The Dangers & Opportunity in the Digital Transformation

This is the second installment of a 3-part series. Read part 1 here.

Not Chinese characters for crisis.

The Internet

No, the word “crisis” in Chinese, is not comprised of the characters “danger” and “opportunity”. Well, perhaps danger, but not opportunity. I know. Unfortunately, I have bad news about the tooth fairy as well…

The Core Problem of Digital Transformation

I suspect if you’ve made it this far, you already know the root of the problem. Innosight is a growth strategy consulting firm for leaders who aim to design and create the future. They conducted a survey of executives from 91 companies with revenue greater than $1B, across more than 20 industries, asking them: “What is your organization’s biggest obstacle to transform in response to market change and disruption?”

The #1 reason 40% of survey respondents cited was “day-to-day decisions” that keep the lights on, but undermine their stated strategy to change.” The #2 answer at 24%, was “lack of a coherent vision for the future.” These things are so fundamental, and yet so difficult, especially in today’s rapidly changing consumer-driven business environment.

In 2000, the top four companies by market value were industry leaders GE, ExxonMobil, Pfizer, and Citigroup. Today, the top four are digital platform companies Apple, Alphabet, Microsoft, and Amazon.

Digital Winners and Losers

Let’s take a look at some examples. Starting with one that is among the most successful in bridging the digital divide. One that also may not readily come to mind as being a leader: Domino’s (F815).

In 2010 Domino’s stock price was stagnating at $8.76. Patrick Doyle took over as new CEO and he had a vision for how Domino’s, a pizza chain, could embrace digital transformation to fuel growth in the business. Over the course of 6+ years, he drove the stock price up 2,725% to $218 (3,208% to $273 at present!).

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In that time Domino’s share price has far outperformed Facebook (F98), Apple(F3), Google (F27) and Amazon (F12). In fact, their forward-thinking strategy and bold embrace of digital transformation has even empowered Domino’s to outpace digital natives like Netflix (F314).

https://cdn-images-1.medium.com/max/800/0*TeBSbBvssXukBE0b.

That’s right, Domino’s has absolutely man-handled the entire highly-esteemed FAANG clan. In case you’re thinking that was an isolated corner-case sampling… it wasn’t. Domino’s has absolutely demolished the S&P 500.

https://cdn-images-1.medium.com/max/800/0*NNNJbF5FQvqOpztI.

But it doesn’t stop there. In fact, when compared with every stock listed in 2010 on the NYSE or Nasdaq with a current market cap of $1 billion or more, a universe of nearly 2,300 companies… Domino’s has outperformed all but three of them! That’s a monumentally incredible performance.

And they haven’t slowed down. Since December 2017, Domino’s stock has increased 22%… 15% in January 2018 alone.

So how did they accomplish this?

Doyle thinks “the vast majority of companies are far too conservative in how they approach risk. They simply spend too much time trying to figure out how to de-risk.”

“We try to do things a little bit audacious.” Of course you do. Because why wouldn’t a pizza company?!?

Actually, in David Chang’s Netflix series “Ugly Delicious”, he makes an astute observation when discussing how Domino’s’ operates: “That’s what’s crazy to me, is I don’t even think that Domino’s is a food company anymore, I think of you guys as a technology company.”

David is right. To unleash such change in a short period of time, management first had to acknowledge Domino’s was as much a tech company as it was a pizza company.

They also realized how important it was for them to reinvigorate the brand, in order to tap into customer demand in the market.

Doing this, in part, is what helped propel their growth to exceed 1,000% in the UK. That’s an almost 3,000% increase in share price, and 1,000% revenue growth in a key market.

How does your company plan to do that?!!

Extreme Examples

Let’s take a quick look at an ideal case study of two fierce competitors. One that won. And one that lost.

Kodak was founded in 1888. They invented the digital camera in 1975. Think about that in terms of driving digital transformation… they were far ahead of the general timeline.

Yet in 2010, Kodak was replaced by Netflix on the S&P 500. Barely 2 years later in January 2012, they filed for Chapter 11. Talk about a rapid decline. The spiral can happen with shocking speed and culminate quickly. Since emerging from bankruptcy mid-2013, and over the past 5+ years, their stock price has dropped 1,440% from $36 to $2.50.

In stark contrast to that, their fierce competitor Fujifilm has increased by almost 350% from $12 to $42 in that same time.

So how did Kodak, who actually invented the digital camera and was once one of the most powerful companies in the world, blunder so badly?

The answer, is that spotting a trend, and doing something about it, are very different things. Put another way, is that Kodak invented the technology but didn’t invest in it.

These are two very similar companies. Both heavily relied on the major profit from camera films. Both invested into digital technologies and diversified, but eventually only Fujifilm managed to transform digitally.

A prime example of where their difference in strategy mattered are the kiosks where customers can print their digital photos. Fujifilm had their own system for this, but Kodak partnered with another company and thus had to share the profit. On top of that, Fujifilm was then able to apply this expertise to other businesses in their digital-imaging division, while Kodak did not.

Businesses thrive when leaders figure out how to drive performance benefits from their investments in digital tools and technologies.

What is your strategy when it comes to digital transformation?

This topic becomes really interesting when we look at specific verticals. Retail as a whole has clearly been hit hard. But there’s definitely hope.

Most traditional companies have lost significant market value-- Amazon has not! (Digital Transformation)
https://cdn-images-1.medium.com/max/800/0*DXlBErvK4tjOBlMT.

Walmart is a great example. They’re in the fight (make no mistake, it’s the same fight for survival you’re in), busy working hard to reach their customers in the most engaging way possible, with Grocery Alerts, Pickup Alerts, Photo Alerts, Layaway Alerts, Financial Kiosk Authentication and a short code program to opt-into their eCommerce Talent program. They even have Deli Alerts so you know when your sandwich is ready. Talk about touchpoints with the customer at every opportunity.

Walmart is working hard to keep, and even increase their market value by embracing a robust digital transformation strategy.

Another great competitive case study in a segment that may not readily come to mind when thinking about DX or catering to consumer liquid expectations, is Home Depot (F23) and Lowe’s (F40).

In the 5 year period from 2013 – 2018, the stock price for Home Depot increased from $56 to $178 (a 317% increase).

Lowe’s, on the other hand, increased from $40 to $85 (112% increase) in that same time. Not bad, but nowhere near Home Depot. However, Lowe’s has done a great job adapting to market conditions over the past year or so, and made tremendous inroads accordingly.

How did Home Depot manage to outperform the competition? Through a very deliberate focus on tapping into consumer demand and investing in technology. Lowe’s, on the other hand, had a huge budget still focused on television advertising.

Is Home Depot “Amazon-proof”? Time will tell. They’re benefiting from surging growth on the professional side of the business in addition to industry-leading e-commerce gains. By building out a very intentional blueprint to drive digital transformation in their business, Home Depot has built a competitive moat especially when compared to a slowdown in the broader retailing industry.

This requires an intentional motion. And a commitment to invest. The original estimate to implement a buy online, pick up in-store system grew 500% from $300M to $1.5B. It also helped lead to a 7% increase in 2016 revenue without opening any new stores, netting $90B in revenue.

Home Depot is “on a mission to create an interconnected retail experience”… “that uses physical and digital assets across Home Depot’s 2,200-plus stores and distribution centers.” Fast Company named them one of the most innovative companies of 2017.

A great example of another brand that may not be the first to come to mind when it comes not just surviving, but thriving in the era of living services.

Next Week: Part 3: The Danger and the Opportunity

How are companies like Domino’s and Home Depot yielding such amazing results? How does an organization develop an effective DX strategy?

Part 3 goes live May 7th at 8am PST!

About the Author:

Andrew Elliot

Andrew Elliott helps business leaders drive digital transformation to improve performance and deliver customer-obsessed experiences. In his downtime, you’ll find Andrew plotting his next adventure to distant lands, probably in a vineyard or on a beach. Follow him on Twitter: @4ndrewbiz.

Revolutionize. Chasm crosser. Tech cowboy, Wine enthusiast, avid Traveler, Footballer, Health and Fitness nut. Eternally curious.

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All views and statements expressed are his own and do not reflect those of his clients, employer or his employer’s clients. Nor are they likely to be all that original- as shrewdly observed by Samuel Clemens and Jim Jarmusch… we’re all basically regurgitating someone else at this point.

References

dominos stock – Google Search
Mar 1, 2018 … Domino’s stock outperformed Apple and Amazon over 7 years-now it’s the world’s largest pizza chain. …www.google.com

Domino’s CEO rides audacity to top leadership award
Since Patrick Doyle became CEO of Domino’s Pizza in 2010, the company’s stock price has zoomed nearly 12-fold, from…www.freep.com

Domino’s stock has outperformed Google, Facebook, Apple, and Amazon this decade
It’s 2010. You’re an eager investor presented a choice between two stocks: Google or Domino’s Pizza. Where do you put…qz.com

Why Domino’s Pizza, Inc. Stock Gained 15% Last Month
Shares of ( Domino’s Pizza, Inc. NYSE:DPZ) were heating up last month on excitement over the recent tax law and a…www.fool.com

How Domino’s Pizza Reinvented Itself
I spent the last 18 months researching and writing a book on how organizations and leaders can do extraordinary things…hbr.org

Subscribe to read
Keep abreast of significant corporate, financial and political developments around the world. Stay informed and spot…www.ft.com

Amazon is now bigger than most brick and mortar retailers put together
The Chart of the Week is a weekly Visual Capitalist feature on Fridays. What has more value: all major publicly traded…www.businessinsider.com

‘Amazon-proof’ Home Depot builds on its DIY digital foundations
Home Depot may not be entirely ‘Amazon-proof’, but it’s building on its specialist retailer base to put down some…diginomica.com

10 companies that are spearheading digital transformation in their industry
Most enterprises are in the midst of a digital business transformation meant to keep themselves competitive in an…www.techrepublic.com

How Home Depot is building customer experience from the outside in
At the CIO Perspectives event in Atlanta (March 2016), Home Depot CIO Matt Carey sat down for a fireside chat with…www.cio.com

Nailing digital to hammer home an interconnected customer experience at Home Depot
As a recognition of digital disruption in the retail sector, this from Craig Menear, CEO of Home Depot, is as good as…diginomica.com

Why The Home Depot Is One Of The Most Innovative Companies Of 2017
In 2016, the Home Depot delivered an estimated $90 billion in annual revenue-and it did it without opening a new U.S…www.fastcompany.com