I am sitting here on a Friday at 4.23PM in…
“Digitization is reviewing the rules of competition,” write Martin Hirt and Paul Willmott in McKinsey & Co Quarterly’s May 2014 review while reflecting on the impact that digitization is having on established and new companies alike. The article ends with 6 critical decisions that CEOs need to answer in order to react to the advent of digitization. This article will expand on the fourth decision.
Click here to read about the introduction and first decision.
Click here to read about the second decision.
Click here to read about the third decision.
Click here to read about the fourth decision.
Decision 5: Keep digital businesses separate or integrate them with current nondigital ones?
In today’s world, everything is digital and digital is everywhere: in your Yelp search for a place to grab coffee on-the-go before going to work, in a work day full of email exchanges and hours of sitting at a desk working on your laptop, and in your late night date with Netflix. The very fact that these digital interactions happen in the real world makes digital as tangible as ever. If digital affects the way customers get to know about your company or find your store, it should also be integrated in your business structure and product offering system. Depending on the nature and size of your company, it may make more sense to undergo digital integration in a more or less subtle way (i.e. a small restaurant owner may not need the same level of digital integration as a fast food chain. A small restaurant has less customers and its employees interact with them on a more personal level.). Nonetheless, every company should examine the extent to which digital integration may serve the company’s strategic goals and act upon it.
Having a group of people in your organization that have digital capability doesn’t mean that your organization has digital competency. A Digital Integrated Organization (DIO) is a company that integrates digital technology and marketing strategy with the company’s core values to guide organizational goals whose outcomes benefit the company and all of its stakeholders. The success stories of DIOs show that digital, when aligned to your company’s overall strategic goals, increases efficiency, profitability, and growth. This is the case of Starbucks. The company has put the integration of digital initiatives and customer and employee experience at the forefront of its strategy, and has seen successful outcomes as a result of that.
Answer: Consider the way digital directly and indirectly impacts your business and integrate it accordingly with both your business operations and product offering.
Digital in Business Operations
Change comes with the effort of every employee, but leadership is fundamental to direct such effort. Starbucks established the importance that digital integration plays in its strategy by nominating a Chief Digital Officer, Adam Brotman. Among other roles, the CDO supervises the global digital marketing, payments, and the loyalty departments. Before the position existed, the three departments were separate. As Brotman explained the shift to putting them all under one roof came when “We realized those were all one thing, they all work best together and if you listed the vision for where we wanted to go with digital, it was encompassing all those things.” Assigning a CDO means that digital will always be included in discussions of strategic planning. Indeed, the company holds periodical meetings where members of various departments and store managers think about what next opportunities and trends are there that can improve the customer experience. Some of the ideas stemming from these meetings are then forwarded to IT, who according to the Chief Innovation Officer of the company, Curt Garner, currently has 100 projects active, 35 of which are customer-or-employee-facing, and 40 of which rest within the efficiency and productivity part of Starbucks’ portfolio.
The amount of IT-related project is high because, as the Garner further points out, “ Our entire leadership team is very engaged and animated around digital and tech and what it can mean for the company. It’s part of the shared goals we have as a leadership team to continue to lead in terms of innovation and customer-facing technology.” Customer-facing technology is not Starbucks’ only concern, employee-facing tech improvements are also a priority. Indeed, after doing extensive research and conducting interviews with their employees, Starbucks made some key changes to the point-of-sale system to make it easier to ring transactions and decrease the time it takes to complete them, which saved the company about 900,000 hours of time a year.
Digital in Product Offering
Starbucks is a leader leader in integrating digital and in-store experience for the customer. It all started with free in-store wi-fi. In addition to provide a service to the customer, wi-fi also increases the visibility of Starbucks’ content. Indeed, the homepage that comes up when the user connects to Starbucks’ wi-fi is filled with Starbucks’ advertising and branded content. Another customer-facing innovation is portable POS. When lines are long at Starbucks, employees often take orders while customers are still in the line to shorten wait times. Starbucks has been experimenting with taking the whole process digital by using portable POS to take orders rather than pen and paper. In the future, the POS may also allow customers to pay before even reaching the cashier.
Another customer-facing innovation is the possibility to order in advance through the Starbucks app. Starbucks realized that a lot of customers make the same coffee purchase everyday. Therefore, it has launched an app that allows customers to order and pay in advance and set up routine purchases, the same way they set up their routinely morning alarm. Starbucks has also been working to improve the digital integration between the loyalty card system, the payment system, and the ordering experience both online and in-store.
Starbucks has always been a successful and innovative company, and its current prioritization and quick rolling out of digital initiatives shows that it intends to keep it that way. In the words of its CIO “What we’ve all had to realize is that IT and digital … [are] pervasive in people’s lives now. So the advice I would give somebody starting it now is, think of yourself like a consumer technology company. A consumer tech company needs to have quick release cycles and bring new products to market that need to be relevant [and] secure. Maybe they’re not going to have all the functionality you’d have if you’d waited for two years, but two years is a lifetime.”