The digital transformation of companies: UPS, Spotify, Dropbox and McDonald’s.

Most of us are aware that if we want our business to have a long-term future, some form of digital transformation must take place.

Now, contrary to popular belief, installing new software or renewing the business operations model does not indicate "digital transformation"...

Your CEO cannot point to that and proclaim, “Look, we’ve done it! Digital transformation!”

No, it’s much, much more than that.

Digital transformation is about fundamentally changing your organization, both culturally and technologically, to better deliver value to your customers.

The digital, connected, and online world we live in has substantially raised the bar with which customers measure us. They expect things to be done right and quickly.

So, if you’re not meeting customer expectations, you can be sure they will switch to someone who will...

But what does digital transformation look like in practice?

Let’s look at some examples of how some well-known names managed to overcome the biggest barriers to digital transformation and reshape their business.

Examples of Digital Transformation

I will guide you through seven examples of digital transformation in the following areas:

Logistics and Operations Customer Experience Gap Customer Engagement Economic Model Product or Service Infrastructure Education

Logistics and Operations (UPS)

A great example of digital transformation is UPS.

The American shipping and supply chain management company used digital tools to synchronize its operations and logistics strategy to better meet customer demand.

Now, the two customer experience challenges that UPS faced were:

Fast delivery Real-time package tracking

They managed to improve both through the effective use of big data analytics and AI (artificial intelligence).

ORION

First, UPS developed a tool to manage its fleet system called ORION (On-road Integrated Optimization and Navigation).

The machine learning software algorithms create optimal routes for drivers using data from the field (package deliveries, pickup times, performance of previous routes, etc.).

Since the average UPS driver makes more than 135 deliveries per day, any ongoing route optimization will have a significant impact on the customer experience.

Moreover, ORION also helps reduce the company's carbon footprint.

On average, ORION saves UPS around 100 million miles, 10 million gallons of fuel, and $50 million annually.

EDGE

UPS' EDGE (Enhanced Dynamic Global Execution) is a collection of about a dozen ongoing projects that leverage data to improve internal operational processes.

For example, the system helps engineers decide how and where packages should be sorted, how trucks should be loaded, and even when they should be washed.

One initiative from EDGE is equipping delivery trucks with Bluetooth receivers to reduce the likelihood of packages being misplaced.

The receivers alert workers if a package is placed in a vehicle not headed to the package's destination.

Network Planning Tools

UPS's final digital transformation project, NPT (Network Planning Tools), is designed to optimize the flow of packages within the UPS network.

Once again, through real-time data analysis, NPT helps engineers identify and eliminate bottlenecks, determine the optimal delivery transport, and decide how and where shipments should be consolidated, among other things.

Ultimately, UPS saved millions of dollars in operational expenses, but more importantly, met and exceeded customer expectations.

Customer Experience Gap (McDonald's)

Digital transformation can also be called "customer-driven transformation."

Essentially, it's about realigning your organization to meet customer needs through digitalization.

The digital age has completely changed the competitive landscape. Customers demand more from us as they become accustomed to the instant delivery and consumption of goods and services.

Unfortunately for us, this likely means that gaps in the customer experience have emerged — a huge chasm between what they expect and what you offer.

This is something McDonald's realized quite quickly.

Instead of "making fast food faster," the McDonald's team wanted to close the customer experience gap by innovating the customer journey.

They decided to focus on CX (customer experience): improving in-store systems, drive-thru, and home delivery (ordering, payment, mobile).

 They decided to focus on CX (customer experience): improving in-store systems, drive-thru, and home delivery (ordering, payment, mobile).

So, they began asking themselves (and customers) where these gaps were widening.

How could they improve the in-store ordering process? Could customers place orders through their mobile devices? Would that reduce wait times? What about digital ordering kiosks in the store? Would that be something customers are interested in?

And what about drive-thrus? Is it safe to integrate orders into a smart car ecosystem?

For McDonald's, digital technology such as interactive ordering units, AI drive-thrus, and smart mobile app experiences have helped them reduce that gap in customer experience.

 Customer Engagement (Domino's)

When thinking about examples of digital transformation and the innovative use of technology, pizza is probably not the first thing that comes to mind.

However, Domino's is a standout example of well-executed digital transformation.

In the mid to late 2000s, the organization found itself in the midst of a crisis.

Customers complained that:

• The product tasted "cheap"

• The crust was more like "cardboard"

• The sauce tasted like ketchup

• It was a "poor excuse for a pizza company"

On top of that, stock prices plummeted. The future didn't look very promising for the pizza delivery company.

However, under the leadership of CEO Patrick Doyle, Domino's turned things around. They acknowledged that their pizza was bad, brought in a focus group, and identified what needed to be done to improve the product.

This was marked by the launch of their "Oh, Yes We Did" campaign.

In a short video, executives read some brutally honest feedback on camera, much like an episode of "Mean Tweets" on Jimmy Kimmel:

After speaking with the focus group, Doyle also identified the need for greater customer engagement and improvements throughout the delivery process.

To do this, Doyle bet on digitalization. He believed that building strong IT/R&D divisions would allow the company to invest in and develop new digital innovations.

As a result, Domino's became the first delivery company to launch its "Pizza Tracker," technology to keep customers updated on the progress of their orders.

Shortly after, their IT team launched a mobile app in 2011 through which customers could place their orders. This quickly became the dominant ordering channel.

In 2015, they took it a step further by launching Anyware, a system that allows customers to place orders from a variety of devices, including Amazon Echo, Google Home, Siri, smartwatches, smart TVs, Slack, Facebook Messenger, and Twitter.

¿Todavía tiene dudas sobre el impacto que la transformación digital puede tener en el éxito de su organización?

Tenga en cuenta que, entre 2010 y marzo de 2017, el precio de las acciones de Domino superó con creces al de empresas tecnológicas establecidas como Amazon, Apple, Facebook y Google.

Economic Model (Dropbox)

The advent of digital technology has completely transformed traditional economic models for operating a business.

This is why we now see so many SaaS (Software as a Service) companies dominating their respective industries.

In fact, all Blitzscaling patterns for business model innovation derive from SaaS organizations:

Consider the now-common subscription model used by companies like Netflix, Spotify, and Dropbox.

This is a significant departure from the traditional enterprise software economic model of selling perpetual licenses for on-premises software and charging annual maintenance costs.

This old, rigid model accumulates enormous overhead costs and requires a significant investment in field operations personnel. Consequently, licenses had to be in the six or seven-figure range, and customers had to commit to 5-year contracts for the model to work.

Subscriptions, on the other hand, are much more flexible, can be renewed monthly, and provide providers with greater market access and better distribution.

Another digitally enabled economic model is Freemium, with Dropbox being one of its premium examples.

The idea is that a free version of the product is used as a "hook" to attract a critical mass of users, while a paid version of the software with additional features allows companies to make money once its value is clear.

A kind of try-before-you-buy model.

Dropbox used this model to attract over 200 million users with a simple proposition:

Anyone who signs up with a username and password gets 2 GB of cloud storage for free.

If you need more space, you can opt to upgrade for $9.99 a month and get 2 TB of storage.

Product or Service (Netflix)

A common mistake made by many executives is focusing so much on the product that they forget about the customer's actual needs that they are serving.

As the customer experience evolves, so must your product. Otherwise, you risk the customer experience gap widening until you become irrelevant (and without any customers).

The most famous example of this is, of course, Blockbuster and Netflix.

The monumental rise and fall of the video rental company is a cautionary tale for everyone about what happens if you fail to adapt to the rapidly changing needs of customers.

Between 1985 and 1992, the video rental chain grew from a single brick-and-mortar store in Dallas, Texas, to over 2,800 stores.

At its peak in 1994, Blockbuster was acquired by Viacom for $8.4 billion.

Everything seemed to be going perfectly.

In fact, in 2010, Netflix co-founders Marc Randolph and Reed Hastings approached Blockbuster's CEO, John Antioco, with a merger proposal where they would manage and expand the store's online services.

Antioco laughed them off... and the rest, as they say, is history.

In 2010, Netflix signed deals with studios like Sony, Paramount, Lionsgate, and Disney. That same year, Blockbuster filed for bankruptcy.

Hastings had predicted as early as 1999 that the future of media was in online streaming, saying:

“Postage rates were going to keep going up and the internet was going to get twice as fast at half the price every 18 months.”

Netflix's Business Model Canvas

So how did Netflix survive when Blockbuster did not?

Because they never lost sight of the true value they offered customers; providing affordable home entertainment.

They were able to identify a shift in customer needs and use digital tools to close that customer experience gap, transforming from a DVD mail service to a full-fledged digital media giant.

Infrastructure and Scaling (Spotify)

Sometimes, to meet customer needs, organizations must be willing to adapt, change, and scale their internal processes.

One standout example of this is Spotify.

The music streaming service does not operate a traditional hierarchical structure. Instead, they have opted for a model that fosters experimentation, efficiency, and accountability.

The "Spotify Model" is similar to an agile "matrix organizational model"; engineers and team members report to a single area (product owner) but work within a cross-functional team.

This means that people are grouped into squads, where individuals with different skill sets collaborate to deliver an excellent product or feature.

This is the vertical dimension in the matrix, where people spend most of their time.

The horizontal dimensions are for sharing knowledge, tools, and code. For example, it is a best practice for certain roles (Python, JS engineers, etc.) to align with organizational best practices and standards.

Another way to see it is:

• Vertical dimension as the “what”

• Horizontal dimension as the “how”

This Agile structure has led to what Jason Davis and Vikas A. Aggarwal called complex continuous innovation in their HBR article.

At first glance, Spotify might seem like a simple music streaming service. You log in, search for a song, playlist, or genre you like, and hit play.

Of course, the reality is that delivering these features requires an extremely complex combination of behavior prediction algorithms, innovation, and smooth collaboration between departments.

So successful is the “Spotify Model” in identifying opportunities and quickly adapting them to the platform that they have been able to keep the powerful Apple at bay.

Higher Education (ThePowerMBA)

The current MBA system as we know it is broken.

Let's face it, they're incredibly expensive, available only to a handful of people, and in most cases, require putting your life on hold for 2-3 years.

It's a gamble that most professionals can't afford (literally and figuratively), which explains why MBA applications to traditional business schools continue to decline year after year.

This has left the door ajar for ed-techs like ThePowerMBA.

Thanks to digital technology, they have been able to reverse the economic equation with a new and innovative business model.

Instead of targeting a few privileged individuals, ThePowerMBA's business program is an affordable alternative for anyone looking to advance their professional career.

The program consists of a series of video lessons, covering management, digital marketing, strategy, entrepreneurship, finance, and accounting, recorded and distributed using modern technology.

This makes ThePowerMBA's higher education business model scalable without considerable investment. Programs are sold without incurring the primary costs of the traditional brick-and-mortar model:

• no classrooms

• no buildings

• no campus

• no recurring salaries for teachers.

Thanks to reduced overheads, ThePowerMBA can offer students high-quality content from world-class business leaders like Eric Ries (co-founder of The Lean Startup) and Steve Chen (co-founder of YouTube).

And because these 15-minute classes are available on any mobile device, the content can be consumed as and when it suits the students.

Another perfect example of customer-focused digital transformation.