You’ve probably heard of Maslow's hierarchy of needs – a theory of human needs and motivation. Shortly, the theory consists of 7 levels of needs and you need to fulfill the needs of a ”lower” level before you can advance to the next. The bottom level consists of basic physiological needs such as food, water, and sleep.
I believe a similar pattern exists in digital transformation. To simplify Maslow a bit further, I have identified four levels instead of seven:
1. Serving customers’ basic needs
2. Improving the customer experience
3. Extending your service
4. Disrupting the customer behavior
I also believe that every industry needs to attend these levels one at a time, and it's not possible to skip to the highest levels without fulfilling the needs of lower ones. However, as I will illustrate further on, most often it is not the same companies that fulfill all steps. Quite often, a disruptor will be and "outsider", who will take advantage of the lower levels already built up by others. And that’s not necessarily a bad thing for anyone.
Hierarchy of digital transformation
Hierarchy of digital transformation applied to transportation
Transportation provides a good example of hierarchy. The basic level could, for example, provide possibility to purchase tickets or rent your car online. Furthermore, this level could provide information about the service and possible real-time information about changes in the service. For example in Finland you’re able to buy your tickets from the web or an app for almost all transportation methods and companies. Often you also get real-time information on changes via SMS, push notifications or similar.
Examples of improving the customer experience would be to enable your customers to buy connecting transportation, auxiliary services or to offer additional benefits to users of your digital services. After all, the cost of service is probably lower for these customers. I would say that airlines are the most advanced players here. You’re quite often able to buy upgrades, food and additional in-flight services online or through an app. Dutch airline KLM even offers you alternative train tickets for some routes to help saving our planet, and to ease congestion on the busiest routes.
The third step would be extending your services to new domains and/or to become a platform for others. One such example is Uber, which has extended its ridesharing service, that serves the basic needs of transportation, such as food delivery, business transportation, cargo, and most recently, air traffic.
None of these steps, however, won’t change our most fundamental behavior: the need to own our most used vehicles for transportation. But even this aspect is being disrupted by Mobility-as-a-Service, which is rapidly changing our behavior. In future, we might not own any transportation vehicle anymore. Rather, we’ll be using the best available vehicles for any given transportation needs via a single service provider. One such service provider is the Finland-based Whim. This is also a text-book example of how the disruptor may appear from outside of the lower hierarchy levels.
However, the underlying vehicles or services might be operated by multiple different service providers. The highest step wouldn’t be possible, hadn't the various service providers fulfilled the lower levels of hierarchy and thus enabled others to integrate the services. In other words, you need to be able to get those tickets online to make the MaaS disruption happen.
I'd like to point out and stress, that the higher level of hierarchy doesn’t directly translate into better business. Each level adds value to the entire value chain and there’s no reason to try to be on all levels per se, but rather optimize your efforts on the levels you’re good at. And sometimes you might even be in a good position to take the step and increase your share of the value chain.
Why and how you should use the hierarchy of digital transformation
Why should you even consider using this thinking tool? I think the answer is obvious: There’s no domain that will be immune to digital transformation, and staying outside of the hierarchy means you'll be left out of future value chains. This model will also help you to understand, define and refine you position in the hierarchy and thus help you get there.
I would advise you to use this tool in a few steps. Firstly and foremostly, you should identify the levels in your business domain. In most domains, you can probably define at least the two lower levels just by benchmarking with other companies in your own or similar domains. The third and fourth levels probably require some future research and creative use of your imagination.
Secondly, you should identify which level you are currently on, assuming that you’re on any level, and then define to which level you aim for. Remember, that not everyone can or should be at the highest level, and it might even be that in your domain it's too early to climb there. The lower levels need always to be addressed first.
After that, it is simply planning and executing your way to the desired position. Well, perhaps that’s not so simple, but it should be easier, if you have a clear goal, and a good understanding of the overall digital transformation hierarchy in your business domain.
Anna pienet aplodit!