McKinsey Acquisition Underscores What We’ve Known for a While

The competitive battlefield for digital marketing agency services just got a little more interesting with McKinsey’s acquisition of Lunar, a design firm in San Francisco.

With this move, McKinsey acknowledges an important learning of the past decade: that while many marketers define their customers through profiles and personas, they lack deep insight into how customers actually use their products to achieve desired outcomes. Using customer experience as inspiration is the starting point for a what we at Gartner call Customer-Focused Digital Transformation.

What is Customer Focused Transformation?

Unlike in the late 20th century, in which marketers simply made products available through digital channels, the type of transformation we’re seeing today pushes organizations into new business models. Product portfolios, for example, are “becoming software,” a term pioneered by the music industry when it responded to what customers really wanted: ongoing access to their favorite music, combined with insight from peers, critics and the musicians themselves (through a business model that crushes the constraints of a physical world).

Now all sectors are borrowing attributes of software companies, case in point Nike (a provider of athletic apparel, now a provider of athletic advice which also connects runners to other runners). Or consider the case of a company that used to sell auto parts, now appends its business model with digital advisory services to help drivers get back on the road quickly and safely, making it more of a destination than just an online store. Or Tesla owners, upgrading their steering experience not by going to the dealer, rather by downloading software through the vehicle’s dashboard. Theatre apps for example, don’t just sell tickets, they make reservations at nearby restaurants. And then there’s the smart refrigerator example everyone likes to use (e.g., the refrigerator that posts recipes on its door based on what’s inside it; or if that doesn’t work, nearby takeout services are suggested). Digital transformation puts all of us in the software business.

What Do These Initiatives Look Like?

Customer-focused digital business transformation initiatives are characterized by three things:

First, they apply technology to the front-end customer experience (unlike marketing initiatives of the past that were more back-office automation-oriented).

Second, they involve a set of technologies and techniques that cannot be bought off the shelf as an integrated package; rather, they apply a set of emerging tools and techniques that create value propositions unique to digital.

Third, they expose new growth opportunities, discovered not just by adding digital features to existing products but, rather, by rethinking products and services to adapt to the digital customer.

Consulting firms approach transformation engagements very differently than they approach more traditional projects. Why? In the paradigm shift brought by the customer’s adoption of social, information, cloud and mobile — automation of the customer experience is the driver behind today’s initiatives (versus decades of automation in which technology was applied to the back office).

This direct focus on automating the customer experience is proving to be the catalyst for how many businesses approach product development, customer engagement, go-to-market — and even pricing strategies. All of this necessitates a different approach for getting digital transformation initiatives off the ground (whether you approach transformation internally or with the aid of outside consultants).

For example, traditional projects establish firm goals to be delivered on time, on budget. They are designed to minimize risk. Transformation projects take on risk; they work iteratively against unknown outcomes using agile principles of operating.  Traditional projects specify design and technology, working toward a well defined outcome within established, governance and methodologies. They march to strict implementation plans, launching once, often with a big bang. Transformation projects are discovery oriented; they develop theories, build hypothesis, conduct experiments to launch and learn.

Customer-focused digital business transformation is hardly a one-time initiative.

Every organization needs to build transformation expertise into its core competence. Why? Because this exercise will come around again. For example, in 1958, corporations on the S&P 500 lasted in the index for an average of 61 years. By 1980, that had fallen to 25 years; today, it’s just 18 years. This rate will only accelerate as digital techniques mature. This means every marketing organization, large and small, needs to build transformation expertise into its capabilities, both in its internal talent and in its ability to source talent from external experts.

As Damian Kimmelman, founder of the disruptive data business DueDil, likes to remind us, “With the Internet barely 20 years old, there’s much more anarchy to come.”