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Making a Case for Digital Transformation

Tower Records

If you love music and you used to buy vinyl or CDs in bricks-and-mortar music stores, chances are you’ll enjoy the film “All Things Must Pass,” which documents the rise and fall of Tower Records. It’s a great, albeit sad story with fantastic music. But it’s also a fact-based nostalgic look at how a growing business can be disrupted by digital. Russ Solomon, the founder, simply didn’t see the disruption coming. The result? Tower Records, a $100 million business, declined and eventually filed for bankruptcy and liquidation in 2006.

Of course, we now know all about digital disruption, or as Dries Buytaert puts it here: the internet's continuous drive to mitigate friction in user experiences and business models. It's probably fair to say digital is now a top priority for most organizations. Why should you consider serious investing in digital? Although not every business is a digital business, every business must become digital in some form.

I’ve just spent two days at a Forrester event in London, learning all about how to “grow revenue and re-invigorate your business” through digital transformation. The three key takeaways from the event are:

  1. Create customer-obsessed experiences through insight-driven customer journeys.
  2. Increase efficiency and agility with operational excellence.
  3. Do it with speed (speed now trumps cost takeout for most CIOs).

This isn’t new. There’s a crowded gaggle of analysts, strategy consultants, system integrators, digital agencies etc. who all preach on becoming digital. That said, I’m starting to see some consolidation around the three themes above. New data points correlating customer experience with business performance appear almost weekly; Invest in optimizing customer journeys, personalization is table stakes (nice guide here from CXL), obsess over the customer and so on.

Think of this as the “what to do” in digital. During the rise of Tower Records, Solomon has an almost tribal (non-digital, of course) following. Customer obsession was core to the in-store experience. Elton John boasted of being the highest value customer, proud to spend thousands of dollars a month in stores. I wonder, if Solomon had been closer to the changing customer landscape (MP3s, streaming, even illegal downloading and piracy of music) whether, he’d have acted earlier. He did spin off Tower.com in 1995 - an example of one of the first retailers to move online - but the focus was too little, too late.

It’s interesting that data also suggests that while digital is disrupting most industries and organizations, the actual penetration of digital is still relatively low. A Harvard Business Review article shows the industries that are being most disrupted by digital. Media (including music) was disrupted well ahead of many other industries, including industrial and healthcare. According to McKinsey latest research, the forces of digital have yet to become fully mainstream. On average, industries are less than 40 percent digitized, despite the relatively deep penetration of digital technologies.

music industry disruption

This McKinsey graphic shows the music industry disruption. Revenues plummeted as distribution shifted to downloads and streaming. McKinsey note that it took about five years from the time Napster was launched until industry revenues were cut in half, which gave some incumbent record label executives a false sense of security. Interestingly twist though ... in Dec 2016 more money was spent on vinyl than downloaded albums in the UK for first time. But 48 percent of those surveyed said they did not play the vinyl they bought - while 7 percent did not even own a turntable. Many bought the vinyl as presents and never actually listened to the records. Few would have predicted that an album format, first invented in 1948 would be outselling a digital technology.

Are there any lessons from Tower Records for other industries later in the disruption cycle? In my next blog I’ll touch on the increased efficiency, agility and operational excellence required to be digital; how your organization can become a well-oiled digital factory. You know why digital transformation is table stakes but now let’s look into how to become digital … with urgency.

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