal service which made the service he service was somewhat slow and cumbersome and ensured people couldn’t just pick up a movie for the night on their way home. They also struggled to gain brand recognition as, without retail locations, customers couldn’t find it.
While Blockbuster initially dismissed Netflix as a niche player, even dismissing an offer to purchase them in 2000, former CEO John Antioco soon saw the inevitable and started to adapt the business models. In 2005, Blockbuster abolished late fees (Netflix offered a subscription model which didn’t penalise customers) and invested heavily in an online platform, Total Access, which allowed customers to rent DVD’s online, return them to the store, and receive a free movie as a result. Growth in the online platform was significant and Netflix offered to sell-up and were again turned down again.
This move didn’t quite go as Antioco had anticipated and he soon found himself forced out of the company. The reason behind this is simple – revenue. Blockbusters model had one major weakness – an significant amount of revenue was mate by charging customers late fees. By removing the late fees, there was significant risk to company profits which Antioco’s detractors focussed on.
The incoming CEO reinstated the late fees, throttled back investment in the online platform, and eventually started to explore streaming in 2008. By then it was too late – Netflix had been offering video on demand since 2007 and as a result were growing their customer base. As customers started to switch their mindset from DVD rentals to online streaming, the revenue from late fees started to dry up and eventually Blockbuster ceased to exist.
Netflix alone didn’t kill Blockbuster, and possibly never would have. Blockbuster killed themselves by relying to heavily on late fees and customer penalties to drive revenue. Diversifying the business model to ensure different revenue streams may have seen a different outcome.
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