Question: What can a 118-year-old electric company teach us about transformation?
If you’d like to know the answer, read on. Last week, I had the opportunity to join a fascinating discussion with Leslie Owens, Executive Director of the MIT Center for Information Systems Research (CISR). I discovered their work has compelling, practical implications for international nonprofits. Focusing on what really works in technology application, CISR examines the intersection of many disciplines (technology, change management, HR, finance, organizational design) to provide smart insights and useful guidance. CISR makes a key differentiation between being “digitized” and being “digital,” and the benefits of each.
Being Digitized. The move towards being “digitized” began in the 1990s, as technology became ubiquitous. Digitization focuses on operational excellence – imposing discipline on business processes to improve efficiency, improve reliability, and enhance predictability. Such investments allow companies to scale, support expanded product and service lines, and personalize services. Those that have successfully digitized find that data is standardized and more accessible, transactions are more secure, and operations are more transparent.
Digitization primarily focuses on the operational priorities of the organization – human resources, knowledge sharing, finance, CRM, ERP – all of which are critical functions for a well-functioning organization. Collectively, CISR refers to these functions as the “operational backbone” of an organization.
As many of us remember, the move towards digitization was more difficult than anticipated. At the time, we didn’t recognize that efforts towards digitization also required a commitment to changing the way that people worked; as a result, the efforts have often cost more, taken longer, and generated fewer benefits than anticipated. Many companies today are still in this process.
But it’s insufficient in today’s world. Only 14 percent of companies believe their operational backbone provides a competitive advantage. It’s a requirement, but not enough to distinguish companies from their peers.
We certainly see this in the nonprofit sector. Many of you will recall in the Digital Nonprofit Ability survey NetHope’s Center for the Digital Nonprofit conducted last year, most NetHope members were clustered around the sector average, a clear indication that we all recognize that core operations have to be digitized, but few have made the jump to digital.
Being Digital. Being digital is quite different. Digital organizations use technology to develop new value propositions or develop new services, products, and offerings. Being digital brings different benefits – revenue and margin growth, customer loyalty, ease in attracting and retaining talent, agility – that allow organizations to redefine themselves and, potentially, their sector.
Digital organizations create new, information-enriched customer solutions and deliver them seamlessly. While this may sound super-techy, we know this approach when we see it. Rather than just providing vaccines to children, an organization might also provide recommendations for nutrition or preventative services and remind mothers via text messaging, for example. In developing clean water solutions, an organization might also incorporate sensor technology to ensure sustainable access for entire communities.
Examples of For-Profit Digital Organizations. USAA is a large insurance provider in the U.S. Several years ago, they shifted from looking at their business from a product-line focus (insurance, investment, etc.) to a customer-focused one. Now, customer interactions with USAA are guided by life events (getting married, buying a house, adopting a child) so that the company can offer a more personalized set of products tailored to an individual’s need. The result? Sixty-four percent of its customers say they are “very satisfied” with the company; 83 percent indicate that they are likely to purchase further products from USAA (a full 15 percent higher than the #2 provider); and their Net Promoter Score is four times that of their peers.
We’ve also seen for-profits develop new offerings, which is where we get to the answer to my initial question. Schneider Electric is a 183-year-old, $30 billion electric company. In recent years, Schneider consolidated its operational backbone (from more than 100 different ERP systems down to 12) so that it could use its data to generate customer insights, streamline customer management, and reorganize the company to be more nimble. From there, they redefined the company, making the shift from equipment manufacturer to energy management and automation solution provider. As they rolled out new offerings, they co-created solutions with their most strategic customers, ensuring adoption while gathering critical feedback to consolidate their market-leading position.
What We Nonprofits Can Learn. As international nonprofits, we can learn from these examples. We all know that squeezing increasingly smaller savings from operational costs will not generate sufficient resources to solve the global challenges our respective organizations tackle. The opportunity is to develop smarter and more relevant offerings that accelerate the critical work of international nonprofits so that we can truly maximize the impact of the resources available.
This requires a dual strategy: ensuring our operational backbones are well-developed, functioning and fit-for-purpose, while simultaneously reimagining our offerings. Both can be difficult, sometimes daunting processes, which is why we’re working in small networking groups through The Center for the Digital Nonprofit to provide member organizations with sufficient guidance and support to tackle these tough organizational challenges. The process we use is called IDEA (Imagine, Design, Execute, and Assess).
In the coming months, we’ll be documenting how our first IDEA networking group is faring on their forays into the digital space and we’ll continue developing new tools to assess the health of your organizational backbone. If you would like to learn more about our 2019 priorities for The Center for the Digital Nonprofit, read a blog post by The Center's Director, Fredrik Winsnes.