Having a clear, pragmatic, and well-articulated investment case for a planned digital transformation program is a key prerequisite for busy senior executives that want to quickly move from consideration to action. Here we start discussing a reference case for a B2B middle market company that can be a useful template for companies preparing for their digital journey.
In today's world, digital transformation can often help companies achieve three essential goals for long-term success and sustainability:
Developing a superior ability to earn customers' attention and engagement is the most important and most difficult objective to attain.
Attention economics will reshape business economics. As products and information proliferate, attention becomes the scarce resource.
Nevertheless, an important question that busy senior executives should ask themself is if their company is ready to embark on a digital journey.
In some cases there might be other priorities that need to be addressed before a company can start focusing on accelerating organic growth and, in other cases, digital transformation might not be the primary approach required to accelerate organic growth (i.e. when a B2B company operates in a market with only a few very large potential customers).
The following cases are a few examples of situations where a well designed and executed digital transformation program would usually produce great results:
Our analysis of a large sample of top 100 US middle market buyout private equity firms has revealed that typically between 20% to 35% of B2B portfolio companies would significantly benefit from a well designed and executed digital transformation program focused on accelerating organic growth, as they present both a significant upside market opportunity and a digital capability gap.
Personally, I think that what is commonly referred to as digital transformation would be better described as digital enhancement (however, digital transformation is the trending keyword and therefore the term to be used to gain attention and engagement!). Successful B2B companies that have attracted private capital for a buyout transaction typically have a number of important assets and capabilities, and have committed to execute a few important initiatives to further strengthen their business. What is really required is to enhance the existing assets and capabilities with some new digital capabilities.
Our research and work suggest that for most companies, digital transformation means something very different from outright disruption, in which the old is swept away by the new. Change is involved, and sometimes radical replacements for manufacturing processes, distribution channels, or business models are necessary; but more often than not, transformation means incremental steps to better deliver the core value proposition.
Based on our own experience and the results of several business surveys about digital transformation (see for example Digital Rewrites The Rules of Business, Forrester, February 25 - 2020), we can confidently conclude that, when appropriate, middle market B2B companies should start their digital journey by focusing on the following key objectives:
Increase sales & marketing effectiveness by developing:
Strengthen the customer value proposition by introducing:
To ensure the successful execution of a digital transformation program setting realistic expectations about its timeline and its major activities is extremely important. While any generalization is always difficult, based on our experience the following high level workplan is a good example of a well paced digital transformation program focusing on the objectives articulated above:
Having defined a digital transformation program high level workplan, there are two natural questions that needs to be addressed:
Since there is a lot that needs to be done in a relatively short time, it is clear that involving an experienced interim digital transformation officer that can assemble and lead a properly qualified multi-functional team to build new capabilities in partnership with the existing management team will be extremely valuable.
With regard to when and how to assess if the digital program is working, in my experience the earliest time will be at the end of either Q4Y1 or Q1Y2 depending on the average length of the industry specific selling cycle. The best way to do it, on the other hand, will be to analyze the trend, during the initial 6 to 9 months, of the following three key metrics (and not the absolute level of the revenue generated):
In any case, by the end of Q2Y2 when working well the program will have generated a few million dollars in incremental revenue and there will be solid evidence that the new sales pipeline is working well.
We will resume the discussion next week and jump right into how to develop the digital transformation program investment case.