Digital/Social : what impact on business performance ?

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There’s not a company that does not try to become “social” or “digital” but for what results ? That’s the interesting question that recently surfaced during a discussion I had. One more evidence that skeptics matter because they force us to dig beyond appearances.

The question is simple : we can see lots of businesses showing off, praising their customer-facing social initiative, exhibiting an enterprise social network hosting tons of communities and engaged users. Yes but. “The may be social leaders, truth is they’re close to liquidation and do mass lay-offs”. “More responsive and innovative ? I don’t see them hurting their competitor in any way”. “Did you see one of these companies disrupting its market, taking a significant lead over their competitors and improving its bottom line ? Truth is that if, at the end of the day, they don’t sell more or lower their costs their initiatives are useless”.

Enough relevant questions to dig further. Since I’m not claiming I have read everything on this matter, I’d be thankful to my readers to mention any study that strengthens or invalidates what follows.

First, let’s make something clear. It’s not about intermediate indicators but final ones. Do we lead our market after having been a follower for years ? Are we making money while we’ve been loosing a lot in our pre-social era ? Did we rethink our business model and products with collective intelligence ? As a matter of fact “we collaborate more easily” and “we have less emails” means nothing.

• Did digital save companies ? Surely.

That’s obvious that digital saved lots of companies. And it’s so obvious that we don’t even notice it. What would be a major retailer without a show window and business activities on the web ? It’s so obvious that we have already forgotten all those who missed the train 10 years ago and aren’t here anymore to join the discussion. That said, some businesses were more talented at taking the bend than others.

•  Did digital bring businesses back on track ? Yes.

I’m particularly thinking about businesses that invested massively in customer relationship. The benefits in terms of value delivered to customers is significant and they improved their image. Enough to say that it sometimes help them to put right a compromised situation in terms of image and quality of service, no enough to say it saved them. A good customer service will never replace a good product and quality delivered “at first try”. Digital customer relationship is not a replacement for quality. Moreover it can backfire when customers start to realize that products and IRL relationship as far from being as good as the online relationship that set a standard for the whole company. Sometimes a the consequence of a good online customer relationship can be making the rest of the relationship deceiving.

• Did digital / social improve performance and operations ? Yes and no.

Yes because, as we can see everyday, the pure players of the digital economy can often give lessons to their competitors of the “old” economy in terms of service quality and, once they reach a critical size, of profitability.

No, because the reverse isn’t true, or not to such an extent, for “old economy” businesses that go digital and, most of all, social because that’s the collaborative side of digital that’s concerned here.

To date there’s no study, except the  Big Shift from Deloitte that correlates digital and social transformation and the bottom line. Other than that there’s nothing to be found about profitability, costs etc. On the contrary we even see so-called social leaders in a recurring bad situation.

• Does lagging in digital and social business harm the financial performance ? Yes

Back to Deloitte’s “Big Shift” Study.The ROA (Return on assets) of large businesses dropped to 25% of its 1965 level. The cause : businesses being unable to make the most of their intangible assets. Hence these acknowledgement and recommendations. The acknowledgment is that the businesses that pulled through, that have a high digital maturity, had enterprise 2.0 and social business initiatives. The recommendation, of course, is to speed up on digital transformation to become better at mobilizing these assets.

That’s the most important lesson learned : businesses that pulled though have undertaken a digital transformation while all those that tried to adopt digital did not succeed. What causes this paradox ? The answer can be found in this schema by Norton and Kaplan that I already commented years ago.

Strategy maps

A digital and social strategy will impact the learning and growth perspective : human, information and organization capital. But these assets have to be leveraged by business processes. Investing in intangible assets impacts value if and only if processes are designed to leverage them well, the way a company sees and designs processes being a matter of culture and their implementation a matter of leadership.

That explains the difference that exists between pure players born with digital and old leaders trying to go digital. The difference is not digital but their ability to leverage it. A DNA that frames a culture, a way to design production systems, systems etc.

Another thing that can also be observed is that businesses that are not digital but have, for any reason, the right DNA, management model and production system manage to implement the right practices and achieve top class results without being pushy on digitization.

Successful businesses go digital. Businesses that go digital do not all succeed.

An example that’s confirmed by HCL and Vineet Nayar. He set up a production system and a management model then technology came and was aligned to enable what needed to be.

Digital is not the root case of the success of AirBnb and Uber either : it’s a business model and a production system that are empowered by digital that allow them to function faster and at scale. But an iPhone app is not enough to build a new model of transportation services : if it was the case, “old” taxis would already have found the response.

Conclusion  : digital and social business won’t change the fate of your business unless it’s designed for digital and social. That has nothing to do with adoption but transformation, what explains why pure player that don’t have to deal with legacy structures have an advantage. But digitizing or socializing an existing model never lead to substantial improvements.

What raises two questions that need an answer.

The first is to get the difference between digital and social. Both are complementary but different, won’t apply to the same situations, and won’t help to achieve the same benefits.

The second, and it’s the most important, is about defining what I’ll call a digital platform for businesses. A set of structuring elements (culture, hr model, organization, mission) which implementation is mandatory before a company starts its journey. A basis made of principles, values, assumptions and practices that are necessary and preliminary to the digital transformation.

Just remind of a former McKinsey survey stating that social technologies could help to increase productivity by 25%. The conclusion was that technology alone won’t be enough to reach such numbers but that a change in culture, management, processes and business models was needed. QED.