Digital technology has changed the economic landscape of the world over the past couple of decades. Unfortunately, many companies are still playing catch-up when it comes to capturing the full value that the technologies can provide. They realize that digital transformation is essential to getting the most value, but it’s not always easy to implement.
Digital transformation is more than just choosing a piece of technology and implementing it. Too many companies are spending money on technology that is not giving them what they need. Before choosing any sort of technology for digital transformation, you must understand the four tiers of digital transformation.
Tier 1: Operational Efficiencies
Most companies will benefit from improving their operational efficiencies. This means that most of the digital transformation in a business will occur in this tier. They find technology that can help them improve many of the bigger day-to-day operations in their business.
Some of the types of tools that could be used include artificial intelligence (AI) and the Internet of Things (IoT). The implementation of the new technologies can provide the organization with additional data, which can then be used to improve and even train the AI technology further. It will help to improve some of the most common processes, improving efficiency and accuracy.
This tier tends to be most important for companies that want to improve their organization from the inside by integrating new technology for their production needs.
Tier 2: Advanced Operational Efficiencies
This tier is important for companies that are selling certain types of products to users. The products will need to be able to capture and assess data from the users. This information can then be used to learn more about those products and the customers.
Many types of consumer products that are connected to the Internet of Things can be used at this tier. It could be a smart refrigerator, car, piece of construction equipment, etc. If it can provide product-user interactive data, it can help to improve your business on several fronts.
For example, it can make marketing and advertising easier since you will have a better sense of how the products are being used. You can better understand what customers want, and then aim your advertising toward how your product meets those needs. The data could also be used to help improve the efficiency and focus of product development.
Tier 3: Value Chain Data-Driven Services
Some companies may find that they can generate data-driven services from value chains and products. Instead of just using the data to help improve operational efficiencies, it becomes possible to use it to generate revenue.
General Electric, for example, has digitally connected product development, sales, and after-sale service. The digital connection provides a substantial amount of data. The digital connections receive and analyze data, generate information, share it, and even react to sensors and data from the Internet of Things from products. It can do this in real-time, and it can help to improve not only operational efficiency for products but also drive new streams of revenue for the company.
Many companies make the mistake of not considering all of the potential opportunities that this tier could provide. They aren’t sure whether they need to provide these data-driven services and may feel that it’s too much of a risk to try. These missed opportunities could be causing them to lose out on some additional revenue and data.
Tier 4: Digital Platform Data-Driven Services
This tier will be essential for those companies that have products with digital platforms. Companies like Peloton, for example, create exercise equipment that connects to the web. The machines collect data that can be used to help match them with the right trainers, which they can access via the equipment. The interaction rate between the consumer and the machine is naturally high because it is such a major component of the experience.
This is not something new to Peloton, of course. Other digital platforms employ similar types of technology. Streaming platforms recommend shows and movies. Food delivery services offer suggestions based on past customer interaction. Ride-share services try to match riders with drivers.
In some cases, there is no added cost to the consumer. However, with products like Peloton exercise equipment, there is the possibility of added revenue by providing various types of purchases through the digital platform.
This tier can be challenging to get right, and other exercise companies that have tried to follow Peloton’s example have not always performed well. However, if you have a company producing products that could have a digital platform, it may be something that you want to explore.
Data
Data is being accumulated at an unprecedented rate, and it is being used differently because of advanced technology. Unlike the past, data is now interactive and can be accessed and used in real-time. It’s generated by sensors in machines and the IoT allows all of this data to be tracked, parsed, and used to improve business services and products.
Products today can do more than just send data back to the developer and manufacturer, though. It can provide better customer experiences automatically. There are smart mattresses, for example, that can sense the way a person is sleeping and then adjust the mattress shape in real-time to help people sleep better.
What Solutions Are Best for Your Organization?
All companies will have their own requirements, which means that for the best digital transformation strategy, you will need to determine how your company should engage with each of the four tiers discussed above. Are you only focused on the production environment, or do you also need to consider the consumption environment, which will include networks outside of the firm’s value chain?
There is a lot to consider, and different companies will have different needs. You may not need to take part in all of these tiers. You might just need one or two, for example. Once you understand where you need to focus, it becomes easier to find the right types of technological investments for your business.