• Digital business innovation involves the application of digital technology to improve operational efficiency, drive customer engagement, or develop innovative products or services for an organization.

• Digital strategy focuses on using technology to improve business performance, whether that means creating new products or reimagining current processes. It specifies the direction an organization will take to create new competitive advantages with technology, as well as the tactics it will use to achieve these changes.

  Digital transformation

  • The Institute for Digital Transformation defines digital transformation as, “The integration of digital technologies into a business resulting in the reshaping of an organization that reorients it around the customer experience, business value, and constant change.”（将数字技术集成到业务中会导致组织的重塑，从而围绕客户体验、业务价值和不断的变化重新定位组织。）This definition recognizes that digital transformation is much more than just a change in IT technology such as hardware, software, or a digital platform. A digital transformation goes to the heart of the business processes and transforms them to leverage digital capabilities that were unavailable during the Industrial Age. Customer demands, including the customer experience, and business value are different in a digital business.

    The impact of digital transformation on product and service design

    Following are some of the technology aspects of a digital transformation that have a significant impact on the design of new products and services.

• Smart devices are products or appliances that are characterized by sensors or monitors, a user interface, processing capability, and digital communication. As such, these devices are essentially computers embedded in a product that provide additional functionality. Most smart devices can also be customized with a personal profile or programmable functionality that enable the user to create a unique pattern of interaction with the device.

• The Internet of Things (IoT) is a digital technology that has grown rapidly during the past few years. It is characterized by any device or equipment with digital communication capability along with sensors or monitors. The Internet of Things connects devices digitally across a network and allows either one-way or two-way communication.
• Analytics platforms provide aggregation of data into a dashboard or user interface. This enables a customer to monitor and control a process that has multiple connected devices. The analytics can also be used to troubleshoot and analyze the performance of the different steps in the process being monitored.

• Digital platforms are software applications that operate over the Internet and connect individuals from different user group categories. Through the platform connection, the individuals or corporate entities can exchange information, purchase products or services, and promote a cause or product. Digital platforms can be very complex with many user group categories and extensive sharing capability for presenting and exchanging information. Or the platform can be very simple and focused on a small set of categories or type of information.

  The impact of digital transformation on product and service innovation processes

• How do the changes in product architecture in the Digital Age impact the process of product innovation? The key change for the product innovation is that a new KPI has jumped to the forefront — relationship management. The customer’s perspective of value in the Digital Age is more than the product performance, it is also the level of connectedness and relationship that accompanies a new product. Essentially every product is now more than just a combination of functions and features, it is a service with a relationship. Customers want to connect with the product before they purchase it — either through reviews or forums from other users. Customers want to connect with the manufacturer or seller when they purchase so that they can easily purchase, install, set up, or customize the product to make it personal. Many customers want to connect with others in a community of interest and share experiences of product use. Many customers want the product to connect to platforms or networks so that they can control it remotely. Many customers want the product to track how they are using it so that the product will remember their behaviors and adapt to what they are doing or provide access to other similar or complementary products. All of this is dependent upon the product’s ability to create a relationship and very little has to do with the function and efficacy of the product.

• Even if the product is not powered and connected, customers will join user groups or provide feedback on the producer’s website and/or social media channels. Relationship management is an important aspect of value to customers in the Digital Age. Therefore, the product must be designed to facilitate the establishment and maintenance of a digital relationship.
• While that is a fundamental shift in the design of many products, a major transformation also occurs in the process of developing a new product or service. In an Industrial Age business, the designers and developers gathered customer requirements through focus groups. Then they crafted the new product and tested it in a laboratory or test facility to be sure it worked as expected. Once they were confident in the design, they created and set up the production facility so the product could be produced. Finally, the product was launched to the market. In the Digital Age, those steps are transformed by the digital technology capabilities.
• The Digital Age development process starts with customer needs, but this information is often collected by direct inquiry with thousands of users or potential users through social media. This is both faster and broader than the focus group approach. The product development step in the process is transformed using rapid prototypes. 3D printing technology and the creation of virtual twins can reduce the time in this phase of the development by an order of magnitude. An idea or concept is formulated one day, and it can be tested the next. This brings us to the test and validation phase of development. Questions concerning user acceptance testing can be easily addressed with an A/B test with actual customers. Testing for extreme conditions and environments can be done virtually once a virtual twin has been calibrated. Again, this dramatically shortens the time and lowers the cost. Additionally, the development of the manufacturing processes can be quickly accomplished because digital manufacturing is using flexible work cells and lot size of one production scheduling. The combination of these effects is one reason that Digital Age companies can bring new products to market in a fraction of the time required for Industrial Age companies.
• In Chapter 7, we discuss the principle of “Crossing the Chasm（跨越鸿沟）,” which describes the difficulty of launching an innovative new product. This is the difference between the early adopters who try everything new just to have the newest product and the acceptance of the product by the mainstream who want to make sure the innovative new product really does provide value before they are willing to buy one. In the Industrial Age, that chasm was often deep and wide. Tremendous pressure was put on marketing to make sure the new product crossed the chasm and business was able to receive a benefit from the investment in the new product.
• Digital Age technologies and systems bridge that chasm. The digital attributes of the new product can allow customers to experience the product before purchasing, thus selling them on the benefit. The community of early adopters can provide instant access to success stories that will further convince the mainstream to adopt the product. And if there is a problem with the new product, immediate feedback is obtained, and the developers can correct the problem — demonstrating a strong commitment to customer success and satisfaction.

• While that is the upside of developing new products in the Digital Age, there is also a downside, or at least a risk that a Digital Age company must be prepared to address. Because it is much easier for a new product to enter the market, that also means it is much easier for competitors’ new products to enter the market and establish a commanding position. An interesting characteristic of Digital Age products is that updates and upgrades are regularly provided for the product. This constant refreshing of the product allows a product line to rapidly respond to new entrants in the market and gives the company a reason to re-engage and strengthen the relationship. In addition, most Digital Age products have interfaces with other third-party software applications such as digital platforms. These are also changing every few months and products must be updated to stay compatible. Due to these factors, the product development process must keep a constant stream of feature enhancements and performance improvements in the pipeline. Industrial Age businesses could launch a new product and see its position in the market grow and remain stable for years with no product changes. Not so with Digital Age products. There must be something new on a regular basis, typically quarterly, to maintain market position.

  Product innovation operations and control

• The operational control of product development is the aspect of the process that does not need to undergo massive change as a company transitions from Industrial to the Digital Age. Almost all companies are now developing new products using cross-functional teams and managing those teams with a structured control process. This general approach is still used in the Digital Age, but the time spent in each stage can be significantly reduced. In addition, many organizations have been using Agile project management methodologies for IT or software development projects and this is a best practice for digital development.While Agile is not as well suited for hardware development as it is for software, the use of digital technologies like 3D printing and digital twins（数字孪生） make the use of Agile possible with any kind of new product.

  A digital strategy framework

• There is no singular process or best practice when defining and implementing a digital strategy. Whether you’re transforming an existing business/portfolio or starting a new enterprise, the single most important part of a digital strategy, like all other strategies, is to have one. Figure 1.23 presents a sample outline of some of the elements that can be included in a digital strategy:

Sample digital strategy framework

• The digital strategy is an extension of the existing strategy hierarchy as discussed in section 1.1.2. To begin planning a digital strategy, first start by understanding your current mission, vision, and values and the strategies that underpin them. Next, use a structured process to design the digital strategy, as shown in below

• Identify：During this phase of the process, you will identify the inputs you have to your digital strategy. Inputs can be current internal assets such as financial data or operational metrics. Inputs should also include things like your current data management policies to include privacy policies, participation policies for consumers (if applicable), and general data governance policies. Another key component will be external inputs such as consumer feedback from surveys, i.e., Net Promoter Scores（NPS，净推荐值） or social channel feedback like tweets and Facebook posts. Last but not least will be market data related to your product or service offering. Pricing information, market trends, and consumer sentiment are examples of market data.
• Prioritize：During the identification phase, you will uncover new sources that you may not have access to today or manually intensive sources that are available but cost/time prohibitive to assemble. Looking back again to your overall strategy hierarchy, you can assign relative priorities to each source. It is important to remember that data analytics is a never-ending process of acquisition, refinement, review, and enhancement of process.
• Design：During the design phase, you take the prioritized inputs, map them to their associated goals from the prior strategy review and then design the format of the output. Outputs can be simple management reports or real-time management dashboards. Like data sources, reporting solutions can and should be iterative. Simple tabular reporting can happen quickly, whereas complex data visualization can often take months or even years to perfect. As mentioned earlier in this section, as time compression takes place in each product development and innovation phase, access to timely and actionable data becomes increasingly important.
• Implement：Many organizations provide access to data without providing a context for the consumption of those data. The first step in implementing a reporting solution for your digital strategy will be to educate the consumers of those reports on the goals each element is tied to and how to read and interpret the data presented. This is not to say that new insights cannot or should be developed by the individual consumers.If that does happen, it is important that these insights be fed back into the larger digital strategy for broad review, validation, and distribution. If each consumer is not aligned on the meaning of a metric, the organization can easily become inefficient and possibly even ineffective.
• Refine：During each design phase, the cadence with which the digital strategy will be enhanced should be pre-determined. This commitment is part of each stakeholder’s understanding and each data source’s roadmap to deliver outstanding elements. A typical enterprise cadence for feedback, review, refinement, and enhancement of a digital strategy is quarterly. For example, a new strategy is launched in Q1, the process runs and outcomes occur, decisions are made, and feedback is collected. Feedback is reviewed in real time and a new set of reports, tools, etc., is scheduled for release in Q2, and so on. Each company’s cadence is informed by market speed, product lifespan, etc. Some companies make changes annually and some, monthly. The important factor is to always align your activities to your larger strategic hierarchy.