5 Rules You Need to Know for Digital-Physical Fusion

When the digital revolution first began sweeping the business landscape, many experts and insiders were quick to announce that the full-scale demise of physical commerce was at hand. Pundits predicted that, in relatively short order, e-commerce would completely take the place of physical retail and services across a broad range of industries, from banking to entertainment. But while there’s no question that digital transformation has completely upended most industries, it also seems to be the case that brick-and-mortar retail is not going anywhere—at least not yet.

workstationThe insight that many of these early predictions of digital annihilation failed to take into account is that the physical world is, and remains, an indispensable part of both business and life. Humans value physical and social interaction; we like to have in-person exchanges with other people, and to touch, handle, and make real things. What’s really going on with digital transformation, therefore, is not the replacement of the physical world by the digital world, but rather the fusion of both worlds into new combinations that open up completely new sources of value. In an article from 2014, Bain & Company coined the term “digical” to describe this phenomenon. The new word recognizes the changes that both digital and physical innovations are bringing to the business world.

But despite the fact that the future seems to be all about digital-physical fusion, a surprising number of businesses still behave as if these two worlds were separate and distinct, running their digital operations as fully independent business units. For every company that has figured out a successful path to fusion, there are many others who continue to separate physical from digital—and who suffer the consequences of doing so. A typical case in point is the retailer that offers a different price for an item sold online versus an item sold in-store, but has no idea how to handle the customer who comes to the store in person wanting to pay the online price.

Writing for the Harvard Business Review, Bain & Company analyst Darrell K. Rigby reviews five important rules for businesses tackling digital-physical mashups, using insights drawn from the results of a study of more than 300 global companies and leaders across 20 different industries.

Rule #1: Make strategic digital-physical fusion your new competitive edge.

In a world where technology changes extremely rapidly and advantages are quickly copied, companies must learn to ride each new wave of opportunity as it comes their way, without throwing away vital core advantages or pouring too many resources into high-risk ventures. What’s important here is to understand exactly what advantages your core business can offer the new venture. These may include elements like proprietary customer insights, unique capabilities, or strategies for capitalizing on competitor vulnerabilities. Leveraging these strengths when embarking on a digical fusion initiative can provide just the edge that a company needs.

Rule #2: Add and improve linkages throughout the customer experience journey.

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Digical innovations aren’t just about changing existing products or services; rather, they’re about improving the customer experience overall. Companies that are digically savvy take a systematic, end-to-end look at the customer journey, identify adjacencies (spheres outside the company’s traditional boundaries of operation), and use those to strengthen the core business and open up new revenue streams. The ultimate goal is the development of an innovative and holistic system, focused on the customer, that maximizes competitive advantages to accelerate growth.

Rule #3: Transform your approach to innovation.

The “waterfall approach” that previously characterized traditional companies’ traditional approach to innovation has had its day. Now, rather than having marketers and product designers create ideas and prototypes and then kick the ideas down to IT, companies that are having success in the digical realm are starting by creating teams of complementary experts from both digital and physical territory. With digital experts engaged at every stage of development, integration becomes dramatically deeper and broader, and the solutions generated are more innovative and wide-ranging, fusing the best of what the digital and physical worlds have to offer.

Rule #4: Separation is a transitional step.

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Successful innovators often start by keeping their digital component separate from their core business. But while this strategy can be useful at the beginning, allowing for the formation of an innovative culture free from corporate bureaucracy and traditional business practices, at some point the goal must focus on creating the best of both worlds. In this way, companies will gain an edge over pure play digital disruptors who don’t have the physical assets and capabilities that the companies they are disrupting do. Integrated companies are better able to give customers a seamless digital-physical experience, communicate and coordinate effectively, and leverage existing assets.

Rule #5: Create a digically savvy management team (CEO included).

Traditional executives can have a challenging time leading digical transformations. Often, they are not fully aware of how limited their grasp is on technological issues, making it hard for them to spearhead innovation or hire the people who can do so. The key here is for businesses to boost the know-how of management teams by appointing chief digital or technology officers, implementing “no executive left behind” programs to ensure that digital training and mentorship is provided to all managers, and working towards a comprehensive understanding of how technology can transform the business.

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