This article by Tim Posselt is a must read for those leaders pre-occupied by Digital Transformation and are in danger of mistaking the “Tool for the Purpose”. At Si2 we found his article really resonated with our experiences and we thank him for allowing us to publish his thoughts, which was originally written for his Desklight Research blog.

Still think digitalization is your key to success? Meet its neglected twin and think again

We’ve all felt the uncanny force of the wave of Digitalization rolling across businesses, washing out former beacons of competitive strategy and eroding the dividers between products and industries.

Go digital or go home!

That’s what it pretty much comes down to, right? But is it really that simple? CEOs appoint digital officers and demand Digital Transformation roadmaps. Sensors are hastily slapped on to objects, not knowing what data to gather and how to use it. Marketing claims almost exclusively exceed actual progress by far, which in turn increases the pressure on peers to do “something digital” too.

Like so often, we’ve mistaken the tool – Digitalization – for the purpose. 

We tend to do this because we get overexcited about anything tech. This not only goes for IT – think cars or entertainment systems, just to name two. We’re so spellbound by our gadgets that we forget there’s a purpose beneath any technology which made it desirable in the first place. While that purpose might not be as exciting as your shiny new tech toy, it’s all the more going to decide for how long you’ll get to play with it.

Meet servitization.

Digital Transformation Blog - Digitalization and Servitization
My reaction when I first heard the term “servitization”

Now, before you slap your MacBook closed and run for a coffee refill swearing uncontrollably about pretentious buzzwords, bear with me for a moment. The suffix “-ation” represents an action or a process, or the result thereof. So as digitalization means “becoming more digital”, servitization means something about increasing service.

But why is increasing service so crucial to your Digital Transformation efforts? 

Essentially, servitization is about being a better servant to your customers. It means understanding their individual needs and providing them with the resources to fulfill them. This seems basic, but it was largely neglected in times when companies dominated customer relationships and standardized products flooded the markets.

Digitalization puts the customer back in the spotlight

Digital Transformation Blog - Digitalization and Servitization
Online shopping: power to the people

But those times are coming to an end. With digitalization, the balance of power shifts towards customers, pulling companies into a shark tank full of inventive, agile, and cheap competitors. Customers are no longer restricted to geographically close providers and find a plethora of new business models which cater to their individual needs.

Secondly, digitalization dramatically increases the opportunity to offer digital services to customers. This enables companies to dive into new waters, blurring industry boundaries or fulfilling previously unattainable customer needs. At the same time, it increases the risk for incumbents of being toppled by new entrants (think: AirBnB for the hospitality industry or Uber and Lyft for the Taxi industry), thereby creating pressure to innovate proactively.

Both developments send a clear message: to digitalize successfully, it is imperative to collaborate with your customers, understand their needs intimately, and to build digital solutions according to those needs. This is why servitization – digitalization’s neglected twin – is the key to success in the digital era.  

So what does servitization entail and how can you make it work?

Digital Transformation Blog - Digitalization and Servitization
Servitization puts helping the customer at the center of your business

To put it as sraightforward as I can: Servitization means actually caring about your customer, rather than simply trying to wrestle as much profit from him as possible. It means being empathetic to his desires and needs. This begins by collecting information about the customer not to “target” him for more sales, but to actually understand his situation – his environment of businesses, individuals, events, institutions etc. and his desired role within this environment – so that you can help him achieve his goals the best way possible.

Such ideas of empathy towards the customer sound almost ridiculous to ears that grew up to the drum beat of 20th century businesses. We are not used to these ideas, because decades of efficiency-seeking have made us numb to the original purpose of businesses: helping customers have a better life. Servitization rekindles this notion by understanding customer outcome as every company’s primary purpose, and positing that customers who receive solutions to their problems are the key to profitability. This displaces the old paradigm of maximizing output, which rendered it paramount for companies to sell as many items of a good as possible.

Measures to create outcome-oriented organizations include:

  • Implementing a outcome-oriented company culture
  • Emphasizing outcome-based performance measures
  • Aligning business processes with the customer
  • Adapting employee roles and competences for customer collaboration
  • …and many more

The first step, however, is improving your understanding of what customers truly desire. To get you started on that track, let’s finish this article off by introducing two valuable tools you can use without spending thousands on service design trainings.

Start with these customer insight tools 

Digital Transformation Blog - Digitalization and Servitization
Workshops: one of many tools to identify customer needs

The Value Proposition Canvas (VPC) was developed by Alexander Osterwalder, Yves Pigneur and Alan Smith, who you probably know from the ubiquitous Business Model Canvas. It aims to provide a closer look at the tasks your customers are trying to perform, the problems they are trying to solve, and the needs they are trying to satisfy. It also takes a look at customer pains(negative emotions, costs and risks the customer experiences during their acting on these tasks, problems and needs) and gains(benefits the customer expects, wants or might be surprised by). After having mapped these customer insights, the second step is to match them with your value propositions, and to identify gaps for value creation.

The Value Proposition Canvas can be downloaded at Strategyzer, who also offer a book and an online course for those aiming to dig deeper into value proposition design.

Another tool for increasing your customer understanding is the Jobs to be done method, which Tony Ulwick introduces here for Medium readers. The Jobs to be done method addresses similar issues as the Value Proposition Canvas, but focuses even more on systematically deconstructing and analyzing the “jobs” customers are trying to get done. Using this method for your business will give you valuable guidance for where to take your digital innovations.

After all said and done, it comes down to this:

  • Get to know your customer.
  • Facilitate positive outcomes.
  • Use digitalization as a tool.

Sounds easy enough, right?

Dr. Tim Posselt – Desklight Research and Consulting
Tim Posselt is an independent researcher and consultant, providing custom services for companies, managers, and entrepreneurs. Before becoming self-employed, he was head of a research group on “Business Transformation” at the Fraunhofer Society, Europe’s largest organization for applied research. Throughout his career, he has helped businesses to find and utilize the information they need to create a competitiveadvantage. That’s not giving you a lot of detail, is it? You can find out more about Tim here.

Nick Frank is Managing Partner at Si2 Partners and can be contacted at nick.frank@si2partners. If this interests you and you want more news from Si2, then sign up to our community below.