The underlying thinking of digital transformation

Speaker: Zeng Ming, Former CSO of Alibaba Group

Digital transformation is a systematic project, which requires entrepreneurs to transform and upgrade their way of thinking and evolve to what we call Internet thinking or Intelligent thinking.

The digital transformation/upgrade is no doubt the most important challenge for most enterprises currently. However, it is very difficult to land digital transformation. CEOs would usually march the project in all directions and overcautiously without a good starting point. And it usually turns out to be in vain. So they keep changing CTOs and hiring people who understand Internet operation…

Why it is so difficult? Because if the enterprise cannot obtain the basic capability of digital or intelligent operation by moving its core business online, it would be able to create real business value via digital transformation to cover the inevitable cost of organization and resources during the process.

In other words, digital transformation is a systematic project which requires long-term learning and investment to access the final result. The process is suffering.

The more difficult is that during the process, entrepreneurs have to shift or upgrade their own ways of thinking and evolve to what we call Internet or Intelligent thinking.

Internet thinking is becoming common sense

In around 2016, the concept of Internet Thinking was quite popular among start-ups. Later that everyone was talking about this concept made people feel foolish. Now when we look back, we can tell that there were some ideas that start to sprout in that period.

For example “everything is user-centred”. To most Internet professionals, “user-centred” is a kind of instinct. Because the only way to interact with users is an online product. What behinds every click is the user’s behaviour, all the efforts of the company are aimed at the improvement of the user’s behaviour.

Now, no matter what industry are you in, you have plenty of online tools that can reach out to massive users. By leveraging interacting with users and data-driven, you are now able to iterate products and improve user experience continuously.

Only by doing this, you would understand, the concept of “user-centric” has to be implemented into all aspects of the operation. If we define it strictly, the users without continuous interaction should not be called “users”.

The so-called phrase “product as the king” refers to the whole service system, customer value creation system and even the corporate organizational structure constructed by Internet product thinking, rather than merely product per se.

Recently I can feel that user-centric product logic is becoming the way of thinking for many enterprises who now have plenty of tools to support them to start doing this. In that case, the belief of “user-centric” and “product as the king” will become kind of basic ability more and more required by enterprises.

The real digital enterprise is a different species

That Internet thinking is becoming more and more popular especially among start-ups is also due to the efforts of many people in the past five years, who have gradually found the way of the Internet, artificial intelligence and industrial integration in different scenarios. These enterprises are actually new species of smart business, which have fundamental differences from traditional enterprises.

Take the case which we just discussed as an example(innovation of offline retail business), many people believe it is a high risk. But to himself it is a matter of high certainty, the traditional risk has been tremendously reduced.

The core aspects of retail are merchandise selection, physical location and consumer experience. And how does he build the whole company system by leveraging the digital methods?

Take merchandise selection as an example, it is totally data-driven. When he gets new products, he will test in 10 stores. There are four kinds of mineral water in the same category. The fifth new mineral water must be in the top four of the sales and win the one before it can continue to be sold in the store. After this logic is proved by data, they will purchase on a large scale and promote it to hundreds of stores across the country.

The founder of the company used to be a software engineer. He built a so-called middle platform before doing retail business. From product selection, store operation, supply chain management to location expansion, all are relying on the capability of digital operation. They can try errors at a very low cost on this infrastructure platform.

So innovation is no more a random decision by a small team, it becomes a kind of open innovation that is based on instant interaction and feedback from users both online and offline. We can do massive trial & error at a very low cost. And when we prove a good product, we can scale up as quickly as possible.

This is the new species! So, most enterprises are not competing with themselves, but with new species. If you cannot evolve yourselves to become the new species, the gap will turn out to be bigger and bigger.

If you want to grow 10 times, you will figure out that what you do at a 100% growth rate doesn’t work anymore. Then you should leverage “Internet/Smart Business” to plan your talent, system, resources and real strategic problem. It would be totally different in terms of perspective.

Continuous innovation of strategy

Maybe in the next 2-3 years, the most important thing is no more digitization per se, but how to change the fundamental thinking, how to turn user, experience and products to the core of daily operational works and to the logic of corporate structure design.

We need to think as clearly as possible. Who are the ones benefit from digitization? What kind of values do digitization create both in and outside company? And how are your information and data transparently flowing and shared?

Only to design based on this logic, it is possible to form synergy within the company. R&D department, marketing department and operation department used to be separated. But now they have to cooperate concurrently like on net. Because once the information is distributed, everyone would be able to communicate on one platform.

In order to support such a new operational mode, the way to make corporate strategy has to be changed as well. The purpose of strategy is no more market positioning, but to make sure that innovation and right decision will continuously happen in the company.

Because when you face to a shifting and complicated environment, only to keep changing yourself and make sure the changing decision is right, you are able to survive. That’s why the corporate organization should also change. This is even a bigger challenge.