Sunday, December 22, 2013

Is IT the right department for developing 'Digital Strategy' for the Enterprise?

In most organizations (unless you are a technology company), IT is the go to place for all things technology. In order to tap into the ‘Digital Opportunity’, many organizations are putting together a digital strategy. Most often, IT is tasked with coming up with the digital strategy.

But is IT the right department for developing the organization's digital strategy? IT traditionally is operations focused. IT is good at implementing technology solution as per the specs. However the ask for digital strategy is significantly different than implementing and operating technology solutions, the strategy calls for identifying new business opportunities, better ways to conduct business leveraging digital technologies.

Currently at the highest level, the focus of IT strategy is to align with the organization’s business strategy.  Digital is fast becoming a major influencer in the overall business strategy. Should the responsibility to set the digital strategy be in the corporate strategy team rather than IT? (IT can then be given the specs to execute this strategy).

What are your thoughts or experience either in your organization or at your client organizations?

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Thursday, December 5, 2013

Mobile Payments - Part II (a look at current state)

Note: The content in this blog entry is my interpretation of the current state of Mobile Payments. Would welcome readers to point out any errors/contradictions. Thank You.

Google Wallet as a payment method has been prominently displayed near cash registers at Macy’s for sometime now. Last weekend I was at Macy’s and asked the sales person manning the cash register if customers were paying using Google Wallet. Her response – “I have never seen anyone using it, this has been here for sometime and I would have expected people to start using it”.

A little research around Mobile Payments, I found the following players, each with own approach and technologies. Interestingly, each of these players are trying to leverage their strength originating from their existing businesses and ironically trying to block others from succeeding.  This is confusing the average consumer, who does not even feel the need for adopting mobile payments.

Competing Players in the Mobile Payment space

Is this VHS versus Betamax or HD vs DVD all over, I am not sure J.

Retailer Consortium
Small business owners, CFOs of large retailers literally pull their hair over the interchange fees charged for credit card transactions.  Most retailers operate on thin margins and interchange fees eat into their margins. They see (or hope) mobile platform as a way out of this. The retailer consortium created Merchant Customer Exchange (MCX) with the sole purpose for “offering consumers a customer-focused, versatile and seamlessly integrated mobile-commerce platform”.

Mobile Carriers
Strategically, mobile carriers need to find other revenue sources. Mobile network is fast becoming a commodity; there is no differentiation between the offerings between the major carriers. (I strongly think in the next five years, existing mobile carrier network will go the way of the land line and other cheaper disruptive network access mechanism will arrive). With this background, there is lots of onus for mobile carriers to find new business and mobile payments stands out as an opportunity.

Mobile carriers control the device and the network access. They have an established billing model with their customers. They know a lot about their customers, including credit worthiness (remember the credit check they do when you sign up). Potentially they could play a big role in mobile payments.

Technology Vendors
In Silicon Valley there is a strong belief that anything can be solved with technology, especially if it makes economic sense J, Mobile Payments definitely make economic sense and there is a strong desire for alternatives to existing payment mechanisms. We have innovative startups (Square) and established players like Google and Paypal competing.

Credit Card Interchange Network
They are reigning kings in the digital payments. They enjoy wide consumer adoption. If others succeed in disrupting digital payments, they will loose the greatest. However, players here (Visa, MasterCard, American Express) are technically savvy and have deep pockets. They will not go down without a tough fight. IMHO, other solutions will have to depend on these networks in some way or other. At most they may get some leverage to negotiate interchange fees.

Innovative Retailers
Some retailers have implemented closed loop payment system within their mobile apps. Closed loop payments are the good old store cash cards. The big drawback is customers must pre-pay and hence unless there is compelling rewards program or other incentive this is hard to catch on.

Mobile Device Manufacturers
Apple Passbook, Samsung Wallet, etc., The goal here is enable for m-commerce. However it has pretty slow to pick up.

With so many competing and confusing offerings that are fast evolving, its easy to understand the comment made by the Macy’s sales person regarding paying with Google wallet.

Monday, December 2, 2013

Mobile Payments (Part-I)

Even here in the Silicon Valley, if you ask a room full of smartphone users if they have used their mobile device to pay for something at a physical store, very few hands, if any, will go up. Few people, who have tried mobile payments at the point of sale have done so, just to check it out and do not use it regularly. This is the current reality of the mobile payments from consumer standpoint.

Why is this? In my opinion, consumers do not have any pain points when it comes to payments. How hard is to pull out a credit card and swipe it J, existing payment processors like Mastercard, Visa, etc., have made payments very easy, secure and reliable, and also rewarding (cash back, flyer miles, etc.,)

So, why is all the hoopla around mobile payments? First, there are pain points for the merchants. Others like mobile carriers, technology vendors, see lots of opportunity and want a share in this lucrative pie. For merchants the pain point is the interchange fees charged by the payment processors that average around 2% of the total transaction. Another pain point for merchants is to accept electronic payments at customer or job site. This is where mobile payments have found some success (e.g Square, Intuit GoPayments, etc.).

Interchange Fee is a big issue for merchants. In 2005, Visa and Mastercard collected over $30billion in fees1. More recently, the National association of convenience stores reported its 148,000 member stores collectively paid over $50 billion annually in interchange fees2.

Mobile Payments is viewed as an opportunity to break the existing payment structure and the interchange fees.  In my next post I will detail the efforts by retailers and others in this space.

Thursday, October 17, 2013

Digital Strategy and a Digital Maturity Model

To effectively tap into “The Digital Opportunity” and succeed, organizations need a sound Digital Strategy.  The Digital Strategy would encompass how the organization would leverage Internet, Mobile, Social and related technologies to serve its customers. The strategy would not only cover what features/capabilities the organization delivers for its customers but also how these technologies are used internally to increase productivity and better serve its customers.

A digital maturity model will help organizations to strategize and plan their investments. In my opinion, we can view digital applications in three waves –

  •  Wave 1: Digital Interactive – This was when initial web sites/e-commerce started appearing. The digital channel was viewed as ‘just another channel’ for existing business.
  •  Wave 2: Digital Adaptive - Digital Apps become more intelligent by leveraging knowledge about the user and deliver personalized experience and value added services.
  •  Wave 3: Digital Immersive – Digital drives new business opportunities. A new generation of apps that leverage information about the user from many data sources (both internal and external) and real time contextual information. These apps are seamlessly weaved into many backend processes to deliver not just seamless user experience but also new business opportunities. Physical and Digital channels have to converge to deliver this immersive experience.

Digital Maturity Model to help build a Digital Strategy

The first wave consisting mostly of digital interactive applications and most organizations across verticals have implemented this with various degrees of sophistication and success, (chances are if they have not implemented yet they are out of business J).  This wave also proved that products that can be delivered digitally (e.g books, music, videos, etc.,) are better delivered digitally, if not the business is disrupted (e.g Blockbuster, Borders, Tower Records and other music stores). This channel is here to stay for the foreseeable future, just because you have a mobile app you cannot shut down your website. The strategy is to sustain the investments – if things are working well, instead of polishing the apple move your resources to focus more on the second and third wave of digital applications and move up the maturity ladder.

The second wave gets more interesting, delivering adaptive digital applications. This is fuelled by the immense data that is available about the user, due to the fact they are now always connected and contextual data like location is available (mobile). Users willingly provide more data about themselves (social). Leveraging this provides opportunity to deliver highly personalized content to the user.

The third wave is where one can truly establish digital leadership. For this we have to know the customer and all their interactions across channel and make this information available across channels. Most of the transactions can now be made digitally reducing the need for physical touch points. For example why would you want to stand in a line and check in when you arrive at the Hotel, while you have booked the hotel room using the hotel’s mobile app? Can we leverage the user’s mobile app itself to unlock the Room door (maybe using NFC or location based technologies)?

Digital Immersion’ provides new business opportunities and convergence between physical and digital channels. For example Amazon is experimenting with same day delivery, so shoppers get instant gratification. Kate Spade is experimenting delivery in the next hour within New York city. Physical bank branches are transforming, its not uncommon to see iPads or similar devices complementing tellers and also video conference rooms to talk to specialists sitting some where else.

A word of caution, every organization’s digital strategy should be based on the organization’s business strategy, markets they cater to, its strengths and weaknesses. Just because something worked well for one organization, it simply cannot be replicated in another organization.

Update (Jan 2013)

I would like to reference a study from MIT and Capgemini on this subject . I have found this study very informational and highly recommend this.