How a Digital Factory Can Help Your Business and Your Customers

By Jack Sadler

Digital leaders in every industry outperform their competition by a wide margin. Setting up an innovation lab or digital factory, if done right, can unlock huge potential for your business and keep you one step ahead of disruptive competitors. The factory is a catalyst for injecting new process, new technology, and a more customer-centric strategy, into the organization. The team composition must strike the right balance of domain experts and innovators guided by clearly stated KPIs and expectations to succeed. Ultimately, getting each of these things right can result in a better experience for your customers, and a higher performing business.

The Need

Most large corporations have ingrained processes around all aspects of getting solutions to market. Introducing change or reacting to leaner, more agile competitors, can feel like trying to steer the Titanic with an oar! You’re open to disruption from every angle and may find it difficult to respond to ever changing customer needs and opportunities.

Startups and new market entrants are able to acquire huge market share, and disrupt leaders, faster than ever before. Fostering an environment that promotes agility, values customer experiences, and learning through failure will help you stay ahead of disruption and relevant in a changing world.

The Opportunity

Setting up a space dedicated to digital transformation creates an environment where anything is possible. Teams can work in new ways on new digital initiatives and bring that knowledge back to the parent organization. It is an incubator with the power to tackle the business’s biggest problems and explore its largest opportunities. Teams can (and should!) focus on improving end-to-end customer journeys, rather than just launching products. Driving the introduction of new emerging technologies like Machine Learning, Blockchain or Cloud for untapped opportunities.

This atmosphere yields results, fast. Teams are empowered to approach problems differently, and from a digital perspective focused on building the right thing, the right way. This is done in part by gathering real customer insights to understand customer journeys, leveraging customer feedback to validate feature development, and scaling agile processes to build products faster and leaner.

The Team

When setting up a factory, you are aiming to bring together a mixture of innovators, customers and domain experts. This mix is crucial. The innovators (usually external consultants) are those that specialize in technology, digital strategy and process. They will be the guiding force to introduce new processes around how you ideate, how you validate, how you deliver and how you go to market. The domain experts provide understanding on the specific micro and macro factors that impact your business, while the customers provide an unbiased view of the market needs and pain points.

P&G’s ‘Connect and Develop’ innovation model, designed to bring outside thinking together with P&G’s own teams, is attributed with helping to double the P&G share price within five years. During this time, 45% of P&G’s product development portfolio had key elements developed externally.

The Right Amount of Buy-In

Corporate innovation requires making huge organizational change, so setting up a digital factory in silo can only take your company so far. It’s a play with high reward and a low success rate. We currently see 90% of innovation labs fail. Many times this is due to a lack of buy-in from the right people. In fact, a study of 500 executives and digital strategists found that 31% view the main challenge to digital transformation is “low digital literacy or expertise among colleagues and leadership.” Without executive backing, the digital factory will not be able to inject its learnings into the parent organization or have any lasting impact.

Corporations often create an environment that promotes agile software development, but has no impact on the larger business. Even a great product, built to improve the most valuable customer journey in the most innovative way with the hottest emerging tech, may never reach the market if executives don’t actively break down barriers within the organization. Digital must be embraced in corporate processes outside of product development.

The Full Picture

Project conceptualization and funding allocation must allow for an iterative product development cycle. Sticking to the traditional model of “build it once and ship it” doesn’t work in today’s world of evolving customer needs. The funding for projects, and revenue targets for the digital factory, should support an ongoing build-measure-learn process and feedback loops. Each iteration of a product is aimed at testing a single hypothesis so multiple releases are required to create a product that customers really want.

The downside of this should be noted. Most initial prototypes won’t set the world on fire, and some may turn out to be flops. Teams will take that and learn from it, but the initial setback can be worrying to those less familiar with digital product development. In fact, innovation labs often fail because the parent organization loses patience with perceived failure. Innovation requires people brave enough to fail fast and smart enough to learn from real customers, give them enough runway to test multiple hypotheses and make a few mistakes before turning the heat up and demanding revenue. In other words, let them fail!

The Goal

How you define success for your digital factory plays a huge part in the outcomes produced. If the team is tasked only to deliver products faster, and to leverage agile development and scrum processes, you’ll see limited results. The same type of project is delivered over and over, albeit a bit quicker than you’re used to. Likewise if you measure success on revenue alone, the short term targets may not allow teams to test and validate ideas, or to pivot, for fear of “wasting” investment. The team will be made up of some of the brightest innovators, adaptable domain experts and real customers, so make sure they are allowed to think big and take (some) risks.

Your digital factory is your opportunity to adopt a more customer-centric approach to delivery. Start with investing in research to understand your core personas, the experiences they go through and the journeys that make up the experience. This research will align your entire team and provide a guiding compass to every decision made, whether deciding which project to fund first or how to design a specific feature. The importance of doing this research well can’t be underestimated. You should also ensure customer personas and experiences are updated about every two years to remain relevant. Customer personas form the foundation of all experiences, journeys and products you design, so keeping them accurate is critical to being customer centric.

The Customer Experience

With a solid understanding of your customers, and the journeys that make up their experiences with your business, you can focus on what’s important: improving the experience! Measure your team’s success in terms of end-to-end journeys improved. This will promote innovation through incremental progress (often a less risky proposition compared to creating new journeys or processes altogether) and drive product and organizational alignment.

A great, and simple, example of success from customer journey innovation is Starbucks. By focusing on the entire journey of buying a morning coffee, they created a seamless experience that keeps customers coming back. Purchasing a coffee is an experience riddled with inconvenience: “Where is the closest location to me?”, “How long do I need to wait in line?”, “Will they accept American Express?”, “Will they get my name right on the coffee cup?”. Starbucks built an app that redefined the entire experience digitally, making it positive at every step. Building a single product like a payments app would have been focusing on only a small part of the picture:

The whole journey brings a better experience. If the teams had focused on delivering products, or had ever lost sight of the most important journey for this persona, that overall cohesive experience would not exist today.

The Learnings

Improving experiences is paramount, and this may be a new way of thinking for some organizations. But that’s ok! In fact it should be embraced as one of the benefits. The digital factory should also be measured on its ability to inject this new way of thinking and addressing problems into the parent company. Not only is the strategy injected in, but a wide range of learnings will be fed back into the organization.

In terms of process, the lab will try, test and improve delivery processes and this approach can be used on a much wider scale — especially as more teams begin to interact with digital. Existing large processes function with the mindset of getting your task done and throwing it over the fence for the next team to pick up. The digital team can be a leading example of how collaborative and cross-functional teams accomplish more, in a shorter period of time, by iterating frequently and validating with real customers.

Beyond strategy and process, you might look at more focused innovations that could move into the business. As a hub to try, test and validate with customers, the digital factory will be the natural first group to experiment with emerging technology. To encourage this, measure and track your company’s adoption of emerging technologies before and after the setup of the digital factory. You should expect to see a significant increase in their application and commercialization.

Strategy, process and tech — three core competencies a digital factory will drive into the organization. Encourage and reward this behavior: aligning those goals with the team’s KPIs will ensure focused investment and faster ROI.

The Conclusion

Opening up your organization to allow for innovation isn’t easy. Most don’t get the balance right and miss out on the huge potential digital factories can provide. But if you can break down the corporate hurdles, build the right team, and focus on creating great experiences, you can be a digital leader and disrupt your competition before they disrupt you.

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