Final Exam
DIGITAL BANKS VS TRADITIONAL BANKS
- Digital banks are tech companies that leverage software to digitize and streamline retail banking. - Unlike traditional retail banks that offer physical branch, digital banks reply solely on mobile / desktop platforms. - Digital banks challenge the traditional banks by charging customers transparent, low fees, providing faster services, and delivering a better user experience through digital distribution channels.
BARRIERS IN SCALING AI
1. Manage AI risks 2. Obtain needed data/input to train model 3. Implement AI technologies 4. Prove business value
A digital strategy is
A digital strategy is your plan for introducing and using digital technology to meet your business goals.
AI OVERVIEW AI Applications
AI OVERVIEW AI Applications • Product applications embed AI in a product or service to provide end-customer benefits. • Example: Netflix's recommendation engine • Process applications incorporate AI into an organization's workflow to either automate processes or improve them by augmenting worker effectiveness. • Example: Goldman Sachs (currency trading, IPO) • Insight applications harness advanced analytical capabilities such as machine learning to uncover insights that can inform operational and strategic decisions across an organization. • Example: Intel employs a predictive algorithm to segment customers into groups with similar needs and buying patterns. It then uses this information to prioritize its sales efforts and tailor promotions.
AI USE CASES Use Computer Vision to Improve Checkout
AI USE CASES Use Computer Vision to Improve Checkout - Circle K has been deploying Smart Checkout in the U.S. - It uses computer vision to recognize items presented from any angle. Customers only need to place the items on the system without the need to scan barcodes. It can improve checkout times as much as 400%. - Surveys of the first-time users show 80% of customers prefer Smart Checkout to traditional forms of checkout and self-checkout.
AI USE CASES Use ML to Improve Marketing Campaign
AI USE CASES Use ML to Improve Marketing Campaign - A retail bank's marketing team relied on mass marketing certain geographic areas with direct physical mail offers. -- The bank built a ML propensity model with the use of third- party data, helping the bank to identify and better target new customers. - The bank failed to use customer data to target and personalize offers to customers, leading a low sign up and poor ROI. -- The model leveraged data from multiple aspects of a customer's life, e.g. spending behaviors, property values, levels of physical activity. - The existing data could provide an adequate picture of customer interactions with the bank but not able to capture customers behaviors and attitudes. -- The model helps the bank to improve campaign performance for different products and geographies, yielding a lower campaign costs and higher ROI.
AI USE CASES
AI USE CASES Use ML to improve marketing campaign Use NLP to improve customer experience (CX) Use computer vision to improve checkout
AI USE CASES Use NLP to Improve CX
AI USE CASES Use NLP to Improve CX - Vodafone used NLP product to improve the performance of its AI chatbot on its digital channels in 2021. - Enabled with NLP capability, the chatbot can provide end-to- end assistance for low-complexity queries, route the customer to the best digital self-service application, or connect the customer to the best human agent with the relevant skills to handle their needs. - Since its launch, 70% of queries coming through its digital channels were completely resolved by AI chatbot.
SHOULD BANKS BE DIGITAL ONLY?
According to BAI Banking Outlook 2022 Top 3 ways customers utilize the physical branch: - open or close an account - conduct a transaction - resolve an account problem Top 3 priorities for bank branches: - relationship building and marketing - digital banking support - account opening and closing
Ad-supported
Ad-supported Web portals, search engines (FB, Google) Roles: Provide content - Content attracts viewers, and viewers attract advertisers - UGC vs. PGC
IT USES DIGITAL TO BETTER SERVE THE KNOWN CUSTOMER NEED 2
Aeroflot, a Russian airline, transformed itself from the worst airline into one of the best by using digital technology to significantly improve its core activities: operations, reporting, passenger booking, scheduling, and customer care. Technology did not alter Aeroflot's purpose- it remains a passenger airline, selling seats on planes to many different destinations.
BARRIERS IN SCALING AI 1. Manage AI Risks
BARRIERS IN SCALING AI 1. Manage AI Risks AI poses unfamiliar risks and creates new responsibilities - It affects a wide range of risk types: model, compliance, operational, legal, reputational, and regulatory risks - If AI is biased, then the whole firm is systematizing the bias into the decision-making process AI is difficult to track across the enterprise - AI use is decentralized across the enterprise - AI solutions are increasingly embedded in vendors' software. AI risk management involves many design choices for firms - How should we combine AI risk management with the management of other risks, such as data privacy, cybersecurity, and data ethics?
BARRIERS IN SCALING AI 2. Obtain Needed Data/Input to Train Model
BARRIERS IN SCALING AI 2. Obtain Needed Data/Input to Train Model Four main components in the AI data lifecycle: 1. Data sourcing Look for high-quality training dataset - need depth and variety 2. Data preparation Automate data annotation can speed up the data labeling process 3. Model training and deployment Data source that integrates with the AI platform seamlessly can make it easier for model initial development and continuous training 4. Model evaluation by humans Benchmark the model output with real use cases or other models to ensure it works accurately and relevantly in the industry
BARRIERS IN SCALING AI 3. Implement AI Technologies
BARRIERS IN SCALING AI 3. Implement AI Technologies AI implementation must begin with developing a carefully planned strategy: - Define the areas that need automation - Staff the AI team - Rethink your business - Support new AI-based processes with agility Align the AI implementation strategy to the overall company strategy and then orient in investments.
BARRIERS IN SCALING AI 4. Prove Business Value
BARRIERS IN SCALING AI 4. Prove Business Value Select use cases in your industry that can help accelerate value. • For example, the financial services industry is harnessing the power of AI to revolutionize the way individuals and companies deal with money: • • Banking Fraud Analytics • • • Detect transactional and account takeover fraud • • Conversational AI • • • Use chatbots and virtual assistants to handle consumer-facing activities • • 360° Customer Experience • • • Acquire customers and deliver a personalized, end-to-end CX • • Underwriting that goes over and above • • • Enhance underwriting processes and risk evaluation • • Trade operations made easy • • • Automate tasks e.g., trade reconciliation and operational exceptions remediation Select use cases in your industry that can help accelerate value. • Millions of euros of welfare allowances were being paid to ineligible persons in Netherlands. • • Existing processes were not effective - involved human assessors to perform random checks. • • • Suspicious fraud detected by human: 10% • • The government used AI and fed past cases into the system for AI model to learn. • • Initially, fraud rate detected by AI: 50%, after 6 months, 87%, after another 6 months, the number fell. • • The AI detection technique is so effective that it become a fraud prevention tool.
DIGITAL TRANSFORMATION OF BUSINESS MODELS Customers
Customers Organizations focus on how they can serve the customer better using digital channels/platforms Example: Disney • Disney will use technology to enhance storytelling in the future -• Metaverse will be the "next-generation storytelling" • Disney plans to use data gleaned from theme park visits and consumers' streaming habits to deliver personalized entertainment experiences
DIGITAL MINDSETS Digital First
DIGITAL MINDSETS Digital First - Similar to Digital Sub but Digital First places the digital alternatives as the priority - Workflow, processes, and customer touchpoints are reengineered with digital alternatives - Non-digital initiatives play supplementary roles
DIGITAL MINDSETS Digital Only
DIGITAL MINDSETS Digital Only - Key value chain activities are solely IT-based -While it may not be practical or feasible to fully digitalize all activities and processes, organizations may focus on processes or activities, rather than on the enterprise as a whole
DIGITAL MINDSETS Digital Sub
DIGITAL MINDSETS Digital Sub - Complement the workflow and business processes in physical settings with IT-based substitutes and alternatives - Does not involve much reengineering of current workflow and activities Example: retailers use online stores and mobile apps to provide additional channels for customers
DIGITAL STRATEGY AND BUSINESS MODELS
DIGITAL STRATEGY AND BUSINESS MODELS • Exchanges • Ad-supported • Freemium • Subscription • Sharing
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 1. Centralize Information of Digital Initiatives
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 1. Centralize Information of Digital Initiatives Have a complete or transparent picture of the whole organization's digital initiatives portfolio Take an inventory of digital initiatives Centralize information about digital initiatives but not control over them Build trust and a culture of information sharing
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 2. Decentralize Governance as Digital Maturity Grows
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 2. Decentralize Governance as Digital Maturity Grows A central unit or team (e.g. CTO / CDO) is required to initiate DT. But the end goal is to decentralize digital initiatives and empower local business units. If everyone is acknowledging the value of DT, embracing it, and making it happen, I'm not needed anymore.
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 3. Decentralize DT Ideation, Centralize Idea Evaluation and Prioritization
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 3. Decentralize DT Ideation, Centralize Idea Evaluation and Prioritization Organizations should encourage bottom-up DT ideation - Nestle launched "InGenius" program to leverage the creativity of ~300,000 employees worldwide - Employees can pitch their ideas and get feedback and vote from colleagues - This brings innovation process closer to more employees Organizations need a systematic approach to evaluate and prioritize ideas. - Rabobank set up an innovation board with members from every business line. - The board manages the innovation funnel, and evaluates new ideas against strategic priorities.
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 4. Identify and Measure Critical DT Impact
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 4. Identify and Measure Critical DT Impact Generic KPIs fail to truly measure the impact • E.g., adoption rate of digital tools Digital initiatives are usually undertaken to create impact in certain dimension • E.g., revenue growth, new market creation, increased customer satisfaction Organizations need to clearly identify the desired impact of each initiative and to closely monitor appropriate KPIs. • For impact on customer satisfaction, KPIs such as retention rate and net promotor score would be useful
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 5. Avoid Siloed DT Solutions
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 5. Avoid Siloed DT Solutions Ensure new digital initiatives are integrated within an organization's existing IT rules, systems, and capabilities Adopt standardized approach to infrastructure - Ikea achieves digital innovation at scale by standardizing data rule - This gives Ikea the ability to see what products and processes are working globally, and which are not
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 6. Implement a "Fit-for-Purpose" DT Evaluation System
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 6. Implement a "Fit-for-Purpose" DT Evaluation System Map the digital initiatives onto relevant dimensions 1. Value potential - Value and cost of failing to pursue the initiative 2. Degree off easibility •-Ability to successfully execute an initiative, based on ease of implementation, current context, capabilities, and organizational structure
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 6. Implement a "Fit-for-Purpose" DT Evaluation System • Four types of digital initiatives:
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 6. Implement a "Fit-for-Purpose" DT Evaluation System • Four types of digital initiatives: Quick Wins: apply a simple digital tool to a known challenge in a specific business area. Kill Zone: difficult to implement and have low value potential. Moonshots: explore radically new, trending and potentially disruptive innovations and technologies. Enterprise Anchors: create change to the current business at scale. Ventures: leverage digital technologies or business models outside the existing organizations.
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 7. Evaluate Different Scenarios to Achieve Strategic DT
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES 7. Evaluate Different Scenarios to Achieve Strategic DT Digital initiative types are not static - A moonshot can become an enterprise anchor Manage the transitions in a way that is consistent with organizational strategy while providing each initiative with enough resources to maximize its potential A disciplined approach is required in the Kill Zone - Stop unsuccessful initiatives - Embed initiatives into existing business operations
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES
DIGITAL TRANSFORMATION GOVERNANCE PRINCIPLES No one-size-fits-all governance structure - Organizations need to adapt appropriate structure and proactively evolve Key governance principles - Centralize information about digital initiatives - Decentralize governance as digital maturity grows - Decentralize ideation, but centralize idea evaluation and prioritization - Measure the real impact - Avoid siloed solutions - Implement a "fit-for-purpose" mapping system - Evaluate different scenarios
DIGITAL TRANSFORMATION GOVERNANCE STRUCTURE 1. Governance Committees
DIGITAL TRANSFORMATION GOVERNANCE STRUCTURE 1. Governance Committees Two common committees that govern digital transformation: A. Steering committees - How do we prioritize and fund digital initiatives in spite of unclear business cases? - How do we allocate resources? - What policies do we need to ensure regulatory compliance? - What rules should we adopt internally to ensure a consistent customer experience? - What should be done centrally and what should be done locally? Steering committees make these decisions: ratifying policies, making investment choices, and prioritizing competing interests B. Innovation committees - Less common than steering committees but have a more focused purpose: -- To stay ahead of fast-moving digital technologies and business practices. -- To identify technology-enabled business opportunities. -- To adjust to changing employee or customer behaviors.
DIGITAL TRANSFORMATION GOVERNANCE STRUCTURE 2. Digital Leadership Roles
DIGITAL TRANSFORMATION GOVERNANCE STRUCTURE 2. Digital Leadership Roles Digital czars • e.g., CTO, CDO, who lead DT at the organization level. Less senior digital liaisons • Who leads DT at the business unit level. • Some have knowledge sharing rather than leadership roles.
DIGITAL TRANSFORMATION GOVERNANCE STRUCTURE 3. Shared Digital Units
DIGITAL TRANSFORMATION GOVERNANCE STRUCTURE 3. Shared Digital Units Major responsibilities include: • Develop digital services • • Cut costs by reducing redundant initiatives, people, and technologies in the local units • • Undertake corporate-wide investments • • Have rapid experimentation capabilities to spur innovation • Develop new digital skills • • Actively recruit experts and talents in new digital skills • • Training and knowledge sharing
DIGITAL TRANSFORMATION GOVERNANCE STRUCTURE Motivation and Focus
DIGITAL TRANSFORMATION GOVERNANCE STRUCTURE Motivation and Focus New demands for digital capabilities, new risks from digital activities have made digital governance more essential nowadays. - Establish digital leadership - Build a digital services unit - Govern technology innovation - Build a digital governance culture Focus on two key goals when designing effective governance: • Coordination • Sharing Governance mechanisms: 1. Governance committees 2. Digital leadership roles 3. Shared digital units
DIGITAL TRANSFORMATION IMPERATIVES
DIGITAL TRANSFORMATION IMPERATIVES If DT is not launched properly at the start, people will revert to old ways of working easily Imperatives to ensure change is optimal, well executed, and lasting: 1. Aim for long-term impact 2. Be clear on aims, flexible in implementation 3. Build a network of transformation ambassadors
DIGITAL TRANSFORMATION IMPERATIVES 1. Aim for Long-term Impact
DIGITAL TRANSFORMATION IMPERATIVES 1. Aim for Long-term Impact DT is not a quick solution to cut costs and boost revenues Review the status quo and define a baseline - What performance levels has today's setup achieved? - What are its strengths and weaknesses? - What resources does it need? Engage the broader organization - Nurture the mindset and behaviors needed - Equip the capabilities needed - Measure and check the progress
DIGITAL TRANSFORMATION IMPERATIVES 2. Be Clear on Aims, Flexible in Implementation
DIGITAL TRANSFORMATION IMPERATIVES 2. Be Clear on Aims, Flexible in Implementation Develop a high-level plan, not a detailed plan - Define what needs to be done and how it can be done effectively - Allow flexibility when conditions change - Give employees a sense of ownership Take an iterative approach - Experiment with new ways of working - Gather feedback from broad range of sources, e.g., salesforce, finance, outside experts - Make adjustments
DIGITAL TRANSFORMATION IMPERATIVES 3. Build a Network of Transformation Ambassadors
DIGITAL TRANSFORMATION IMPERATIVES 3. Build a Network of Transformation Ambassadors Engage employees by forming a network of transformation ambassadors • Consists of top managers and enthusiastic change agents who volunteer to champion the transformation. Ambassadors align on objectives, the way forward, and articulate the case for change throughout the organization • The reason and benefits for transformation • In formal or informal ways
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Categories
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Categories 1. Business Model 2. Structure 3. People 4. Processes 5. IT Capability 6. Offerings 7. Engagement Model
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 1. Business Model
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 1. Business Model What strategic digital initiatives should be at the core of our business model?
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 2. Structure
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 2. Structure What governance structure is needed so that we can implement digital initiatives strategically?
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 3. People
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 3. People What digital talents do we need to strengthen our strategic position?
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 4. Processes
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 4. Processes What BPR and workflow innovation can strengthen our strategic position?
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 5. IT Capability
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 5. IT Capability - Which existing IT capabilities are constraining our strategic position? - What new/disruptive IT can strengthen our strategic position?
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 6. Offerings
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 6. Offerings How can we digitally enable our products/services to strengthen our strategic position?
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 7. Engagement Model
DIGITAL TRANSFORMATION IMPLEMENTATION Transformation Category 7. Engagement Model How can we digitally engage with customers to strengthen our strategic position?
DIGITAL TRANSFORMATION OUTCOMES
DIGITAL TRANSFORMATION OUTCOMES 1. A more personalized product or service • Offer products/services that are better tailored than the dominant models to customers' individual and immediate needs 2. A closed-loop process • Replace linear consumption process (in which products are made, used, and then disposed of) with a closed loop, in which used products are recycled 3. Asset sharing • Enable the sharing of costly assets 4. Usage-based pricing • Charge customers for use of product/service, rather than requiring them to buy outright 5. A more collaborative ecosystem • Improves collaboration with supply chain partners and helps allocate business risks more appropriately 6. An agile and adaptive organization • Use technology to move from traditional hierarchical models of decision making to making timely decisions that better reflect market needs
DISRUPTIVE TECHNOLOGY Evaluating Disruptiveness of Technology
DISRUPTIVE TECHNOLOGY Evaluating Disruptiveness of Technology Overcome cognitive inertia by (regularly) examining how new technology might redefine business/industry • Disruptive technology affects key definitions of business/industry - • Target market - • Value proposition - • Absolute/relative price-quality trade-off Disruptive technology affects business performance and survival • Digital cameras and film cameras • Digital music and CDs • Internet and Entertainment (music, movies) • Skype and international carriers
Digital Transformation
Digital Transformation A technology-driven process of change derived from ubiquitous data, connectivity and decision making --- Young and Rogers (2019:683) Key focus of digital transformation is the value proposition Examples: Introduction of new business models like - 'product-as-a-service' - digital platforms - pure data-driven business models
Digital strategy is a broad concept that involves:
Digital strategy is a broad concept that involves: - Digitization - Digitalization - Digital Transformation - Business Model Innovation
DIGITAL MINDSETS
Digital sub Digital only Digital first
Digitalization
Digitalization The use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business --- Gartner IT Glossary (2017:1) Examples: - Use of robots in production - Addition of digital components to product or service offering - Introduction of digital distribution and communication channels
Digitization
Digitization The transformation process of analogue information into digital information --- Gartner IT Glossary (2017:1) Examples: - Automated routines and tasks - Conversion of analogue into digital information
EFFECTIVE CLOUD COMPUTING STRATEGY 1. Develop a Cloud Decision Framework
EFFECTIVE CLOUD COMPUTING STRATEGY 1. Develop a Cloud Decision Framework Focuses on specific use cases when and how organization consume cloud services Consider factors such as security, risks, costs, and benefits A common framework facilitates individual units to assess need for and implementation of cloud services
EFFECTIVE CLOUD COMPUTING STRATEGY
EFFECTIVE CLOUD COMPUTING STRATEGY 1. Develop a cloud decision framework 2. Establish cloud operations best practices 3. Assess the potential for hybrid cloud deployment 4. Explore cloud application migrationa nd development
EFFECTIVE CLOUD COMPUTING STRATEGY 2. Establish Cloud Operations Best Practices
EFFECTIVE CLOUD COMPUTING STRATEGY 2. Establish Cloud Operations Best Practices Focus on best practices across all use cases Cloud decision framework and cloud operations best practices form dynamic feedback loop Align best practice operational strategies with the existing architecture and technology strategies for each operational area
EFFECTIVE CLOUD COMPUTING STRATEGY 3. Assess Potential for Hybrid Cloud Deployment
EFFECTIVE CLOUD COMPUTING STRATEGY 3. Assess Potential for Hybrid Cloud Deployment Shifts attention away from using only public cloud services to implementing cloud services in a hybrid fashion. Private cloud offers the greatest control on the internal cloud platform, but at higher cost of cloud implementation and maintenance
Exchanges
Exchanges B2B exchanges, online auctions (Alibaba & Ebay) Roles: - Connect buyers and sellers - Facilitate search and transaction • A large number of participants on both sides increase the likelihood of finding a match
Freemium
Freemium Software as a service (SaaS) (Dropbox & Zoom) Roles: Provide a stripped-down version of their premium product for free - Help build brand awareness and acquire a large customer base
From experience-based, leader-driven decision making to data-driven decision making at the front line
From experience-based, leader-driven decision making to data-driven decision making at the front line - Augment the judgement with AI's recommendations - Consult a senior before taking action would inhibit the use of AI
From rigid and risk- averse to agile, experimental, and adaptable
From rigid and risk- averse to agile, experimental, and adaptable - Reduce the fear of failure - mistakes are a source of discoveries - Get early user feedback, prevent minor issues from becoming costly
From siloed work to interdisciplinary collaboration
From siloed work to interdisciplinary collaboration - Develop AI by cross-functional teams - Ensure AI initiatives address broad organizational priorities, not isolated business issues - Involve end users in the design to increase adoption chances
IT AND OPERATIONAL EFFECTIVENESS (OE) Issues
IT AND OPERATIONAL EFFECTIVENESS (OE) Issues IT-driven OE is not sustainable • Easily duplicated (fast follower problem) --Non-proprietary technology --Reverse engineering • Narrowing of OE gap among companies • OE is non-negotiable, but non-differentiator
IT AND OPERATIONAL EFFECTIVENESS (OE)
IT AND OPERATIONAL EFFECTIVENESS (OE) OE: Utilization of a firm's inputs in production • Reduce defects in products • Use fewer inputs to achieve same (or more) output • Develop better products faster
IT AND STRATEGIC ADVANTAGE Identifying Strategic IT
IT AND STRATEGIC ADVANTAGE Identifying Strategic IT Resource-based view of competitive advantage • Resources: assets/capabilities/processes/information that firm possesses • Resource attributes affect competitive advantage • • Attributes: • • • Valuable • • • Rare • • • Inimitable • • • Non-substitutable
A SUCCESSFUL DIGITAL STRATEGY FOR BANKS?
Improve the omnichannel customer experience - Consumers don't see the branch, call center and digital channels as mutually exclusive - Seamless experience with a wide range of choices any time they interact with Integrate digital inside the branch - Connect digital experience to in-person visit without disruption - Improve digital adoption and free up staff to focus on more complex interactions Build cross-channel confidence - Make commitment to build cross-channel knowledge that makes all customer-facing staff confident in their abilities in answering customers' questions Face-to-face advice remains essential - Complex products like mortgages cannot be solved by FAQs or chatbots
LINKING TECHNOLOGY AND THE MARKET Example: Uber
LINKING TECHNOLOGY AND THE MARKET Example: Uber Uber has at least five outcomes of successful transformation: - Its business model is based on asset sharing—drivers use their own cars - It developed a collaborative ecosystem in which driver assumes risk of winning rides, while the platform helps minimize that risk through application of big data - It creates agility through an internal decision-making system that responds to market changes in real time - It applies usage-based pricing and directs drivers to locations where probability of finding a fare is high - It allows customer to rate a driver and provides personalization by giving customers to choose types of rides (Uber X, Uber XL, Uber Taxi, etc.)
IT USES DIGITAL TO BETTER SERVE THE KNOWN CUSTOMER NEED 1
Maersk, a shipping container company, faced challenges such as rising shipping costs and lack of transparency Maersk used digital to overcome the challenges: • Deployed blockchain technology for fast and secure access to end-to-end supply chain information from a single source -• The technology receives real-time sensor data, allows trustworthy cross-organization workflows, lowers administrative expenses, and better risk assessments in global shipments Maersk remains a company whose value proposition is to provide a fast, reliable, cost-efficient shipping service.
IT USES DIGITAL TO BETTER SERVE THE KNOWN CUSTOMER NEED 3
Marriott focused on delivering a great hotel and customer experience when being threatened by digital platforms such as Expedia, Airbnb or Google. • Though Marriott's CEO emphasized that the technology would be a major factor in winning the war, he said "It must be through a digital platform. But that platform is about engaging our customers." • Marriott differs from Airbnb by offering its luxurious mattress/bedding and services
BARRIERS IN SCALING AI 1. Manage AI Risks
Mitigating model risk: 1. Data validation • Scan training and testing data, look for skewed or biased data 2. Model documentation • Model performance, model architecture, data flows, the risk-mitigation strategies applied to model and data 3. Check on bias • Retrain the models when issues are detected, regular monitor for data drift, have a human-in-the-loop verification phase of model deployment
Organizations can digitally transform elements of their business models:
Organizations can digitally transform elements of their business models: - Product Offering - Customers - Resources and Capabilities - Strategy
P1: DIGITAL REQUIRES RADICAL DISRUPTION OF THE VALUE PROPOSITION
P1: DIGITAL REQUIRES RADICAL DISRUPTION OF THE VALUE PROPOSITION - Back in the late 1990s, the only way to purchase music was to buy a cassette tape or CD in a retail store. - With the advent of MP3 technology, users were able to download audio files and listen to them on their computers. - Apple introduced iPod in 2001, it allowed users listen to their MP3s on the go. The iTunes store was then launched in 2003, offering 200,000 songs tothe public at 99 cents each. - The music industry that previously relied on CD sales was completely disrupted. Since its launch in 2007, Airbnb has drastically impacted the supply-side of the hotel industry equation. It has also changed the guest expectations, the demand-side. - Airbnb has exposed consumers to guest experiences that is different from that from the conventional hotels; and these changed expectations have fundamentally altered consumer booking decision-making patterns.
P2: DIGITAL WILL REPLACE PHYSICAL
P2: DIGITAL WILL REPLACE PHYSICAL Digital enables the elimination of inefficient intermediaries and costly physical infrastructure.
P2: DIGITAL WILL REPLACE PHYSICAL IT'S A "BOTH/AND" 2
P2: DIGITAL WILL REPLACE PHYSICAL IT'S A "BOTH/AND" Retail digital natives created physical stores to serve customers needs that digital cannot handle well. • Warby Parker opens physical stores to create welcoming customer experiences
P2: DIGITAL WILL REPLACE PHYSICAL IT'S A "BOTH/AND" 1
P2: DIGITAL WILL REPLACE PHYSICAL IT'S A "BOTH/AND" TUI, a travel agency in UK, realized digital has broadly disrupted is industry, and turned to a hybrid of physical and digital. • When TUI was on the digital transformation journey, it knew that many customers still preferred interacting with people in physical stores, asking questions and becoming comfortable with complex itineraries.
P3: DIGITAL IS ABOUT TECHNOLOGY
P3: DIGITAL IS ABOUT TECHNOLOGY - Digital transformation involves technology change, but ultimately it is about better serving customer needs. - Digital enables the connection of formerly siloed activities. - Company should reorganize both people and technology.
P3: DIGITAL IS ABOUT TECHNOLOGY IT'S ABOUT THE PEOPLE AND PROCESS 1
P3: DIGITAL IS ABOUT TECHNOLOGY IT'S ABOUT THE PEOPLE AND PROCESS ING, a global bank, eliminated divisions and functions and embraced an agile organizational structure with squads tasked to deliver improved customer journeys. • ING developed a set of internal processes: PIE - Protect: employees who leave their jobs to work on a squad project can return to those jobs if the initiative fails. - Independence: squad members have their own resources and can make their own decisions. - Encouragement: if the squad is successful, its work will be widely celebrated in the company.
P3: DIGITAL IS ABOUT TECHNOLOGY IT'S ABOUT THE PEOPLE AND PROCESS 2
P3: DIGITAL IS ABOUT TECHNOLOGY IT'S ABOUT THE PEOPLE AND PROCESS Telenor, a Norwegian telecom, redefined the jobs. Instead of designating individuals as product owners, it now calls them project managers, responsible for designing the customer journey. • Telenor encourages employees to operate like mini-CEOs, focusing on the customer problem and being able to work quickly to deliver a solution.
P4: DIGITAL REQUIRES OVERHAULING LEGACY SYSTEMS
P4: DIGITAL REQUIRES OVERHAULING LEGACY SYSTEMS - Digital transformation may ultimately require radically change of back-end legacy systems, but a sweeping IT overhaul comes with greater risks. - Companies should slowly replace their legacy systems in a modular, agile way. - Companies could build a middleware interface that connects the front-end applications and the back-end systems.
P4: DIGITAL REQUIRES OVERHAULING LEGACY SYSTEMS IT'S CAN BE ABOUT INCREMENTAL BRIDGING
P4: DIGITAL REQUIRES OVERHAULING LEGACY SYSTEMS IT'S CAN BE ABOUT INCREMENTAL BRIDGING TUI, had legacy back-end reservation systems. Seeing the increasing threats from the OTA channels such as Expedia, TUI started the digital transformation. - TUI did not try to replace multiple complex, mission-critical systems at a time. Instead, it developed a three-year plan, with an initial focus on a better customer experience. - TUI learnt from customers what they wanted in a digital world, then it connected the front-end applications to the legacy back- end systems with a middleware interface. - TUI divided the back-end systems into modular subsystems and slowly replaced them. Every time it upgraded, it tested in one market and then improved it.
PERSPECTIVES OF DIGITAL STRATEGY X
PERSPECTIVES OF DIGITAL STRATEGY P1: Digital requires radical disruption of the value proposition It uses digital to better serve the known customer need P2: Digital will replace physical It's a "both/and" P3: Digital is about technology It's about the people and process P4: Digital requires overhauling legacy systems It's can be about incremental bridging
PERSPECTIVES OF DIGITAL STRATEGY
PERSPECTIVES OF DIGITAL STRATEGY P1: Digital requires radical disruption of the value proposition P2: Digital will replace physical P3: Digital is about technology P4: Digital requires overhauling legacy systems
DIGITAL TRANSFORMATION OF BUSINESS MODELS Product Offering
Product Offering Organizations focus on how they could either develop new products or adapt existing ones by digitally infusing them. Example: Peloton - At the beginning, Peloton's core offering was indoor cycling bike equipped with LCD screen for live/guided workouts - They later provide subscription service of online exercise programs, virtual classes and other engaging features that accompany the bike - Aim of company: sell bikes at break-even and profit from subscriptions
DIGITAL TRANSFORMATION OF BUSINESS MODELS Resources and Capabilities
Resources and Capabilities Organizations focus on how they can identify and acquire the necessary resources and capabilities to incorporate digital technologies or undertake digital transformation • Dynamically reallocate money, talent, and management attention to where they will deliver the most value to the organization -• Example: AI, predictive analytics, blockchain, Web3.0... • Acquire/upgrade skills and talents to scale up digital initiatives
Sharing
Sharing Rental platforms (airbnb & Uber) Roles: Offer customers use of a product without buying it - Usually, these products are needed for a limited time only
Smart digital strategy, like traditional business strategy, is
Smart digital strategy, like traditional business strategy, is about making wise investment choices to maximize competitive advantage, growth, profit, and value—and then implementing with discipline.
DIGITAL TRANSFORMATION OF BUSINESS MODELS Strategy
Strategy Organizations focus on how they can adapt their strategy to ensure digital transformation as the core focus. • Legacy organizations can revisit the strategy - Drive differentiation with technology and digital - Drive digital productivity from both inputs and outputs - Invest wisely in technology that differentiates - Get digital M&A right
Subscription
Subscription Online newspapers, streaming services (Netflix & NYT) Roles: Grant customers access to the services at an affordable monthly or annual fee.
TRANSIT FROM TRADITIONAL FIRM TO AI FIRM
TRANSIT FROM TRADITIONAL FIRM TO AI FIRM - An AI-driven firm can serve the same customers with a better value proposition and a much more scalable operating model. - Both learning and network effects amplify volume's impact on value creation. - It takes time for AI-driven operating models to generate economic value and overtake traditional firms.
TRANSIT FROM TRADITIONAL FIRM TO AI FIRM Key Considerations
TRANSIT FROM TRADITIONAL FIRM TO AI FIRM Key Considerations AI-centric operating model • Rebuild processes of each business unit • Demand a top-down mandate to coordinate Clear architecture • Require centralization and consistency • Data assets should be integrated across multiple applications Agile focus • AI operating model requires transforming traditional processes into software • Develop a product-focused mentality is essential Multidisciplinary governance • Data privacy, algorithmic bias, cybersecurity, legal and ethical challenges
UNLOCK AI IMPACT 1. Data
UNLOCK AI IMPACT 1. Data - AI models need access to high-quality data - available, usable, reliable, relevant, and secure - Having the right foundations for storing, processing, and managing vast volumes of data - Participation in data sharing and data ecosystems
UNLOCK AI IMPACT 2. Talent
UNLOCK AI IMPACT 2. Talent Business domain knowledge is crucial to deliver impact with AI Required skills - broad mastery of general management skills (the horizontal bar) - deep functional knowledge in AI and domain expertise (the vertical bars) Do this by: - upskill technical talent with business domain knowledge - arm existing domain talent with the AI skills
UNLOCK AI IMPACT 3. Technology
UNLOCK AI IMPACT 3. Technology Having the right technology foundation is critical for AI success Four priorities: 1. Increasing digital adoption 2. Implementing data science tooling and platforms 3. Advancing cloud infrastructures 4. Investments in AI research and advanced AI techniques
TRANSIT FROM TRADITIONAL FIRM TO AI FIRM Make the Shift
siloed work --> interdisciplinary collaboration experience-based, leader-driven decision making-->data-driven decision making at the front line rigid and risk- averse-->agile, experimental, and adaptable