How to Understand Digital — Change Your Mental Model

Digital is a mental model. A way of thinking about customers, business, offerings, management and technology that challenges the current thinking companies are operating on. In my experience the reason some struggle to imagine what digital can mean for them, is because they are comparing digital to other technologies and not seeing it as a mindset for how the corporation produces and generates value.

“The digitalization of Europe involves much more than providing universal broadband, free Wi-Fi, and a flow of Big Data. The digital economy will revolutionize every commercial sector, disrupt the workings of every industry, bring with it unprecedented new economic opportunities, put millions of people back to work, and create a more sustainable low-carbon society to mitigate climate change” — Jeremy Rifkin, Advisor to the German and Chinese Goverment, Digital Europe: The Rise of the Internet of Things and the Economic Transformation of the EU”

Digital promises stronger, longer and more valuable relationships with customers. That are product, not brand oriented. But, several times I’ve experienced companies unable to build more than marketing relationships with their customers. Not because there is something wrong with the category or the company, but because the product itself has been engineered to keep customers out. What digital offers is a way to rethink the product with the customer on the inside.

To paraphrase Dr. Jesse JiJun Luo from Huawei Technologies Co., Ltd.: We need to stop shipping boxes and start thinking about how that box transforms into new value over time.

We need to move from passive production to active collaboration with customers:

– Passive production
Most companies are brought up passive. Engineering their offering so that they would have as little to do with customers as possible. These corporations are focused on efficiency in production, logistics and sales. They then go on to shovel the product over the counter to the customer and remove themselves from the relationship (if the customer needs them they are available and attainable, but for the most part the goal is to stay invisible)These corporations do not understand why they should, or even how they could capitalize on any further relationship with the customer.

– Active Collaboration
Digital
 invites companies to think of themselves as active. Collaborating with customers to improve the customer’s outcome and developing it over time. The company does not think in terms of which technology they are using or products they are selling. They concentrate on customer outcomes and continuously search for new ways to improve.

“A good visualization of this thinking is given by Deloitte University Press, in The rise of safety innovations in intelligent mobility by Lei Zhou, PhD, Jeffrey W. Watts & Takuma Nakamoto. Where they demonstrate how traditional security infrastructure in cars are very efficient at the moment of truth — but that they don’t do anything to prevent an accident from happening — it is a passive product. In the next generation of technology the car is given a brain with the ability to sense and an opportunity to think. It starts collaborating with the driver to avoid accidents from ever happening — the product becomes active.” — Hardware becomes software and products becomes networks

– Don’t lock yourself to product thinking
The mental model to overcome here is to think of the product as the business. Because the product limits our imagination to what the existing product or technology can do and to the behavior of current customers.

“To many managers, the product is the business, firms continue to spend inordinate amounts of time, effort, and resources on their products. In fact, businesses are structured around their products. But answers to questions like “why do customers buy from us? Don’t reside in products. They reside almost entirely in the interactions that take place in the marketplace”. — Steve Denning, A Users guide to the new economy.

The big potential with digital is to find new customers and new income streams. As W. Chan Kim and Renée Mauborgne comment in their HBR article Red Ocean Traps; non-customers are the key to new growth.

“Noncustomers, not customers, hold the greatest insight into the points of pain and intimidation that limit the boundary of an industry … current customers.. keeps companies moored in red oceans”. — Red Ocean Traps

– Every industry is a technology industry
Technology does one thing really well; it changes peoples behaviors and habits. For some industries this is a given. While to others, who don’t see themselves as a technology driven, this goes against their common sense. But, with digital, every company needs to think like a technology company. And open up to changing, not only accommodating existing customer behavior.

Progressive, and insurance company in the US which has been at the forefront of pushing telematics-driven insurance products (where real-time measurement of a persons driving is collected and used to calculate their premium every month) has seen that active collaboration with customers produces results. In their 2013 annual report they even write about their philosophy of engagement and active involvement.

“The idea that customers benefit from engagement with their insurance needs is part of Progressive’s philosophy. Encouraging the use of products and services that foster active involvement, we can improve the experience for everyone.” — Glenn M. Renwick President and CEO of Progressive.

Progressive’s telematics driven insurance products saw 28% increase last year alone(6). In an industry that for 250 years have been teaching their customers how to think, it is remarkable how quickly customers are able to change when you offer them something that makes more sense.

— —

I recommend companies look into value transformation processes. To understand how they could capture value from active collaborative relationships with customers and start prototyping dynamic business models for this type of enterprise.

“We will be moving from transaction base to engagement base. The company needs to provide a service to you, not a box. Value transformation processes will be delivered a long with a business model” — Dr. Jesse JiJun Luo, Huawei Technologies Co., Ltd.

Ask yourself these questions:

  • What is a value transformation process?
  • How would our customers gain from it?
  • How would our company capture value from it?

Further reading on this:

  1. Hardware becomes software and products become networks
  2. Deloitte, The rise of safety innovations in intelligent mobility
  3. A Users guide to the new economy
  4. Red Ocean Traps
  5. Progressive 2013 Annual report
  6. Risk and Reward, The Economist

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