Are You Ready For A Digital-First Future?

REPRINT - Global CMO™ The Magazine - www.theglobalcmo.com April 2013 | 1

Implement Or DieAndrew Vesey ggmn

The Chairman’s ReportIan Derbyshire fgmn

Three Requirements For CMO Longevity

Laura Patterson

Issue 2 | Volume 1

April 2013 - REPRINT

Markus Pfeiffer:

Are You Ready For A Digital-First

Future?

50 Marketing Leaders Over 50

Alan See

Trend Report: Clean Slate Brands

trendwatching.com

Global CMO™ is the Official Magazine of Global Marketing Network, the Global Body for Marketing Professionals. www.theglobalcmo.com

Meet GMN’s ‘Digital Doctor’

42 | April 2013 REPRINT - Global CMO™ The Magazine - www.theglobalcmo.com

Are You Ready For A Digital-First Future?How To Make Customer Agility A Key Success Driver For Your OrganisationMarkus Pfeiffer fgmn & Vincent Aydin

Is your organisation experiencing the impact of increasing digitisation? Most likely. Have you noticed your competitors employing digital tools to communicate with their customers and market their products? Probably. Have you thought you have to tag along and also “go digital”? Does your company have a Facebook and Google+ profile, a Twitter and Instagram account and maybe even a YouTube channel? Sure thing, you’re mastering the digital world. The truth is – you still have a long way to go.

Employing digital tools as a form of marketing and brand presentation is just the initial stage on the path to Digital Readiness, the starting point where most CMOs and their co-executives are stuck not utilizing digitisation’s full enabling power. Many executives fail to understand that there is much more Digital has to offer beyond just presenting your brand to customers in a unilateral fashion.

This article will familiarize you with the importance of becoming digitally ready – as it is essential for developing

REPRINT - Global CMO™ The Magazine - www.theglobalcmo.com April 2013 | 43

Customer Agility, which constitutes the pinnacle of fully utilizing digitisation’s enabling power, offering both benefits for your customers and satisfying your business goals supported by an organisational strategy. It’s the new battleground for success in the fight for customer’s attention, their satisfaction and ultimately loyalty.

Digital Readiness: The StudyIn order to explore the background behind the vast differences that still exist among organisations regarding their utilization of Digital, Bloom Partners conducted a breakthrough study in 2012 to evaluate Digital Readiness across leading brands in Germany. Our goal was to analyse the underlying organisational drivers and success factors that allow some firms to better take advantage of digitisation and reap its benefits than others. We employed a hybrid study approach, consisting of qualitative interviews with C-level executives from blue chip brands operating in the German speaking markets that were validated through quantitative questionnaires entailing more than 300 upper and middle managers from a total of eight industries including FMCG, Telco, Automotive, Banking & Insurance, Retail, Healthcare, Travel and Energy allowing us to draw cross-industry conclusions.

Our findings support our initial notion: There is still much confusion and insecurity regarding how to trim and prepare one’s organisation for the increasing digitisation, steer it towards Digital Readiness and create value for customers while building on one’s business goals. More than half of all participants can identify barriers to successfully undergoing digital change – however those listed sound more like excuses than true roadblocks hindering managers to get their organisations fit for the digital world. Or would you consider “technology and security issues” as the real reason why many organisations are not yet making full use of digitisation’s opportunities?

The items we used in interviewing participants revolved around three major organisational drivers that can lead a firm to achieve Digital Readiness and eventually let it profit from higher firm performance. Across the board Digital Leaders manage to outperform Followers and Laggards on every major KPI – ranging from market share to profitability to customer satisfaction. Regarding the latter category, 90% of Leaders state their customers are more satisfied and loyal to them than to their strongest competitor. The same is only true for 40% of the Digital Laggards.

Top Management As A Key Driver For Digital Readiness

First, we found that strong top management advocacy is needed to kick-start an organisation’s transformation towards digital change – it explains 88% of organisations’ adoption of “Digital” by their Marketing departments. Often times the real reason behind the gap in attempting to adopt Digital is a lack of commitment but also a lack of know-how on top management level to actually drive the transformation that is needed. From the examples we have seen we believe that full top management commitment

44 | April 2013 REPRINT - Global CMO™ The Magazine - www.theglobalcmo.com

to digitisation would entail assigning a designated role of Chief Digital Officer (CDO), which combines knowledge and expertise from both fields of the Chief Technology Officer’s and the Chief Marketing Officer’s responsibilities. The CDO, running his own cross-functional group of experts, can become a key driver for identifying digital opportunities for marketing but more so innovative new business models that create real value added for customers.

With top management’s support backing it up, the organisation will then be more open to adopt digital tools and processes and their implementation across the entire value chain. Top management needs to put a digital strategy on the top of its agenda and build the know-how and awareness for the related challenges in the board rooms. The first challenge lies within acquiring necessary knowledge and expertise around digital topics. But: you won’t be able to acquire that externally by hiring top talent from the pool of digital natives if you aren’t digitally ready yourself. These potential employees tend to flock to companies that match their digital enthusiasm and skills: Our research shows that 81% of Leaders find it easy to attract and retain qualified human resources, while only 24% of Laggards can say the same.

Although Digital Laggards are the ones that most badly need top management to step up, kick off and advocate Digital

Readiness, only 28% of them state that digital topics are regularly part of their management agenda. By contrast 98% of Leaders make these topics a recurring theme on their agendas. Their differences regarding top management’s readiness to tackle the subject become even more evident when analysing its know-how of digital topics: 98% of Leaders compared to a mere 15% of Laggards claim their top management can draw on valuable know-how regarding Digital. Without top management support, Digital remains communication 2.0 sitting in the marketing department only – instead of being a central driver for growth.

Most importantly top management needs to radiate and instil this digital spirit into their organisations, act as role models, give guidance for change and foster the implementation of digital tools and processes. That way employees sense the true importance of the topic, feel motivated to tag along and feed back into an organisational culture fostering digital change.

Building on this, we define Digital Readiness as the extent to which an organisation combines top management’s awareness for digital topics with the adoption of digital marketing tools and processes which are effectively used to increase customer agility and drive digital change across the entire value chain.

Exhibit 1: Stages of Digital Media utilization

REPRINT - Global CMO™ The Magazine - www.theglobalcmo.com April 2013 | 45

Increase Your Customer Agility

Secondly, our research suggests that Digital Readiness in marketing is a major driver for a key competence we call Customer Agility. This potential, however, can only be leveraged when your marketing and sales departments have significantly altered their processes to make full use of the information from and about customers that is gathered through digital channels like the Web and especially social media interaction. Unless marketing and sales departments are able to translate the information they gather from customer interaction into relevant insights for product and service development, digital communication stays on the campaign level.

Therefore, marketing and sales both need to be aware of the impact that digitisation will have on their own and the organisation’s operations and thereby influence large parts of their business. We have learned that 92% of Digital Leaders state that digitisation has already altered their processes substantially compared to only 31% of Digital Laggards. This is much more than using the digital channels “just” for communication and campaigns.

Amazon for example devotes great attention to carefully monitoring users’ shopping patterns and usage behaviour and subsequently analysing and evaluating gathered data. Moreover, in an almost start-up like fashion, is Amazon not afraid to trial a variety of new products and services which application by customers the company then specifically examines. Employing these efforts to attain a deep understanding and sense what their customers long

for allows Amazon to respond with relevant products and services supporting the optimization of its entire value chain – from category management to payment to logistics.

From Communication 2.0 To New Digital-Enabled Business Models

Overall, we see three stages of development in this context (see exhibit 1). A first sample of companies is still using digital as a playing field, trying different approaches without having a clear perspective on the ROI of different activities. They apply the most well-known digital tools “because everybody is using them” and run Digital for its own sake. Companies in the second stage utilize Digital with a clear ROI in mind. This means being able to differentiate between digital strategies that entail a positive payoff in form of brand awareness, sales or new customers and strategies that simply create fans or awareness that does not translate into brand equity, thereby drain marketing resources and do not exhibit attractive organisational benefits. Finally, at the prime stage of development regarding the utilization of digital strategies, organisations are able to take advantage of digital media as an enabler for new business models. These firms understand the potential that lies within the connecting power of digital tools and support their activities with a concise content strategy clearly defining how digital opportunities are utilized in order to benefit both customers and the top line of the company likewise.

In order to achieve this level of development marketing departments need to understand that having dedicated

Exhibit 2: Application of digital strategies

46 | April 2013 REPRINT - Global CMO™ The Magazine - www.theglobalcmo.com

strategies for their website, social media, mobile or brand-building is not enough. Only if marketing can support the whole organisation in better sensing of customer needs and actually use the information gathered to improve their products and services, the investments will pay off. This level of value creation uses co-creation and customisation tools as a highly efficient way to create valuable and lasting conversations with customers. Our study has shown that most organisations have strategies to define what they want to achieve with their website or social media. However, what really differentiates Digital Leaders is the way they use co-creation and customisation tools (from online-voting to crowdsourced innovation) to really alter their existing products and services (see exhibit 2).

Defining Your Digital Strategy

So what are the success factors that Digital Leaders seem to have a better grasp on than firms trailing in Digital Readiness? What makes these Leaders fitter for utilizing Digital to develop Customer Agility?

As a guideline for developing a successful digital strategy, you need to think in terms of three dimensions that need to be aligned to successfully act in concert. First allow yourself to think of your own business goals and how a digital strategy is supposed to go about achieving those. Do you want to win new customers? Do you want to increase loyalty of your existing customers? Or do you want to increase cross- or up-selling opportunities among existing customers?

Secondly, you need to create clarity about how you can actually create benefits for your customers through digital tools. Think about the scope of potential benefits that a digital strategy can offer your customers. Do they want to be rewarded or enticed through motivating features? Do

they want to engage through social interaction or can you provide them with a positive feeling about playing on and strengthening their identity? Ultimately you need to support the match of both spheres, your business goals together with benefits for your customers, with an appropriate content strategy. Decide whether the best way to achieve success in both areas is by employing a strategy that is revolving closely around your core product or whether it makes sense to develop ideas that drift away from your core business, go beyond and open up entirely new possibilities and business opportunities. Each matchup of business goal, customer benefit and appropriate content strategy can then be supported through digital opportunities, which are defined by relevant channels as well as according activities.

Look at Nike for example and its well-known Nike+ scheme. Nike’s real achievement with the Nike+ iPod is using social networks’ connective and interactive power as a basis for setting up a new business model entailing an entirely new and overarching ecosystem of complimentary products. The hardware consisting of a chip built into your running shoes (Nike or any other shoe brand) would transmit your workout data to your smartphone and subsequently enable you to share your daily workout log and achievements with an online community of fellow runners. The community would then give each other feedback on their respective performance and motivate each other to achieve their fitness goals. This is the perfect example of setting up a whole new business model mounted on social media – selling running shoes and complimentary hardware that allows for and invites social interaction with fellow runners from the digital community. Its success speaks for itself – runners in the community that were using the Nike+ chip with non-Nike sneakers are 40% more likely to switch to Nike running shoes upon their next sneaker purchase. This example clearly articulates the difference between

Exhibit 3: Nike+ ecosystem | Sources: www.stadt-bremerhaven.de www.wired.com

REPRINT - Global CMO™ The Magazine - www.theglobalcmo.com April 2013 | 47

utilizing digital channels for their own sake, like setting up a Facebook fan-page vs. creating entirely new revenue streams that utilize the power of social media only as an enabler.

Therefore, it is critical to make yourself aware of the multidimensional nature of digital strategies. Through digitisation you are much closer to and better connected with your customers allowing you to involve them much more in your development processes. Integrate and motivate your customers to create ideas, innovations and products jointly – together with you and their fellow communities! A great example are the crowdsourcing activities employed by Coty Inc., a New York based fragrance and cosmetics firm. In short Coty in Europe applied the crowdsourcing concept by using the power of the crowd to develop innovations. This was achieved by letting customers, mostly female fashion, beauty and lifestyle aficionados, decide for themselves what nail polish colours and designs they would like to see developed and introduced to the market next season. This was done based on a special software package provided by

Innosabi in Germany that lets companies create Facebook-based product development environments in an utmost easy and reliable way. Select participants of Coty’s contest would also receive their very own nail polish creation kit which allowed them to mix colours, invent new designs and finally produce their very own customized nail polish at home. The finished and final colour design would then be submitted into a design contest and published on Coty’s homepage where users could vote for their favourite designs that they would like to see mass produced next season.

Within 14 days more than 800 colour designs were created, more than 5000 comments were posted on the event homepage, more than 10,000 ratings submitted and 20 “winning” colours selected for final production. This co-creation strategy achieved three tasks: On a business goal side, Coty was provided with a massive amount of ideas coming straight from existing and new customers – allowing the firm to win future customers, create upselling opportunities for their existing ones and likely even promote their loyalty. In terms of customer benefits, users could

Exhibit 4: Coty nailpolish design contest | Source: www.unseraller.de

cydo

nna

/ pho

toca

se.c

om Find out more at www.digital-readiness.com

48 | April 2013

Exhibit 5: Digital Readiness Model

Markus Pfeiffer fgmn

Founding Partner, Bloom PartnersDr Markus Pfeiffer is the GMN Programme Director of Digital Strategy and Innovation and Founding Partner and CEO of Bloom Partners (a GMN Strategic Partner).

Markus brings a combination of strategy and Marketing experience, deep knowledge about research methodologies, and expertise in working with top-level executives across many industries.

Recently, he has led major growth initiatives for consumer brands within the Nestle portfolio, the energy conglomerate EDF, electronics giant Philips, and many others. His experience from working for large organizations as much as start-ups is vital for the tool development and expertise about digital business models at Bloom Partners. As an angel investor and serial entrepreneur Markus is also involved with several startup companies in the social commerce, fashion, telecommunication and media sector.

He is a regular invited speaker to industry conferences and a visiting professor at the University of Cologne, Germany.

He holds a diploma in Business Administration from Munich School of Management, Germany and a doctorate degree from the Center on Global Brand Leadership, Columbia Business School, New York. His publication list includes over thirty papers and books.

express their identity through their very own nail polish design. They could interact with other users and discuss the latest trend colours of the upcoming season and obviously post their ideas and inventions across their social graph. They would be rewarded for submitting their personalized designs to the event homepage by positive ratings and potentially become one of the winning designers. The co-creation activity on Facebook allowed the firm to directly utilize its results by incorporating winning designs into next season’s production cycle.

The lesson (marketing) executives need to learn is that Digital Readiness is not an easy task to master, but a highly rewarding one nonetheless. Advocacy from the executive level has a huge impact on achieving a transformation towards Digital Readiness. As you will notice in the following exhibit depicting our study model, Top Management Advocacy is responsible for 88% of the subsequent adoption of Digital by organisations’ marketing departments. Once you have adopted digital tools and processes and implemented them into your organisation, the challenge lies within realizing the scope of opportunities that digitisation enables you to take advantage of. Executives need to become channel-agnostic, forget about Facebook Pinterest, Instagram etc. for a second and instead focus on the possibilities you are offered beyond one-way communication, display ads and other campaigns. Simply employing digital marketing tools is not enough, as this merely drives 25% of firm performance. Instead utilize Digital to build deep relationships, open and adapt your processes to the new environment and fundamentally build Customer Agility. It is by far the most important catalyst for achieving higher firm performance. Utilizing digital tools adopted by the marketing department to better sense and respond to ever changing customer needs is the driving force behind becoming a Digital Leader, as better Customer Agility drives 45% of today’s firm performance.

Join The Discussion:Do you think most Marketers are Digital Ready?

Global CMO™ The Magazine Sample | 1

Markus PfeifferWe profile one of our industry leading

GMN Fellows

CMO Masterclass Brazil

A major forward step for the marketing profession in Brazil

Go Team!Why do sports fans buy tickets? What drives people to purchase?

Sample Issue

December 2013

Industry IconKevin Lane Keller:

Brand Transcendence

Navigating the future of Brand Management

Marketers: Welcome To The Boardroom

The changing role of today’s CMO

50 Shades of CMOOne title, many job descriptions

Global CMO™ is the Official Magazine of Global Marketing Network, the Global Body for Marketing Professionals.

Global CMO™ The Magazinewww.theglobalcmo.com

The official Magazine of Global Marketing Network, the Global Body for Marketing Professionals.

Advertising and Sponsorship:

[email protected]

Production:

[email protected]

Editorial:

[email protected]

Editorial Board:

Editor-in-Chief | Fiona Vesey

GMN CPD Director | David Hood

GMN Global Faculty | Professor Greg Marshall

GMN South Africa | Dr Anthony Michail

GMN Global Advisory Council | MaryLee Sachs

GMN Global Faculty | Professor Michael Solomon

GMN Brand Guardian | Andrew Vesey

GMN Membership Committee | Dr Kellie Vincent

Published in collaboration by:

Vesey Creative Ltd [email protected] www.veseycreative.com

UK +44 131 208 2285

NZ +64 9 889 0013

Global Marketing Network [email protected] www.gmnhome.com

© Copyright in all content and designs retained by the publishers