Advancing Digital Transformation to Grow Better in China
With the challenges brought by COVID-19 and other geopolitical factors, new opportunities and industry patterns have emerged. It is now imperative for companies in China to seize these opportunities and accelerate their digital transformation agenda.
In our new report The 2020 State of Digital Transformation, Altimeter, a Prophet company, surveyed more than 600 executives, including 100 in China, about how they are pursuing digital transformation. The research revealed some distinct regional differences and highlighted the opportunities for companies in China to achieve uncommon growth.
What you will learn in this report:
Significantly more Chinese CEOs understand they are ultimately responsible for digital transformation compared to the rest of the world.
Yet CEOs in China often fail to communicate transformation as a top priority and don’t provide enough strategic guidance.
The top drivers of digital transformation in China are to build a more resilient and high-performance culture and operation.
Compliance concerns, resistance to change and budget are the top three challenges of digital transformation.
While the rest of the world is committed to five main technologies, Chinese companies are more diversified by placing smaller bets in more types of tech.
There is still much work to be done for Chinese companies to allow better collaboration across all departments and functions.
Chinese companies still trail other regions in making data use a core strategic component.
Five DTC Growth Moves to Optimize Your Investments
These 10 real-world examples will show you how to optimize your investments in the rapidly shifting direct-to-consumer landscape.
For the right investors, the rapidly shifting direct-to-consumer (DTC) landscape presents plenty of possibilities. Many of these digital natives are just one cash infusion away from dominating their category–as long as they make the right strategic DTC growth moves.
“We find companies that have the potential for market disruptive growth and profitability, and the positioning to generate the most likely–and fastest–returns on investment.”
The pandemic-fueled surge in all things e-commerce is pushing many to record sales, with business booming at companies like Peloton, Quip and HelloFresh. But not all DTC companies have the same growth potential, and there have been plenty of notable flame-outs. In our work for funds looking to make DTC investments, whether it’s in due diligence or consulting on the use of funds post-transaction, we’re intent on optimizing investment. We find companies that have the potential for market disruptive growth and profitability, and the positioning to generate the most likely–and fastest–returns on investment.
Beyond assessing fundamentals, including how well possible targets have penetrated their customer base, brand staying power and competitive moats, we zero in on potential, based on specific growth moves. We’ve seen that companies with the ability to lean into these five strategies have the best chance to achieve uncommon growth.
We look for companies that are ….
1. Continually Tapping Unmet Needs
The most successful DTC brands started with an unmet need, filling some area of behavioral white space. Millennials, for example, wanted to start investing but felt ignored. Companies like E-Trade and Charles Schwab seemed like their parents’ tools. Robinhood, with its “investing for everyone” credo, stepped in to draw millions of new stock-market investors, with impressive (and occasionally controversial) results.
Our favorite example is Lemonade, which has used behavioral nudges and machine thinking to become the most disruptive force in homeowners, renters, condo and now pet insurance. In return for signing the honesty pledge, customers get transparent prices and lightning-fast service. While many Gen X and older customers may not have heard of it, young people love it. “I just bought insurance on Lemonade,” one of my young associates told me the other day. “And the user experience was freaking awesome.” Has anyone ever said that about insurance until Lemonade came along?
2. Ending Churn Through Customer Obsession
Given the massive spending needed to acquire customers, the strongest brands are those that maximize that investment. Strong retention requires a shift in focus from product obsession (the natural starting point for so many DTC companies) to true customer obsession.
Stitch Fix is continually updating its offer, finding new ways to please existing customers and new customers to please. Its core offer is a fashion fix with five carefully curated choices, and millions love how the personalization gets more accurate over time. But many don’t want to shop this way. So it recently introduced Direct Buy, enabling old and new customers to dive deep into single categories, boosting incremental sales.
3. Uncovering Value Through Deep Customer Analytics
The fastest-growing companies are those that do the most with their data.
Looking closely at questions of price elasticity, for example, can make all the difference in expansion, particularly in new territories. And while this has long been the promise of DTC companies, the reality is that the more data they collect, the less likely they are to use it. IDC estimates that about 90% of what businesses collect is “dark data,” and never used at all–let alone effectively.
So we pay close attention to those that dig into data in every channel. Canoo, for example, is so expert at harnessing tech and innovation insights that it’s poised to launch its electric vehicles after 19 months, not five years. And based on analytics, it’s confident that higher-end consumers will love its subscription-only model, with as little as a one-month commitment.
Another data-savvy company is MeUndies, which has used what it’s learned from social media to sell more than 10 million pairs of underpants. Even rarer for DTC companies, it’s been profitable for three years.
4. Finding New Adjacencies
While many DTC brands build their business on a single product, they eventually need to expand to keep growing, either geographically or by adding new categories. This is a moment when many need more cash, new investors or the ability to acquire or partner with other companies.
Broadening offers while maintaining category credibility often comes down to the right messaging and positioning. Casper, for example, launched in 2014 and quickly became successful. But as competitors piled on, it’s needed to find new ways to expand. With a promise to become “the Nike of sleep,” it now sells pillows, sheets and weighted blankets. But more importantly, it positions itself as the expert on sleep wellness.
Similarly, Airbnb recognized that it could find growth by moving beyond lodging and selling experiences that make people want to travel. From sushi tours of downtown Tokyo to paddleboarding with sea lions, these adventures are adding millions in revenue. (When COVID-19 struck, they also provided a quick pivot to virtual experiences.)
5. Partnering Strategically to Scale the Ecosystem
Headspace and Spotify
Finding partners is a way to access new customers and stay relevant. Headspace, the popular meditation app, has increased its influence exponentially by partnering with Nike, Spotify and the NBA.
Everlane and Nordstrom
Retail is an obvious choice and can be a game-changer. Even non-digital consumers can discover brands like Native, Harry’s, Barkbox and Quip at Target, for instance, or find Everlane and Birdies at Nordstrom.
Alo and Animal Crossing
Others leverage pop culture. Alo, a yoga company, and Tatcha Beauty teamed up with Animal Crossing for product launches within the popular video game.
Allbirds and Adidas
The partnerships that we believe spark the most growth are those that combine scale and purpose. Allbirds, which has built its impressive valuation on sustainable fashion sneakers, recently partnered with Adidas, which has been trying to increase visibility for sustainability efforts. Interestingly, this unlikely partnership with competitive brands introduced a collaboration that pairs Allbirds’ innovative approach to materials with Adidas’ marketing and manufacturing might, and is set to produce the world’s first carbon-neutral performance shoe next year.
As they sift through DTC companies, investors should look for potential targets that can make some (or all) of these five growth moves. These are the nimble brands that can unlock the fastest returns for investors and find exceptional growth for themselves.
Rarely have organizations been forced to tackle volatility in so many areas all at once until the global coronavirus pandemic, demanding many to evolve in ways they hadn’t previously considered plausible, or possible to accomplish in such short timeframes. With the right approach, however, the gravity of the current situation can become an opportunity, a slingshot to accelerate transformation and speed an organization’s course to a more resilient future.
From witnessing the lightspeed changes being made in organizations around the world over the past few months, the latest report from our Organization & Culture experts – The Slingshot Effect – lays out the specific shifts organizations need to make now. With the right processes, commitment, workforce and mindset, others can learn how to ‘slingshot’ their organizations’ transformation, build the flexibility to thrive on change and the agility to respond to any future shocks faster.
In this report you will learn:
Why taking a human-centered approach remains a key element in any successful transformation
How to determine the most relevant shift in order to build resilience where your organization needs it most
Where to prioritize action and guidance on what to do next
Examples of how other companies are moving forward
Customer-Centricity: Closing the Gap Between Digital and Human
As bots get better, brands are challenging their assumptions about effective machine communication.
The past few months have made it more apparent than ever that shifting to more virtual offerings and seamless interfaces are now the main way for businesses to survive and thrive in our online post-COVID world. These changes – accelerated but not triggered by the pandemic – have fundamentally validated one of Prophet’s core convictions: customer-centricity shouldn’t be determined by what companies think is technically feasible. It has to start with us human beings, putting the real needs of people at the center of every decision. It is clearly digitally driven, but at the core, customer-centricity is always a deeply human endeavor.
For too many companies for too long, the strategy has followed what is technically feasible instead of the other way around. But for the few that have been focused on a people-first approach, having their strategy informed from what humans need first before shifting to what is possible on the back end, the success is apparent.
“It is clearly digitally driven, but at the core, customer-centricity is always a deeply human endeavor.”
Companies like Amazon or Netflix – two highly relevant brands and businesses everyone would agree – are heralded as paragons of the digital age but these brands have become the powerhouses they are because they are human-focused. While there are billions of dollars of tech investments behind each, their unwavering focus on their customer and delivering an experience for them that is fast, simple and incredibly gratifying drives what they do and their bottom line.
Of course, for companies in manufacturing, life sciences or financial services, reinventing themselves as digital entities is more complicated than for say a company with a digitally native business model and their failures often show a similar pattern – namely that their strategies demonstrate a lack of clear thinking from the customer’s standpoint. They’re preoccupied with their products, their sales and their success. But now it’s time to look at everything through the lens of the customer, this is where it should start. Success starts with knowing the buyer. What is then required is a holistic view of the digital landscape with technical feasibilities assessed early on. That is how you bridge the often missed gap between a customer-centric digital strategy and a human-focused one.
Faux humans: The rise of bots
The reason we have opened our doors in such large numbers to tools like Siri and Alexa comes down to convenience, ease of use and the fact you speak to them as you would a human. They are customizable, often adapt to your preferences and deliver an experience you can consistently count on. And companies are eager to take advantage.
One of our favorite examples of the successful use of artificial-intelligence-driven empathy comes from the global insurance company, AXA. To help it successfully grow its business in Asia, AXA had the desire to develop a new digital customer engagement proposition, one that humanized the experience and provided a consistent customer journey and brand experience across the region. Emma was born – AXA’s first humanized user interface, which has become the core of the brand’s new digital customer experience, handling everything from claims to servicing, health content to symptom checks and helping individuals find the solutions and content most relevant to their needs. She’s not just efficient and accurate. She’s a friendly embodiment of a brand committed to assisting people as they strive for financial wellness, whilst successfully bridging the gap between digital engagement and financial advisor partners.
And recognizing the massive gap in helping people deal with the mental-health challenges posed by the pandemic, AXA expanded Emma’s skills to deftly field calls about mental-health questions. That’s a high-risk undertaking, but initial tests show customers don’t just appreciate the effort, they’re using the service extensively.
Challenge definitions: What does it mean to be human?
It’s easy to make assumptions, and companies often mistakenly believe they know everything there is to know about their customers. That’s seldom true, especially in a period of such massive upheaval. It’s critical that companies take this time to go deep as they gather insights, with an entirely rededicated sense of empathy and rigorous analytics. For us, that typically means finding out which drivers are the most essential, right now, for customers and prospects. What makes one brand relevant to them and another forgettable? Are they looking for inspiration or efficiency? Do they feel the brand is available to them when and where they need it? Do they sense it meshes with their own values?
With each new wave of technological development, the digital age shifts shapes and speeds up. And it’s vital that leaders focus on the potential of emerging technology. It’s critical that companies do not let themselves fall behind in efforts to continue to be as connected, nimble and data-driven as can be. They need to continually ask: What tools do we have? How digital is our go-to-market approach? How automated is our production?
But too often, we have seen companies spend tens of millions – and sometimes hundreds of millions – in tech investments before understanding how these initiatives might help customers and eventually drive growth. The critical decisions must always balance both: What do your customers need most right now and what is your company capable of providing?
Digital investments, like any other use of capital, should only be made when companies are clear on how they will serve the largest purpose. Addressing just the digital possibilities in a siloed view is a surefire way for a business to fall short in today’s reality. It is the combination of instilling a human-focused process with digital capabilities and prowess that sets up a business for customer-centric success.
If you’d like to learn more about how a customer-centric strategy can improve the growth of your business then reach out today.
For most business leaders, this is a pivotal time. The decisions being made are dictating whether you survive or thrive in these uncertain times and there is enormous pressure on leaders to step up and provide the structure, guidance and clear communication that people are looking for.
This playbook brings together some of the latest thinking from our experts to help with those decisions, from how to double down on your company culture and equip your teams for the future way of working, to understanding the new needs of your customer and making the digital go-to-market shift. It provides some actionable ideas to get your business back on track now as we move out of this crisis and for the growth opportunities beyond.
David Aaker on COVID-19 & Its Implications for Brands
As consumers value the basics more, companies promising simplicity and reliability have a new advantage.
Branding expert David Aaker recently launched his 17th book, Owning Game-Changing Subcategories: Uncommon Growth in a Digital Age. Associate Partner Bernhard Schaar from Prophet’s Berlin office spoke to Prophet Vice Chairman David Aaker to discuss the background of his new book, his perspectives on COVID-19 and its implications for brands and branding.
Bernhard Schaar: Your latest book, “Owning Game-Changing Subcategories: Uncommon Growth in the Digital Age,” explores why growth is so important for companies. Could you explain briefly why that is and what you mean by the term “uncommon growth”?
David Aaker: Growth is healthy because it brings benefits to different stakeholders. For customers, it generates reassurance and credibility and often energy and excitement as well. For organizations, it represents momentum—growth creates growth. For employees, it represents opportunity, pride in the organization and even meaning in work-life—the absence of growth can be discouraging or even depressing and job-threatening.
BS: What are the key learnings you would like readers to get from your book?
DA: I would highlight four main learnings.
First, real growth comes from new subcategory creation defined by attributes that customers view as “must haves”, not from a “my brand is better than your brand” strategy. Competing only on incremental improvements is no longer enough.
Second, to grow you need to become the exemplar brand of the subcategory, to position, scale and build barriers.
Third, brand communities are an important way for customers to become involved in the subcategory and bond with the brand and others who share a common interest and/or activity.
Fourth, digital has put subcategory creation on steroids, with the rapid acceleration of e-commerce, social media, live streaming, O2O and Internet of Things (IoT).
BS: Let’s talk about each of these to better understand your perspective. What do you mean with subcategories and why are they important for growth?
DA: A key element to successful subcategory competition that is ignored in most innovation and strategy books is branding. I wanted to introduce brand into the arena of strategic innovation and market disruption. An exemplar brand has three jobs in addition to refining and testing the “must haves”:
It needs to position the subcategory, making the “must haves” visible.
It needs to be scaled to create the momentum of fast growth,
BS: You mentioned branded communities as one of the key insights of your book. What role do they play in helping brands to own a subcategory?
DA: Branded communities are groups of people that bond because of shared involvement in some activity or interest area connected to a brand. Brand communities create or enhance brand relationships, add energy and involvement, provide credibility and build barriers to competitors. It is hard to draw a customer away from a brand community they are engaged in to another. Nike, for example, has built a strong brand community of sports lovers who share the same passion and aspirations. It has been built in part by integrating its digital platforms to connect and engage. Its agility and creativity was shown when it rapidly launched its virtual workout classes via their Nike Training Club app.
BS: What has been the impact of digital on the creation of new subcategories?
DA: Creating new subcategories has always been, with rare exceptions, the only path to real growth. But the arrival of digital in the last two decades has put subcategory creation on steroids. They are now more frequent, they grow much faster and they have more upside, by a big margin. In the digital era, a huge number of subcategories have been generated or enabled by:
The Internet of Things (IoT) has created smart homes with products like the NEXT thermostat and forced manufacturers like Bosch to adapt by adding digital features to their product portfolio. Other technological advances such as GPS, which has enabled Uber and the expanded Internet, made the iPhone and thousands more products possible.
E-commerce. Entrepreneurs no longer face the barrier of getting into retail or creating a salesforce. Brands like AirBnB globally, or fashion brands like Zalando, or digital pioneers like eBay and online automotive retailer Mobile Dealer have enjoyed almost instant distribution and access to markets.
Social media. For some that are skilled and lucky in using social media and websites it can replace months of planning and a huge media budget with fast and sometimes very inexpensive communication. Dollar Shave Club started with a video that cost $5000 and attracted 12,000 members in two days starting a firm that was sold four years later for one billion dollars.
BS: What recommendations do you have for brand executives to achieve uncommon growth through owning game-changing subcategories?
DA: In the start-up world, this thinking is fundamental to their business – they are doing exactly that already. But large established firms need to prepare for this new reality by keeping up with technological development, adapting their distribution to include e-commerce and becoming good at communication in the digital age. Strategically, there needs to be a realization that the best path to growth is now owning new subcategories that change the customer experience or brand relationship.
BS: Your book was written pre-COVID-19 but as we are moving towards a New Normal, we can see changes happening and priorities shifting both on the consumer and brand side. What is your point of view on this? How have consumers and their expectations changed?
DAa: There are a host of changes in behavior caused by the crisis – among others, people are valuing the basics more. The search for simplicity and reliability is more pronounced. More fundamentally, peoples’ values and acknowledging what is really important to them have changed. Social contacts, trust, authenticity, higher purpose and keeping safe have all been dialed up. Some of these changes will represent opportunities for new ways of serving customers.
BS: What is keeping brands from doing this? What can, for example, companies do to create and own more of these game-changing subcategories you highlight?
DA: This is probably an organizational issue. Much of what we, at Prophet, talk about in management culture and digital transformation applies. The basic problem is that established businesses within big firms are generating strong profits and have financial and political control over budgets and strategies. They are really adept at operations, making incremental improvements in offerings and marketing and showing positive return for those improvements. They are also good at pointing out flaws in strategies that have not been fully developed and tested. As a result, moonshots get killed or starved.
“Uncommon growth is growth that is substantially higher than the expected growth year-to-year. It is out of the ordinary.”
A good way to move ahead is to protect the future efforts by creating a new subcategory and giving a separate budget, and perhaps even a separate organization, that physically is separated from the core organization. A flat organizational structure can also help. Additionally, a firm can work on its culture and decision-making process to allow the innovation around new subcategories to live or even thrive. The measurement of people needs to reflect a risky mission and should not be mainly geared to running the existing business well. Game-changing subcategories don’t create themselves; you need to find and promote them.
BS: Do you have any final thoughts you would like to share?
DA: In regular times, and even more so in challenging times such as today, those brands that disrupt the marketplace by creating new subcategories that are anchored on a set of “must haves” and effective exemplar brands are the ones that will continue to achieve uncommon growth. If a loyal brand community can be developed, then success will be assured.
In the future, the successful brands, in my view, will often be those that are agile and flexible, have employed digital effectively, are truly empathic and have a higher purpose and find ways to connect with customers in a meaningful and involving way.
Want to interview Dave or feature him on your next podcast? Please connect with David Aaker directly.
Explore how David Aaker and Prophet can help your business create game-changing brands that resonate with both your customers and employees.
The Four Pathways to Cultural Change and Business Transformation in China
Our research illuminates the change mechanisms with the most impact, both within China and beyond.
As organizations build resilience amid world-altering shifts, transformation is increasingly relevant. Yet change is challenging, and leaders are often unsure where to start–or where to go next.
For transformations to succeed, the importance of an organization’s culture is beyond question. That said, cultural transformation is often the most significant challenge to take on. Prophet’s 2020 global research based on nearly 500 global transformation leaders, “Catalysts in Action: Applying the Cultural Levers of Transformation,” identifies four pathways of cultural change intended to help companies focus.
“For transformations to succeed, the importance of an organization’s culture is beyond question.”
In this article, we discuss some of the main differences we see between companies in China and the rest of the world, with observations that can help spark uncommon growth.
In many ways, businesses in China approach transformation differently. Compared to other regions, they are more willing to embrace change, and this by a high margin. The Alibaba Group epitomizes this attitude, making “Change is the only constant” one of its core values.
Q: Which of the following best characterize the most recent significant transformation project that you have been involved with in the last two years?
More companies in China are embarking on cultural transformation to keep up with changes internally and to maintain a competitive edge externally. Ping An has started an enterprise-wide digital transformation over the last few years by embracing a culture of innovation and by encouraging to fail often and fast. ByteDance has implemented a bottom-up approach to objectives and results that encourages more transparency and an entrepreneurial spirit. Haier has made employee management and culture central to Haier’s strategy, with hundreds of internal micro companies yielding far better and faster innovations and deeper understanding of local consumers needs around the world. So, we want to understand how business leaders can accelerate growth through cultural transformation.
Proven pathways of change indicate where to start–or where to go next–in transformation. Prophet’s research identifies four pathways of cultural change: Defining, Directing, Enabling and Motivating. All paths are relevant at varying points in time. But it is important to determine which is most relevant to your company right now.
1. Defining the transformation: Don’t overlook middle management.
Consider this the “control tower” for all other pathways. It is where the company solidifies its business and brand strategy, purpose and values. The C-suite is seen as most critical to–and most responsible for–driving the transformation. But this cannot be at the expense of empowering managers, who must serve as key change agents.
This is a regional weakness in China, with only 17 percent of business-unit leaders and middle management given adequate responsibility. While companies in China are more willing to communicate the change widely across the entire organization (46 percent of Chinese companies actively engage most employees, versus 19 percent in rest of the world), decision-making is still led by C-level leaders. And managers are less empowered to drive change.
Q: What level of leadership is most responsible for driving transformation in your organization?
One of the few companies in China that realizes the importance of driving transformation from the bottom up is footwear manufacturer Belle International. A key component of its success has been decentralizing data and using digital as a tool to empower retail managers, giving them more freedom to lead their teams. “I’ve always believed that the vitality of the end market comes from the energy of each store manager and staff,” says Liang Li, executive director, in an interview with Harvard Business Review.
How to accelerate transformation: Find ways to involve BU leaders and middle managers more, creating meaningful roles. They are the connective tissue between the overarching transformation objectives, the marketplace and the day-to-day work of employees.
2. Directing the Transformation: Empowered TMOs yield impact.
This pathway requires taking a holistic view of all the governance, processes, roles, systems and tools needed to enable an operating model that makes transformation real. One way companies do this is by creating transformation management offices (TMOs). Those that have done this have a clear advantage. And those that have given these TMOs the most oversight and influence over decisions are the most successful.
This is an area where companies in China are leading in the way, both in setting up these TMOs and in giving them more oversight. With clear results: 76 percent of companies in China that have established empowered TMOs, are reporting very positive impact.
Q: Which of these best describe the impact that your organization’s transformation management office (TMO) has had?
How to accelerate transformation: A first step toward changing this is establishing a TMO. And if one already exists, make sure its scope is more than just project management. TMOs should be allowed to shape strategy, break down functional silos and coordinate vital initiatives on the transformation roadmap.
3. Enabling the Transformation: Build the capabilities and leadership needed.
This pathway is where organizations identify, source and build capabilities required for employees to thrive. And it is essential if organizations want to succeed in the Digital Age. The current talent landscape demands a compelling employee value proposition (EVP), but this is no longer enough. Companies must take a strategic approach, reimagining where and how they will find the talent needed to power their ambitions.
Although 90 percent of companies in China say that they have aligned talent systems in service of the transformation, there are still some gaps. While China does well-developing employees’ technical skills, it lags when it comes to nurturing the leadership expertise required for transformation. Globally, this leadership upskilling is prioritized by 48 percent of companies and just 35 percent of those in China.
Q: What training topics have been of the greatest need to enable your organization’s transformation?
How to accelerate transformation: Continually assess enhanced capabilities and develop ways to both re-skill existing talent across seniority levels, as well as source new hires through a more strategic approach to workforce planning.
4. Motivating the Transformation: The only failure is failure to learn.
To bring organizational change to life, leaders must behave differently. They must embody the transformation, creating trust among employees as they adopt new ways of working. Stories, rituals and symbols help build belief among employees and connect their day-to-day work to the organization’s new direction. Most organizations rightly celebrate success stories, while failures are less likely to be shared and understood. Focus on levers that create safe spaces and mechanisms for employees to talk about what is working and what isn’t.
This is yet another area where companies in China excel. Despite a directive leadership style, China has embraced a “fail fast and learn” approach that promotes experimentation, with 58 percent of Chinese leaders saying their corporate culture tolerates failure, compared to just 32 percent in the rest of the world.
Q: Which of the following best characterizes the way your organization responds to failure during your recent transformation?
And leaders in China are far more likely, at 79 percent, to encourage experimentation in executing alternative initiatives relative to plan compared to the rest of the world, at 44 percent.
“Risk-taking is strongly encouraged, and failure isn’t stigmatized,” says Jessica Tan, deputy CEO of Ping An in an interview with McKinsey. “What I’ve found is that with each new success, you become more confident in your abilities and your instincts to try the next big thing.”
How to accelerate transformation: Bring teams and divisions together by encouraging the “fail fast and learn” mindset to develop a systematic approach to test-and-learn thinking. The more employees can see these efforts, the better they will understand the transformation process.
Many businesses in China have already made a good start on cultural transformation and recognize its importance in driving growth. Companies in China should continue to pursue those initiatives while shoring up their efforts to teach invaluable leadership skills. But they can’t neglect to take a holistic view to make sure they are setting all aspects of the enterprise up for future success. That means making sure they know how to….
Define transformation: Set a powerful ambition and align with leadership, at all levels, on their role in achieving it
Direct transformation: Establish and empower transformation management offices to optimize operating models
Enable transformation: Match talent strategy to transformation goals, and elevate employees through future-state capability planning
Motivate transformation: Develop culture programs and training to reinforce employee behaviors
Ngai, Joe. Building a tech-enabled ecosystem: An interview with Ping An’s Jessica Tan. McKinsey Quarterly, December 2018
Yuhao, Liu. 别跟字节跳动讲管理 [Don’t Talk Management with ByteDance]. https://www.huxiu.com/article/344321.html. March 13, 2020
Zhen, Wang. 海尔裂变：2000亿公司创业的样本 [Haier’s Fission: A Case Study of How a 200 Billion Company Creates Startups]. https://www.yicai.com/news/5284427.html. May 14, 2017
百丽国际：让数字化赋能离客户最近的人 [Belle International: Let Digital Empower Those Who Are Closest to the Customers]. Harvard Business Review, January 25, 2019
Rethink Luxury – 7 Actions for Luxury Brands to Accelerate Growth Post-COVID-19
Today’s success stories are using direct-to-consumer thinking, surprising partnerships and new data strategies.
How digital transformation and COVID-19 are forcing the luxury industry to accelerate its transformation efforts and shift toward a new set of values and behaviors.
Building Resilience in Luxury is Both a Marathon and a Sprint
Luxury brands have long been masterful in building strong customer loyalty – many have even built a legacy through loyalty – offering more than just products, the values they embody differentiate them from their competitors and help customers to identify more closely with them while also establishing that elusive emotional bond.
And with COVID-19 putting an abrupt halt on many non-essential sales, the luxury industry should prepare itself by anticipating the societal and economic shifts that may well affect consumer sentiment and behavior. Particularly, if customers start to favor more sustainable and responsible consumption.
Now, more than ever, a luxury icon – like any other brand – needs to adapt, stay curious and constantly be looking for ways to exceed the expectations of its customers. In order to steer that effort, we put together seven actions luxury brands should take now to protect and accelerate their growth:
1. Revisit the Core
How relevant is your core DNA? Does it still evoke the same desire it once did? Have you stayed true to it and ensured your purpose – your reason for being – still resonates and holds strong in the modern age? Think of the stories you are telling, the themes that you associate yourself with. After a longer period of success, a unique heritage often gets cluttered by opportunistic moves and messages. Focus on what makes you strong and let go of the unnecessary noise. And it is not about a new logo, go deeper, find your guiding star, the differentiating quality that guided your previous success.
2. Define and Listen to Your Audience
This should actually be pretty easy because it is by definition a very limited amount of people, right? Unfortunately, the importance of product and service design still sits higher than market insights for luxury brands, lagging behind the approach taken by the FMCG industry with leading brands like P&G and Unilever placing higher importance on qualitative and quantitative customer insights.
Remember, what you offer is exclusive yet attainable and attractive to your target audiences – a group of individuals with unique and specific needs and expectations. Imagine their dreams, think in their context. What is driving those individuals or cohorts? You might apply your very own micro-segmentation, leaving standard sociodemographic or maturity segmentations behind. Take regional specifics into account and make sure that it’s not just a gut feel, but rooted in evidence. When have you last discussed and agreed on two to three core personas to inform your actions? Be sure to install the right antenna for market developments. Do not only try to envision future needs, look left and right to learn from the best. In the end, it is the combination of creative potential and insights that leads to the new edge.
3. Think Direct to Consumer (DTC) First
Luxury brands cater to a select number of clients, so why leave the relationship to intermediaries? Even if those third parties are meticulously curated, you will never be able to collect the entire customer feedback if you are not dealing directly with those individuals. Only that direct response assures you have your finger on the pulse of the market, both to adapt the products but also the service that complements the overall experience. Of course, you want to increase reach, but new business models allow for direct interaction even from afar. Imagine what you can do with the increased intelligence. E-commerce still has a way to go in luxury having been discussed for years and implemented rather hesitantly because of concerns in translating the authentic luxury experience in the digital realm. But concepts and technologies are developing fast and the traditional role of partners and channels are blurring. Accept that going DTC is a joint endeavor and will not be perfect from the start.
The fastest-growing brands like Chrono24, Chronext (watch platforms) or Tesla and Polestar in the electric mobility space are eliminating the middle man. Richemont was pioneering e-commerce with NET-A-PORTER and MR PORTER and they learned their way through, now also partnering with Alibaba’s Luxury Pavilion – further pushing its Asian exposure. In the midst of the COVID-19 crisis, even Patek Philippe has allowed their authorized dealers to offer their watches online. Watches & Wonders, the Geneva watch fair with a strong Richemont backing, swapped to a virtual-only conference in just a few weeks. Everybody accepted it wasn’t perfect, yet still, it was a blast.
4. Curate the Experience
To provide luxury at scale, you need to tell memorable stories and be able to duplicate experience standards. Selecting and developing the right context and platforms has become as important as curating the living ecosystem. Doing all that without clearly defined experience principles? Impossible. Navigating through the ever-increasing stack of platforms? Necessary! For example, the meticulously curated Las Vegas resort The Cosmopolitan seamlessly integrates stories, guests, platforms and social media to continuously learn and adapt to changing needs and trends. Also, the auction houses like Phillips and Sotheby’s are masters in curation. The sale of the Rolex Paul Newman Daytona was a benchmark example of curation, storytelling, partnership and as a result, was also a game-changer for the whole auction industry.
Pick your core relationship platform – this might very likely be your website – impart your DNA and focus on your audience by constantly refining the platform. Again, make sure you understand every single move of your audience. There are plenty of tools out there to help you understand and optimize. And remember, the most successful luxury brands are not necessarily the most advanced in digital technologies, but they learned to curate an exceptional experience across platforms and channels. They tell the best stories and those stories can live in all formats.
5. Combine Intuition with Hard Data
For centuries, those in the know were able to better serve the needs of the demanding. That has not changed. Nowadays, each and every individual is expecting nothing less than a perfect personalized experience. Data collection has gone way beyond retailers with transaction and credit card data. Loyalty programs and search behaviors are now used to complement the data set and social media is increasingly used to contextualize this data. Despite a reluctance or even allergic reaction, to giving away more intimate data, luxury clients expect you to understand and anticipate what they want, tailoring offers and solutions that will seduce them and lock them into your own proprietary ecosystem. Having the right data strategy in place to combine demographic, transactional and behavioral data has become as necessary as having a content strategy. Leveraging your expertise and intuition with a new set of quality data allows you to anticipate the upcoming moves and outmaneuver the competition.
“Having the right data strategy in place to combine demographic, transactional and behavioral data has become as necessary as having a content strategy.”
The hospitality and travel industry has a longstanding experience with their loyalty programs like Bonvoy by Marriott or Miles & More by Lufthansa. They combine guest insights with agile processes to come up with unique propositions that increase loyalty way beyond awards. Similar to the FMCG brands on customer insights, the luxury industry can learn a lot from the Amazons in the West and the Alibabas in the East when it comes to collecting and using data. Imagine where Rolex, Patek Philippe or Audemars Piguet could go if they leveraged their already rich data set that they collected with their product and client register by enhancing the data quality and using the insights to have a deeper, more direct interaction with their loyal following.
6. Grow with the Right Partners
Partnering along the brand experience has become another high-performance discipline. Originally something that goes back to the Fifties and Sixties, when luxury distributors like Asprey, Cairelli, Tiffany or Beyer were double signing with Rolex, Patek and the likes, new technologies and new consumer generations are supercharging partnerships. Dealers, ambassadors, authorities, celebrities, influencers, brand partners and many more specialized partners are involved to deliver that high-end curated experience. And it’s not just about the next transaction, it’s about creating stories and experiences that you would simply not be able to deliver on your own. It is now widely accepted to collaborate along any step of the experience chain, from comms to product to after-sales and, of course, also in the wider ecosystem of any brand experience. Your customers don’t care whether you do everything by yourself, they just expect the perfect experience from your brand. Lately, fueled by social media, the trend of co-branding has again proved to be a successful way to expand into new segments or reposition your core, like Louis Vuitton with Supreme, Caran d’Ache with Paul Smith or Rimowa with OFF-WHITE. Collaborate with the best.
7. Be bold, stay focused and stick to your plan
Your marketing budget is limited, so be focused. Stick to who you are and whom you are catering for. What is the content that inspires your demanding clientele? Where do they indulge, how do they escape and feel good? Where do you touch them, what are the right messages? Besides extreme value creation, it is also about the right voice and tone at the right time – always like ‘a first date’. Have a clear plan, stick to it, be creative, surprise! And remember, you got rid of a lot of clutter in the first place, do not add any unnecessary noise now. You cannot and you do not want to please everybody. Stay focused.
It was a brave decision by the Swiss watch brand Breitling to reposition and also to step out of the traditional watches & jewelry fairs. Investing more in its own innovative global experience platforms. Launching a new collection via webcasts was obviously also a lucky decision, now that everybody struggles to go virtual at high speed.
The car industry is struggling a bit here. New electric vehicle concepts for example are only very slowly getting traction. BMW, a bold inventor with the presentation of the i3 series concept at IAA in 2011 was not really able to sustain the momentum and stay ahead of the competition, Tesla was.
Get serious about taking a stand and nurture the new luxury. Conspicuous consumption goes out of favor and we’re witnessing a call for a new, silent, meaningful and humble approach to luxury. We saw that trend growing long before COVID, but the crisis has definitely served as an accelerator. Purpose and experience rather than prestige and status are set to take precedent. Removing consumer guilt, living ethically and leaving a positive mark instead of excessive consumption.
But again, always link your activities to your customers’ needs and expectations. Your targets are shifting too, increasingly from emerging markets, female and younger audiences. What will the increasing dominance of Chinese consumers mean for your value proposition?
Now is the right time to pause, re-adjust, focus and then accelerate with a refined proposition. In the end, it is about creating something that we have not imagined before. Something luxuriously new.
Our experts are happy to share more insights on how the current situation impacts the luxury sector and what businesses need to do next. Reach out today!
This article was co-authored by Roland Ott, an expert in Luxury Brand Management. He was part of the successful growth teams at the Richemont Maisons IWC Schaffhausen and Roger Dubuis and the relaunch of Carl F. Bucherer in Brand, Marketing & Communications Management. He is an Alumni of the University of St. Gallen and the Stanford Graduate School of Business.
In times of uncertainty, our research probes what makes some leaders feel strong while others struggle.
As organizations face difficult choices in response to the ongoing COVID-19 crisis, Charlene Li, author of The Disruption Mindset and senior fellow at Altimeter, a Prophet company, discusses the strategies business leaders can deploy during disruptive times in her webinar series, “Leading in Times of Crisis”. Watch the replays and access the presentation slides for the webinars “How to be a Strong Leader in Times of Crisis”, “Operating in the New Normal” and “Creating a Culture Capable of Thriving with Disruption.”
How to be a Strong Leader in Times of Crisis
Watch the webinar replay to learn about five ways to help leaders navigate these trying times. Presentation slides can be accessed here. Please feel free to share and utilize with Attribution to Altimeter.
Leading in Times of Crisis: Operating in the New Normal
Watch the webinar replay for insights on what leaders should do and how they can prepare for operating successfully in a post-crisis world. Slides from the webinar are available here.
Creating a Culture Capable of Thriving with Disruption
Watch the webinar replay to learn about the key principles a disruptive organization can deploy to create a culture of change. Webinar slides are available here for download.
Learn more about how Altimeter and Prophet can help you and your organization. Our offerings include:
Grit, empathy, generosity and fierceness–these scary times are eliciting some of humanity’s best traits.
A Letter from Prophet CEO Michael Dunn
Like many others, we at Prophet are intensely focused on the rapid rise of COVID-19. And as this virus spreads in new and unexpected ways, our first concerns are–of course–for human safety.
Our worst fears are the most intimate. We’re worried about our own health and protecting our families, especially the very old and the very young. And we’re increasingly concerned with the well-being of those in all our communities. Coworkers. Neighbors. Clients. Friends. Family at a distance.
As the days continue, many of us are facing other fears. Ones focused on financial security – the health of our businesses and the livelihoods of our teams. Many of us are trying not to voice that concern when lives are on the line. But it is there – and for those of us who guided businesses through the economic upheaval of 2008, 2001, or even the early ‘90s and ‘80s, we understand that now more than ever, it is imperative to be a strong leader to help our organizations survive, and maybe even thrive.
Leading in the face of disruption requires a mix of characteristics that are difficult to harness, even when your business is at its strongest. Grit and empathy. Agility and decisiveness. Creativity and rigor. Generosity and fierceness. We need to bring our “A” game each moment, inspiring and drawing inspiration from teams all around us. If we can, we will all find a way through this, together.
“When you find yourself drifting, draw on your strengths and lean into a growth mindset.”
For more than 20 years, we have been studying how organizations, brands and leaders source growth in the face of disruption. Growth that is purpose-led, innovative, relevant and sustaining. By leaning into our organization’s core values and capabilities, by listening hard to our customers and stakeholders and by understanding how their rapidly shifting contexts are creating new needs, we are finding better ways to serve. We are charting new paths.
We’re already starting to embrace new innovations and shifts. Special shopping hours for seniors, take-out 5-star meals, the explosion of telemedicine and distance learning, yoga streamed “live”, 3-D printing hackathons to backfill medical device shortages: these hopeful responses are unfolding all around us. Pay attention to these actions that speak to the spirit of humanity, the impact of selfless business and the power of collaborative ingenuity.
When you find yourself drifting, draw on your strengths and lean into a growth mindset. Human-centered, digitally powered, purpose-led – find your way to emerge from the Covid-19 crisis stronger and more confident than ever.
Five Ways to Be a Strong Leader in Disruptive Times
During disruption, stability and security are important. So are openness and transparency.
Like many of you, the events of the past few weeks have thrown me flat on my butt. My heart goes out to the many people who are dealing with COVID-19 in their families or have lost their jobs. And my soul grieves for the pain that is yet to come.
This past Fall, I published my latest book, The Disruption Mindset, and drawing upon that research, as well as over two decades of studying disruption, I’ve learned that disruption creates opportunities for change. That’s because when a disruption happens, our sense of normal is torn apart into pieces and thrown into the air. The people who thrive with disruption jump into the air to catch the pieces before they fall. Those who duck their heads and hope not to get hit will become the victims of disruption.
My hope is that people will leap high with courage and conviction so that they can be the disruptive leaders we so desperately need in the coming days. Anybody can be a leader because it doesn’t require a title. Rather, a leader is simply someone who sees the opportunity for change and takes action to rally people to that cause.
I want to share five ways you can be the best leader possible in these trying times.
Develop a disruption mindset
Establish stability and security with structure and process
Use openness and transparency to create accountability
Communicate in 3D to nurture relationships
Identify opportunities for the future
1. Develop a Disruption Mindset
Let’s be honest, it’s hard to know where to head with such chaos going on. Personally, I feel whipsawed between dealing with family issues to answering text messages from clients and team members. It’s hard to focus your efforts on things that really matter and effectively manage the noise.
In researching The Disruption Mindset, I surveyed over 1,000 leaders globally and found that an individual most able to thrive with disruption possess a mindset that is both open to change and embodies the leadership behaviors that empower and inspire others. These disruptive leaders are called “Realist Optimists” in that they see the opportunity being created but are realistic about what actions need to be taken today.
At this point, you may have already had to make some tough decisions with your organization just to get through the past week. You likely won’t know the answers as your team asks, “What do we do now?”.
But it’s not your job to have all the answers. Your job as a leader is to ask the right questions – to focus your team on the work to be done. Your job as a leader is to connect with other leaders in your network to fill in the gaps of your knowledge and experience. Your job as a leader is to keep the process moving forward so that together you all find the path forward.
Use this as an opportunity to change your perspective of what it means to lead an organization. Last August, the Business Roundtable redefined the purpose of a corporation from being solely around increasing the value to shareholders to also creating value for customers, employees, suppliers and the community. I can’t think of a better time than now to create new frameworks, metrics and best practices around what this looks like.
Being a disruptive leader requires that you have the courage and conviction to step out of your comfort zone. Courage is when you don’t know what the outcome is going to be, yet you still move forward into that uncertainty. We need courageous, disruptive leaders in these crazy times.
2. Establish Stability and Security with Structure and Process
This new normal requires new norms, especially for leaders now working with suddenly distributed teams. For example, distributed teams communicate, connect and form relationships in vastly different ways from in-person teams. Simply transferring your office protocols isn’t going to work. In a time of crisis, more information sharing is needed.
When you can no longer manage by walking around, you will need to substitute it with daily standups and weekly check-ins. Formalizing what was previously informally done creates a structure and process that will benefit your business because it ensures that everyone is aligned around your strategic goals.
Given the current crisis, traditional meetings may not make sense when people are juggling childcare and working from home. One leader I spoke with made it clear that having a toddler in a lap or a cat walking across a desk was completely acceptable given the circumstances.
Another organization decided to do away with scheduled meetings because it was too stressful for parents to make sure that they were available for a specific time. Instead, they used digital platforms to gather, organize and make decisions in an asynchronous manner. As needed, team members held unscheduled chats or posted feedback over a set time period (typically 24 hours) to move decisions forward.
Lastly, decide on the tools that you are going to use to get work done. RingCentral found that many workers waste up to an hour a day navigating between enterprise apps; so minimize the number of apps that you use. One important process to define is how people will message each other – will it be by email or another platform like Slack or Teams or WhatsApp? Designate one messaging platform that you will use, one place to share documents and one collaborative project management e tool.
You will need to develop your own protocols that work for your organization. The key is to be very clear on how work is going to be done so that you remove uncertainty and confusion.
Use this disruptive time as an opportunity to build agility, flexibility and accountability into your culture and work habits. Make disruption work in your favor as you create stability and security out of new practices and beliefs.
3. Use Openness and Transparency To Create Accountability
To build trust with both your customers and employees, it is important to have one single source of truth that is known by all. Take the time to lay out how you will share information and decisions in a transparent way.
“You will need to develop your own protocols that work for your organization. The key is to be very clear on how work is going to be done so that you remove uncertainty and confusion.”
One leader I spoke with realized that only the leadership team had access to key company data on their collaboration platform, but that the team would benefit from seeing and using it. Except for a small amount of confidential information, they made everything accessible to the entire organization. Openness in information sharing ensures that everyone knows what is going on, giving them the security to be able to make decisions quickly.
To that end, encourage people to share information and decisions in the open. If you can’t physically see each other getting work done, then you need to tell each other what you are working on. Transparency creates trust, security and stability.
4. Communicate In 3D To Nurture Relationships
By all means, over-communicate in a time of crisis. Nokia Chairman, who guided the company through the sale of their handset business and its pivot into an Internet communications telecom giant, said, “No news is bad news. The bad news is good news. Good news is no news.” Rather than dribble out bad news slowly, deliver it with compassion and empathy as soon as you can. It’s far worse imagining the bad news than to receive it and then be able to take the necessary next steps.
Communicate in “3D,” using every channel available – email, video recordings, Slack, social media and Teams and WhatsApp. It also means using video to make calls. There’s nothing like being able to see each other to develop that connection, rather than a disembodied voice on the phone. Video also creates accountability – you can confirm that the other person is present and focused on the conversation and with you.
Another dimension is looking at communications from the perspective of being “Remote First.” Instead of thinking of remote as a second-best alternative to being face to face, think of it as the default going forward. Even when you go back to your office, keep the processes that work for distributed workers so that it makes sense for both modalities.
Lastly, your communications must also establish a new culture for this new normal. Without the serendipity of running into someone in the lunchroom, you will need to engineer serendipity by designating areas where people are encouraged to share and discuss non-work topics. From sharing pictures of their work area at home to jokes and memes, invest in this connective social tissue to help your team connect and continue to build their relationships. It’s these casual encounters that build trust.
5. Identify Opportunities for The Future
The final area is thinking about future opportunities. My research found that disruptive leaders and their organizations do one thing extremely well: they focus on the needs of their future customers. This is truer than ever in these disruptive times. It may be tempting to go back to existing customers and try to coax them to come back to you. But just as importantly, you must think about where new customers with emerging needs are going to be.
As an example, here’s a figure that maps the U.S. GDP growth rate over the last five years. You can see that times of recession and crisis resulted in great creativity and innovation. Microsoft was founded in the midst of the oil crisis of the 70s. Apple launched the iPod in 2001 after the dot.com bust. And Airbnb and Uber were founded in the depths of the last recession in 2008 and 2009, respectively.
Disruption today is creating a need not just for innovation, but also for ingenuity. The need hasn’t gone away with the shuttering of businesses – it’s instead shifted and if you can shift with the need, you can fill the gap.
As a leader, you can find the next disruption opportunity by aligning yourself and your entire team around understanding the needs of the emerging customer. Instead of asking, “What can I do?”, ask instead, “How can I best serve?”
Here are three ways to better identify and understand your future customer. First, use empathy maps to better understand how these people feel, what they say, what they think and what they do (below is an example empathy map from my book). Deepen your understanding of how they approach a problem or situation.
Second, create a Customer Advisory Board (CAB). It can provide you with insight and feedback on what you are doing well and how you could serve their needs better. Don’t stack your CAB with your biggest and best current customers. Instead, find the customers who push you to do things in a different way. Ask your sales and customer services teams who the most insightful customers are – the ones who challenge the way your company works. These customers will hold you to a higher standard.
A strong CAB will push you further and faster than anything you can come up with. Having concrete examples of what future customers want is a powerful antidote to stuck-in-today thinking.
Lastly, find your customer-obsessed people. Seek out the people in your organization who are already naturally inclined to think about your customers. You likely already know who they are. They walk in customers’ shoes and intuitively understand their pain points. When you find these customer-obsessed people, give them the social proof that their opinions, not only matter but are being heard and are making a difference.
For example, one organization routinely highlights call center staff at monthly team meetings who have not only surfaced a problem from a service call but also taken the initiative to push through a change in product or policy. Recognizing the advocacy that addresses a customer’s needs turns that person into a hero to be emulated, encouraging others to surface the voices of customers.
Every Step Is the First Step on The Disruption Journey
I wish I could promise that the journey ahead is smooth sailing. It’s going to be anything but. That’s what disruption is – it forces us out of our comfort zone and makes us come face to face with our biggest doubts and fears. But if you can look past them to the opportunities to serve created by disruption, you and your team will have a focus that will steady your hand.
Today, you can decide to take the first step on the disruption path. And given the difficulties, every step will feel like the first step all over again. But trust and believe that you are on the journey, which will be so much better than staying mired in the past.