Still think digitalization is your key to success? Meet its neglected twin and think again.

We’ve all felt the uncanny force of the digital wave as it rolls across businesses, washing out former beacons of competitive strategy and eroding the dividers between products and industries.

Go digital or go home!

That’s what it pretty much comes down to, right? But is it really that simple? CEOs appoint digital officers and demand digitalization roadmaps. Sensors are hastily slapped on to objects, not knowing what data to gather and how to use it. Marketing claims exceed actual progress by far, in turn increasing the pressure on peers to do “something digital” too.

Like so often, we’ve mistaken the tool for the purpose.

We tend to do this because we get overexcited about anything tech. This not only goes for IT — think cars or entertainment systems, just to name two. We’re so spellbound by our gadgets that we forget there’s a purpose beneath any technology which made it desirable in the first place. While that purpose might not be as exciting as your shiny new tech toy, it’s all the more going to decide for how long you’ll get to play with it.

Now, before you slap your MacBook shut and run for a coffee refill, swearing uncontrollably about pretentious buzzwords: The suffix -ation merely represents “action” or “process”. So as digitalization means becoming more digital, servitization means becoming more service-oriented.

But why is service-orientation so crucial to your digitalization efforts?

Essentially, servitization is about being a better servant to your customers. It means understanding their individual needs and providing them with the resources to fulfill them. As a result, many companies which previously sold only physical products begin to add more and more services to their offering.

This was largely neglected in times when companies dominated customer relationships and standardized products flooded the markets. There was simply no need to contemplate the customer too much, as Henry Ford famously knew. Even until recently, many management efforts were only focused on customers to find out what to sell to them.

Since digitalization, however, the customer is back in the spotlight.

Firstly, digitalization shifts the balance of power towards customers, pulling companies into a shark tank full of inventive, agile, and cheap competitors. Customers are no longer restricted to geographically close providers and find a plethora of new business models which cater to their individual needs.

Secondly, digitalization dramatically increases the opportunity to offer digital services to customers. This enables companies to dive into new waters, blurring industry boundaries or fulfilling previously unattainable customer needs. At the same time, it increases the risk for incumbents of being toppled by new entrants (think: AirBnB for the hospitality industry, or Uber and Lyft for the taxi industry), thereby creating pressure to innovate proactively.

Both developments send the clear message that to digitalize successfully a new degree of customer-centricity is required.

This is where servitization saves the day.

To put it as straightforward as I can: servitization means actually caring about your customer, rather than simply trying to wrestle as much profit from him as possible. It means being empathetic to his desires and needs. This begins by collecting information about the customer not to “target” him for more sales, but to actually understand his situation — his environment of businesses, individuals, events, institutions etc. and his desired role within this environment — so that you can help him achieve his goals the best way possible.

Such ideas of empathy towards the customer sound almost ridiculous to ears that grew up to the drumbeat of 20th-century businesses. We are not used to these ideas, because decades of efficiency-seeking have made us numb to the original purpose of businesses: helping customers have a better life.

Servitization rekindles this notion by understanding customer outcome as every company’s primary purpose and positing that customers who receive solutions to their problems are the key to profitability. This displaces the old paradigm of maximizing output, which rendered it paramount for companies to sell as many items of a good as possible. When fully implemented, the implications of such a shift are profound (Ray Poynter beautifully explains the difference here).

Let’s take a breath.

In the title, I said digitalization was not your key to success. And to stick with this image, my point is that servitization is your key to success. This is not intended to devalue digitalization. But you need to know your key— how to achieve customer outcome — before taking action. Once you’ve got that, you can focus your energy on digitalizing that key and making it so much better.

The process looks like this:

Servitization is a strategic change that doesn’t happen overnight. It includes implementing an outcome-oriented company culture, emphasizing outcome-based performance measures, aligning business processes with the customer, and adapting employee roles and competencies for customer collaboration.

The first step, however, is improving your understanding of what customers truly desire. To get you started on that track, let’s finish this article off by introducing two valuable tools you can use without spending thousands on service design training.

The Value Proposition Canvas (VPC) was developed by Alexander Osterwalder, Yves Pigneur and Alan Smith, who you probably know from the ubiquitous “Business Model Canvas”. It aims to provide a closer look at the tasks your customers are trying to perform, the problems they are trying to solve, and the needs they are trying to satisfy. It also takes a look at customer pains (negative emotions, costs and risks the customer experiences during their acting on these tasks, problems, and needs) and gains (benefits the customer expects, wants or might be surprised by). After having mapped these customer insights, the second step is to match your value propositions with them and to identify gaps for value creation.

The Value Proposition Canvas can be downloaded at Strategyzer, who also offer a book and an online course for those aiming to dig deeper into value proposition design.

Another tool for increasing your customer understanding is the Jobs to be done method, which Tony Ulwick introduces here for Medium readers. The Jobs to be done method addresses similar issues as the Value Proposition Canvas, but focuses even more on systematically deconstructing and analyzing the “jobs” customers are trying to get done. Using this method for your business will give you valuable guidance for where to take your digital innovations.

Get to know your customers.

Help them achieve positive outcomes.

Digitalize successfully.

Sounds easy enough, right?

(this story was previously posted on my Digital Transformation Blog)

Still think digitalization is your key to success? Meet its neglected twin and think again.

Research & References of Still think digitalization is your key to success? Meet its neglected twin and think again.|A&C Accounting And Tax Services
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