Over the past several years, most manufacturers have made fragmented investments in digital technologies, only to realize limited success. Many are struggling to build a digital transformation roadmap amidst continued evolution and with few “case studies” showing exactly how to do it. As well, many struggle with how to benchmark and define success and budgeting for this process.
Technology is often applied piece-meal to individual departmental initiatives as opposed to overall enterprise digitization. A shift is needed in the investment and management approach towards embedding technology in overall business operations and discontinuing the practice of layering new technology on top of existing operations.
Proper funding must also be in place to realize digital transformation benefits. Most organizations still leverage an annual “bottom-up” departmental budgeting and cap-ex approach for their planning efforts. Isolating the acquisition and implementation of technology fails to recognize the company-wide interdependencies between technology, process, people, and programs and the impact on the level of investment required. As well, annual planning cycles lack agility and hence are not effective in driving momentum.
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I suggest a new call to action: The Power of One Percent — committing to an ongoing investment of 1 percent of revenue for digital transformation. What’s important about The Power of One Percent isn’t the percentage itself but the philosophy — a commitment to passionately invest at least 1 percent of revenue in transformation for the foreseeable future. It’s an intentional, proactive, radically applied investment that views investments from the top down as opportunistic, rather than as a sum of locally isolated budget initiatives. It’s a shift away from the least expensive or easiest digital decisions to make to the best digital investments for customer-centric operations, and a shift from annual plans to agile plans to generate higher rates of return.
Key Areas of Focus
The actual percentage apportioned to digital efforts can vary due to many factors, however the primary areas of focus do not.
Phase I: Laying the Foundation
Laying a digital foundation requires the acquisition of commerce technologies and their integration to other core applications to establish the right foundation to move information across an expanded ecosystem with speed. Expect 40 percent or more of your initial investment to be spent on acquiring, implementing, and integrating core digital technologies into your ecosystem.
Alongside technology, focus on the reinvention of core processes to be digitally driven across these core systems rather than layering digital technologies on top of existing processes. As core processes are re-engineered, move quickly and iterate as the transformation unfolds. During all phases, communicate transformation plans frequently to customers, who will be supportive given they understand how active pursuits are to their benefit.
In phase II and III, the percentage of investment on foundational digital technologies will likely drop into the 25 percent range, but acquisition of technologies to build out the digital ecosystem will continue over time.
Phase II: Product Content
The plan to create, acquire, manage, and maintain high quality personalized product content should be an effort of solid focus and investment. Content is now the loudest voice you have to inform and engage your customer and prospects about the products and services you sell, as research shows 60-90 percent of buyers start their product search online. Likewise, your content must be differentiated for Search Engine Optimization.
Content goes well beyond product-only information and must incorporate social content such as ratings and reviews, questions and answers, access to product experts, etc. For organizations with large SKU counts, planning for and phasing content acquisition is very important so as not to inhibit the speed of digital deployments.
Depending on SKU count, approximately 25 percent of the 1 percent investment will need to be allocated towards product content creation. Initially, apply the 80-20 rule — focus on the 20 percent of products that generate 80 percent of revenues to achieve quick gains and evolve from there, factoring in the ongoing acquisition and maintenance required.
Phase III: Marketing
Marketing is the third mandatory component. The balance of investment not spent on technology and content in phase I should be allocated to marketing and digital resource development, understanding that this percentage will grow in future phases as the other two primary components decline. From a resource perspective, digital marketers and digitally savvy employees are in short supply for most manufacturers, so plan to grow from the inside as well as recruit new talent to close the gap.
Metrics
Using metrics and goals to drive change is absolutely crucial to achieve desired results. Devise a strategy to energize and align your organization with two or three key goals. Strive to make the goals real, energizing, and fun for employees. In the long run, this will reset the culture of your organizational as it transforms into a digital company.
Common metrics include:
Order Migration to Online Channels
Research shows that digital leaders are migrating 60 percent or more of order acquisition and related order activities to digital channels, with many in the +80 percent range. The cost savings associated with replacing offline order acquisition to online order acquisition ranges from $12 to $24 per order. This is a foundational metric that must be pursued aggressively and be clearly defined to overcome internal and external objections quickly and build digital transformation momentum. This metric also “unlocks” the potential for other metrics, such as increases in average order value and total cost to serve.
Increases in Average Order Value
Research shows that average order values (AOV) are typically higher online than offline. Increasing AOV is highly relevant if you have thousands of SKUs or more — the higher the SKU count, the greater the potential opportunity to increase AOV. Digitization can increase AOV anywhere from 10 to 100 percent, and compounding the value proposition of online order management with improved AOV can support significant revenue increases. Prerequisites include high quality product content, including personalization capabilities for cross-sells, up-sells, personas, kits, etc., as well as programs to drive site adoption.
Reallocating Customer Service Resources
In most organizations, the percentage of time spent by customer service staff on activities where customers could self-serve (placing orders, checking order status, providing shipment and delivery information, checking on inventory availability and providing product information) is often above 50 percent. Quantifying these activities early on in planning efforts and earmarking them to aggressively move online is highly opportunistic. Re-imagine customer service in a digitally-enabled model and assertively plan for the migration of valuable customer service staff to other value-added roles in the organization.
Reallocation of Sales Rep Effort
Research shows sales representatives often spend +50 percent of time on non-value-added activities. The opportunity to increase productivity and generate additional average revenue per rep is significant. One word of caution: Ensure your commission and other incentive programs are supportive of a digitally-enabled multi-channel model. Adding digital technologies should be considered “additive” and not “competitive” to sales-driven organizations.
Equally important to the goals selected is the communication of those goals and relentless management pursuit and support. For most organizations, focusing on two to three goals at a time is important to keep the desired directional control and drive alignment through the organization. Keep timeframes as short as possible and don’t try to boil the ocean. Instead, strategically prioritize activities and use intentional investment and goal-setting as a guide to successfully navigate the digital disruption waters and drive the best outcomes.
Linda Taddonio is Co-Founder and eCommerce Strategy Officer at Insite Software.