The CEO of a large financial-services organization recognized that their customers were defecting to fintech disruptors, ranging from SoFi to Acorns to Robinhood. The customer base was shrinking and revenue growth was stagnant. But while everyone constantly talked about customer-centricity, the executive team didn’t realize how unfocused they had become. This became clear when they couldn’t explain why some customers were leaving and which customers should be their future source of growth.

“How can we find our way back to growth when we don’t even know who our customer is,” the CEO asked.

The company realized it needed to undergo a transformation.

Most Companies Aren’t as Consumer-Centric as They Think

The pressure for reinvention feels more urgent than ever as organizations look to find their way past the turbulence of the pandemic. Customer behavior has shifted radically and with it, so have customer expectations. Markets are resizing. Supply chains are disrupted. Digital commerce is growing rapidly. Customer experiences are the new product.

Despite these changes, companies, theoretically, are 100% committed to customer-centricity. Unfortunately, all that noise has caused many to relax their true commitment to customers — even if they can’t quite see it. (Of course, some have never been customer-centric, despite years of lip service.)

In our transformation work, we’ve come to understand the root of this lack of focus. Companies missing customer-centricity often struggle with at least some of these internal barriers:

Failing To Connect the Dots

Customer-centricity requires a deep and connected view of the customer, supporting real-time, integrated customer insights. This constantly refreshed stream of data is a tool that all functions should use, and should be buttressed by meaningful, qualitative research including deep listening and active interrogation. The data helps spot the critical shifts in customer behaviors. Tools like ethnography are critical to getting at the why behind the trends in the data. Both ingredients are critical to customer-centric growth.

“Customer-centricity requires a deep and connected view of the customer, supporting real-time, integrated customer insights.”

Too often, companies invest in one-off research studies without thinking through how the insights can be operationalized, distributed, and refreshed over time. Or, they over-rely on data collection as the sole source of customer truth without delving into the why behind the behaviors they are seeing. Without the combination of data and insights, companies can easily lose their way.

Finally, different business units typically “own” these insights, which means they aren’t shared or connected across the organization. The result is that sales, marketing, product and service teams each see a different side of the customer, and no one is connecting the dots or able to see the bigger picture.

True customer-centricity flows from an ongoing and distributed source of new insights — this includes a combination of survey and perceptual data along with database and behavioral insights. Staying on top of what consumers want today and in the future will be crucial to identify the right products, services and experiences that lend themselves towards new opportunities for growth.

Unwillingness To Put Yourself Out of Business

Companies that pay lip service to customer-centricity build products and experiences to fit existing capabilities or business models and then optimize margins based on testing. They think about what they want and what’s good for their margins. They look at existing resources and say, “What can we build with what we have?”

Customer-centric organizations approach innovation and experience design differently. They are unencumbered by how things are done now. Instead, think about how to best meet customer needs today and in the future.

This is inherently risky. Nike’s 2017 decision to sell directly with consumers meant ditching large wholesale customers. To some, that seemed reckless.  Within a year of adopting a direct-to-consumer model, their revenue grew by nearly 6%, and Nike continues to be one of the world’s most fast-moving, beloved brands.

Fear of Going All-in

Companies that aren’t all-in on customer-centricity might think that engagement is a metric only the marketing team needs to focus on, or that managing Net Promoter Scores is a role for the servicing department. They may be willing to overhaul some areas or happy to tweak the existing business model. But complete reinvention? That’s often off the table.

However, there is no such thing as a partial transformation. Genuinely customer-centric organizations know that to accelerate growth, it takes alignment through the entire company. Whether in sales or HR, supply chain or R&D, these organizations set shared transformation goals around the relationships they seek to create with their customers, and they hold everyone to account. Hiring, compensation and operating models are linked to these customer relationship goals in ways that reinforce the right behaviors and business decisions.

Digital transformation doesn’t mean what it used to. In fact, the term, as it’s been used to describe so many corporate efforts over the last 20-plus years, means something different today: Building digital businesses. And that goal is very much alive.

Today, when companies talk about digital transformation, it’s because they want to find new ways to use technology to serve customers better. They hope to build business engines that continually reinvent themselves. They understand “transformation” isn’t an endpoint but a state of constant evolution.

Businesses also know that the need is urgent. Research from Altimeter, a Prophet company, finds that 92% of leaders believe their current business model won’t remain viable if digitization continues at current rates. However, many companies are conflicted about how to transform.

It doesn’t help that digital transformation conjures images of expensive failures. According to a 2019 study, companies like General Electric, Ford, Procter & Gamble and others have sunk up to $1.3 trillion in digital transformation efforts, and about 70%–roughly $900 billion–was wasted.

But the consequence of not pursuing digital transformation is worse. Almost every recent notable bankruptcy–from Toys R Us to Hertz to Frontier Communications–is linked to failure to transform.

Typically, efforts fail because those in charge keep insisting that digital transformation is rooted in technology. That’s where people get it wrong: digital transformation is based on people and enabled by technology. More specifically, initiatives collapse because leaders don’t approach their strategy with the right mindset. In the race to find easy wins and weak consensus, they focus on tech-driven tools and tactics rather than what these tools are in service of.  They also skip the three most important conversations required for successful transformation:

What Are Our Goals?

For the many companies that lurch from one quarter to the next, articulating a bold vision is difficult. And even for those skilled in adaptive business strategies, following customers in wholly new directions is daunting.

But it’s essential. Transformation can only succeed when leadership sets a clear, measurable vision for how digital will transform the business. Further, executives must do more than simply state their transformation agenda. They must champion the initiative and hold everyone accountable for their part in creating the necessary capabilities, products and services to bring that vision to life. Transformation cannot happen in silos. It must reach across the entire business and be embedded in all functions for real change to happen.

This is inherently risky. Nike’s 2017 decision to use digital muscle to connect directly with consumers meant ditching large wholesale customers. To some, that seemed reckless. But it paid off: its share price has nearly tripled since, and Nike continues to be one of the most fast-moving, beloved brands in the world.

Goals should be specific, and they must acknowledge the need to move at two speeds, with short-term optimization and long-term iterative capability building.

“Digital transformation is based on people and enabled by technology.”

Electrolux, for example, knew consumers wanted every aspect of their home to be connected. It not only included the appliances they use but the way they shop for them. So, the company set goals to make digital integral to every phase of the customer journey. This required a dedicated cross-functional executive team, including marketing, product, sales, IT and critical markets.

These solutions are, of course, tech-enabled. By developing marketing mix guidelines that optimized spending by brand, product and channel, Electrolux improved its operating margins by nearly 20% in just one year.  But these changes grew from a deep understanding of people’s preferences and the explicit goal of transforming a manufacturing business into a consumer marketing-driven company. Like Nike, Electrolux has become a more people-focused enterprise that’s turned it into a relevance-seeking machine, always in motion and constantly evolving.

How Do We Find the Capabilities To Get There?

A new digital business requires new capabilities. Companies must confront the question of how they will obtain these new skills. Will they build them? Buy them? Partner with another company?

Consumers think of Starbucks as a coffee shop. However, Starbucks has long known that it can only fulfill its purpose if it puts the right technology in the hands of both customers and baristas. Consistent investment in loyalty and payment systems has paid off in a digital universe that now powers 50% of U.S. sales. with a quarter of sales from mobile devices. For Starbucks, building that proprietary technology was the right path. Tech has even become a revenue source on its own, with the company now licensing systems to international franchisees.

Acquisition is another route, sometimes chosen by some of the most innovative companies. That includes Apple, which recently bought Mobeewave, a payments company based on nearfield communication, rather than build its own. Even digital natives need help given the pace of change in customer expectations.

All three approaches may make sense, depending on an organization’s near-term goals and long-term ambitions. Deciding among these options requires a candid assessment of current organizational capabilities and what it will take to achieve them.

What Do Our People Need To Take Us There?

Organizational change is always tough and managing for digital transformation is even harder. If companies want people to work and think differently to transform the business, they can’t expect them to do it on demand. Behavior and mindset are emergent. Organizations need to enable the workforce with the right skills to create value, whether through upskilling or temporary support.

This requires evolved governance and tools that make it easy for them to do the right thing for the new strategy, and in the right way. Incentives must be realigned to give people space for experimentation, so they can navigate the ambiguity that comes along with almost all transformation strategies.

To do this right, most companies will require a complex revaluation of their capabilities, governance systems, talent mix and employee value proposition. They need new recruiting, retention and incentive practices as they prepare for the future and must enlist a diversity of talent that is new to them. They need short-term innovators and long-range thinkers, fast movers and patient tinkerers. Transformation requires a cultural revolution, hiring new types of people and skillsets, and then leading them differently.

At Prophet, we talk about the “body, mind and soul” of an organization; and that to digitally transform, a business needs to address all these elements. In Prophet’s Human-Centered Transformation Model, an organization first determines what it wants its DNA to be – its purpose, its brand proposition and its strategic plan to win. Next, it goes to work on the “mind” (its talent, capabilities, and skills), the “body” (governance, process and tools) and the “soul” (its values, behaviors and rituals).

All are necessary for the digital transformation to have its full impact.

Companies are aggressively pursuing business transformation to drive top and bottom-line growth and establish a more effective business model for the future. The pressure for reinvention feels increasingly urgent as organizations look to find their way past the turbulence of the pandemic. Markets are fluid, technology is shifting and people are demanding more digital solutions than ever before.

Companies that settle for incremental progress simply won’t be able to keep up with fast-moving customers.  Companies that embrace this new landscape, however, can achieve uncommon growth – purposeful, profitable, transformative and sustainable. With agile and adaptive approaches to transformation, they can uncover new sources of revenue and relevance in record time.

“When a company’s purpose is clear, that North Star illuminates everything they do. It informs an approach that bridges corporate purpose with its promise to customers.”

Business transformation for growth isn’t easy and companies, especially ones burdened by unsuccessful transformation efforts, are justifiably reluctant to try again. Another common barrier is knowing where to focus and how to start. Too often, leadership gets derailed by decisions about technology. However, all transformation efforts – even ones undertaken as digital transformation – aren’t about tech. They’re based on people.

Taking a human-centered approach to transformation, and working with a variety of organizations in multiple industries, has shown us that no matter what the goals are, companies must follow these three rules of transformation to achieve sustainable growth.

Three Ways To Approach Business Transformation

1. The Customer Is Everything

Companies have been giving customer-centricity lip service for years, but they often fail to appreciate its transformative potential. When organizations put this objective arbiter – the customer – at the center of all decisions, it provides clarity and focus.

This requires an organizational obsession with customers and potential customers. What makes these people happy? What ruins their day? What can your organization do to help their lives run more smoothly? What makes them trust you? What inspires them?

As this customer focus permeates an organization, it gets easier to stop thinking about just selling products and shifts the focus to serving holistic customer needs.

Using this lens, companies can analyze demand opportunities and create a customer value matrix, complete with specific, measurable, time-bound goals. This allows them to identify, prioritize and activate initiatives that deliver on this strategy.

Customer-centric companies don’t spend much time fixing potholes in a customer journey. They don’t have to. Instead, they’re looking for ways to leapfrog expectations. And they also become more adept at changing course, quickly abandoning areas that no longer serve customers.

2. Be a Digital-First Company. But This Time, Do It Right.

All transformation is digital, and companies have known that for decades. But even as businesses invest trillions in digital transformation, they still fail more than they succeed. In our view, that’s because they fall into the trap of thinking technology is the answer. It’s become clear, that tech alone isn’t the answer. The goal is to become a digitally built business, which requires people who use digital-first thinking.

Digital transformation can only succeed when it focuses on people. To be effective, they must transform value drivers that impact others, including both external experiences and internal ways of working.

Companies can begin by setting an overall digital vision that resonates with both customers and employees. That vision requires a clear understanding of which areas will drive the most business and value, complete with specific, measurable objectives validated by key results.

Of course, the technology involved is a critical element, but the bigger issue is about the people in an organization. Do they have the right skills? Are they led and incentivized in a way that allows them to be digital-first? How are they recruited and retained? How does the culture flex and evolve to position the organization for growth in this digital-first world?

With clarified digital goals, companies can begin to iteratively deliver new products, services and experiences. They can regularly re-evaluate strategy and tactics based on key results and customer input.

3. Build an Agile, Purpose-Driven Organization

Companies that know what they stand for are inherently better at customer obsession and building businesses digitally. When a company’s purpose is clear, that North Star illuminates everything they do. It informs an approach that bridges corporate purpose with its promise to customers. This commitment to the customer, with investments aligned to support it, is the growth lever. It creates greater relevance and impact in the market.

This past year has demonstrated just how critical it is to have a clear and authentic purpose. It must resonate with every stakeholder group – not just investors and employees but also customers and members of all its communities.

Today’s consumers, especially millennials and Gen Z, want to do business with companies that make the world a better place. They want to see companies commit to sustainability, diversity and fairness. And they’re demanding increasing transparency. Consumers can forgive brands that make and admit their mistakes. but as soon as they catch a company putting profits ahead of purpose, they’ll move on.

Achieving this agility and commitment to purpose often requires sweeping changes in a company’s culture, capabilities and organization.

Prophet believes human-centered transformations– purpose-driven, customer-focused and digital-first – are the best path to uncommon growth. We talk about the “mind, body and soul” of an organization; and that to transform, a business needs to address all these elements.

For instance, a large financial services company came to us with declining revenue as customers turned to newer fintech entrants. Our business transformation agenda helped guide the CEO, chief growth officer and leadership team to a new company purpose, making life easier for key customer segments. This digital-first strategy vastly improved its agility, so it could quickly pivot to meet people’s needs. Within a year, it increased new business revenue by 8% and drove a 20-fold increase in new leads.