The paradox of the digital era is this: As the power of the individual increases, so too does her vulnerability. The business response to “digitalization” of our lives is known as Digital Transformation. Even in these early stages of the process, it is clear that some businesses are choosing to acknowledge the power of the individual customer and find ways to engage on more equal terms, while others are exploiting the customer’s vulnerability. That is a defining choice for any business and many are getting it wrong.
First of all, what is Digital Transformation? This is what I think Digital Transformation is, long form. Here’s a net definition: Digital Transformation is part of society’s evolution, enabled by technology, to relationships defined primarily around the individual rather than the organization. That statement appears simple and innocuous but the implications of this change are profound. Upheaval is occurring at a level worthy of comparison to the Industrial Revolution. We don’t view the Industrial Revolution as a change in the way business was done, though that certainly occurred. Like its predecessor, Digital Transformation is a paradigm shift that is visible in every facet of our lives. Organizations — from store-fronts to massive multinationals to sovereign governments — that have failed to understand this change have failed to survive, much less succeed. If that seems like an overstatement, check out Henry Kissinger’s World Order, which questions the viability of nation-states as a functional model for the future and cites technology as a major contributing factor.
It is not all about digital technology. As the Industrial Revolution could not have happened without the steam engine, harnessed electricity and mass produced steel, Digital Transformation would not be possible without networks, mobility, micro-chips and a host of other dramatic improvements in tech. These innovations hinge on much broader societal realities though. Major advances in health, food production, communication, education, transportation and the global spread of democratic principles have all been critical factors contributing to a radically different global society in just the last 40 years. With ever-increasing billions of people jamming themselves into cities, we’ve created a crucible from which new technology had to spring and was destined to thrive.
Hooray Everybody, We’re Digitally Transformed!
What are the implications to business? The broader societal transformation is cultural, as the business response must be. Changing corporate culture is as tough as it gets. This is to say: A shiny new app or a town hall rah-rah session ain’t gonna cut it. These token steps are very much in vogue as substitutes for transformation. Grand visions on IT architectures, miracle product design and the much-ballyhooed but vaguely understood “customer experience” are also stand-ins. All those things may happen as part of an enterprise digital transformation. They are milestones and artifacts of a bigger process which, by themselves, won’t transform anything. If you believe in Digital Darwinism — Survival not of the strongest or the smartest but those most adaptable in response to change — then you “naturally” (ahem) recognize that we should start with proper diagnosis of the changes to which we are adapting.
Start by focusing on the rising power and influence of the individual. The center of gravity for power is descending from major national and multi-national entities to smaller, more localized groups. Ultimately, this is the continuing rise of the individual, not just the consumer/customer. But while the business community pays lip-service recognition to the rise of the consumer, two diametrically opposed responses have evolved; one of which embraces the change, the other fights it. Acknowledging customer power leads down the Customer Engagement path. Companies still seeking to find new control points over the customer have begun heading down Corporate Espionage route. As the individual is empowered, the company / customer relationship is being defined as a person to person relationship, based on customer expectations of a ‘normal’ relationship. Most companies aren’t skilled at interpersonal relationships; some are learning and engaging while many are pursuing the “reality TV” version of a relationship: high drama and lots of deceit.
Trust is the Foundation
Before examining market response to the empowered customer, let’s reset on the broader goal of the company / customer relationship. Regardless of business model — B2B, B2C, B2B2C or the rising Peer to Peer (sharing) models — the provider, in order to have a sustainable business, must continually generate one foundation emotion with their customer: Trust. The degree to which trust is established and maintained will determine the long-term value of any relationship. Continue to provide what the company promises and the customer will continue to reciprocate. The collective market trust in a company to deliver on its promise is its brand. To the extent the company is consistent in delivering and exceeding the promise, customer loyalty is created. Trust and loyalty lead to a sense of shared purpose and community among customers, together with the company. This engenders collaboration towards a common goal: Improve the offering. Active collaboration with the customer to improve the offering is a fine definition of Customer Engagement.
That is a worthy and difficult goal, which takes time and effort to realize. In other words, it is a true transformation. But that is not the way the market is going, as a rule, which provides an excellent opportunity for businesses to differentiate themselves.
Die Hard Losers
If old habits die hard, old business models are Bruce Willis. It has long been a standard business practice to coerce and leverage the customer into action. Lock-in contracts, monopolistic tendencies, confusing pricing and market manipulation are all examples of business leverage over the customer. In a brick and mortar world, it was enough to be “the only game in town”, literally. Any and every possible advantage gets exploited. Leverage models depend on a customer that doesn’t have choice, access or power for a variety of reasons. Those limitations are largely removed in the digital world. There are thousands of start-ups exposing bad business and stealing away customers. They’re called “disruptive” and “innovative” miracles of the digital era. For the most part they are simply doing what challenger businesses have always done to incumbent powers — exposing poor business practice (then in turn being quickly exposed themselves). Society’s digital transformation has made that easier. The empowered customer has made it a very real threat. Still, a mega-corp seems to stumble and fall every couple of months because they would rather stick with what they know and fail than try to make the hard changes, the transformation, required to be successful in the digital era.
Monkey See, Monkey Do (No Evil)
In the midst of this chaos, a deceptive option has emerged and been widely embraced. On the surface it appears to empower the customer by offering desirable services. In fact it’s a new form of the leverage tactic. This model is best described as Data Monetization and its pioneers can be understood as big data monopolists. They monopolize not only the network but the data it generates. In this model, the provider goes to great lengths to extract as much data as possible about the customer, generally without the customer’s full understanding, then sells the data to 3rd parties for advertising or marketing purposes. The lack of use awareness makes it a Corporate Espionage play. Businesses leveraging the data generated in these networks, or trying to emulate their tactics, need to understand the risk. This has been the basis for wildly successful companies, titans of the digital era. But the erosion of privacy and user trust in these networks is the severe downside of playing Corporate Espionage. (Remember, the most effective path for government to invade privacy has been to obtain personal information from big data monopolists.) These networks consistently leverage their monopolies against users. You want to be part of this network? You sacrifice your privacy. If you don’t like it, leave. That’s tough to do when there is no comparable network. But how long will that last? Increasingly, big data monopolists are using this power against their customers (advertisers) as well. That’s how they make their money and it’s a classic leverage play.
Businesses eager to exploit or emulate big data monopolies need to be extremely careful. There are two reasons for caution. First and foremost, the model is based on deception , the antithesis of trust. Using any and all means to gather data on unsuspecting targets often results in a skewed and inaccurate picture of the customer. So business tends to miss its mark often. It also unnerves the customer often, angers them more frequently and, increasingly, provokes them to legal action. Customers need the courts to exert their power against the monopoly of a proprietary digital network. But they can and certainly will reject the brand promise of a company exploiting a model based on deception. Second, a proprietary digital network is controlled by its owner, not its advertisers. Just as they leverage power over users (i.e. data providers) data monopolists routinely coerce customers (i.e. advertisers). They will decide who sees what content, when and whether it is suitable to the larger mission of the network. They will decide what data is available externally. If for any reason the advertiser’s purposes are at odds with the network’s, the advertiser loses. The relatively slow adoption of digital proprietary networks as marketing platforms, compared to say, email, can be traced to the fact that email is an open protocol, not a proprietary network. Email follows the original Internet ethos of Peer-to-Peer , whereas proprietary digital networks are fundamentally monopolies, a model as old as business. Proprietary digital networks also differ from traditional print and broadcast media because the later are highly regulated regarding access. Proprietary digital networks? Not so much. That reality is rapidly changing. Witness the increasing government regulatory involvement in the digital domain (Net neutrality, privacy, anti-trust suits, etc). The Data Monetization model will have to change because the empowered individual demands it and governments are acting. So, seller beware: Exerting leverage via Data Monetization is a dangerous game, with dubious results.
Getting to Good Data
In the digital world, customer data is a critical asset to serving the customer better. As most businesses have discovered, it’s not about having huge volumes of customer data, that’s easy. It’s about having good data that can actually be used. “Good” in two senses of the word. First, it is accurate. Second, it has been obtained in the right way. A happy customer will share their data when you collaborate with them. It will be accurate, trust will build and the virtuous cycle is enabled. A deceived, coerced customer will result in “Bad” data, from both perspectives. Initiate vicious cycle. The way in which customer data is acquired makes all the difference between a leverage model and an engagement model. Going forward, the choice of engagement vs espionage will determine success or failure in the digital era. Open, collaborative exchange of information in the mutual interest of business and customer is the pinnacle of engagement. Deceptive data monetization is at the other end of the spectrum. That route is full of errors and recriminations (a word I choose deliberately as regulators move in). Yes, big data monopolies will continue to be successful, at least for a time. Do not be confused into thinking that any organization can ride those coattails. At root are the same priorities that have mattered to customers since long before the digital era began: Loyalty, Control and most of all Trust.
There was once a model understood as a “Funnel”, where the organization leveraged masses of customers through the AWARENESS – INTEREST – DESIRE – ACTION sequence. That’s over. A digitally transformed model recognizes the power of the individual customer with these milestones: make a PROMISE, establish TRUST, build LOYALTY and foster COLLABORATION towards improvement of the offering. That is the Customer Engagement path. Agility and openness are the keys to Engagement. The customer follows whatever sequence they choose, using whatever means are available to them. Fortunately for business, the digital world makes a true Customer Engagement model possible. Now business leaders have the hard task of making it real.