H&M recently announced disappointing annual profits, citing an industry that has transformed in recent years and a failure to meet the needs of consumers who increasingly want to shop online. In the words of CEO Karl-Johan Persson, "We feel 2017 was a year where we made more steps forward and did more groundwork for the future, but we have also made some mistakes that have slowed us down. The industry changes are challenging everyone and this will continue in 2018."
It's a succinct and fair appraisal of his company's performance, and reflects the fact that H&M is by no means alone in this predicament. Struggling to adapt to a digital-first world isn't a unique problem, nor a particularly new problem in 2018, but it remains the biggest challenge facing retail, and many other industries. You only need to look back at Jaeger for a recent example of how quickly a high street brand and household name can fall into trouble and ultimately bankruptcy.
The hard place
If falling profits and failing to adapt to a digital world is the 'rock', the challenge of actually doing so is the 'hard place'. The reason that so many companies have struggled or failed to make this transformation is because it is incredibly hard to do. Consumers are spoilt for choice by digital services, and their expectations have risen to match. For a company like H&M, which has 4,500 stores worldwide and was established more than 70 years ago, it only stands to reason that the move from the high street to mobile would be difficult. Thankfully, there is still time for retailers like it to adapt to the new needs of an increasingly online population, but it demands the right approach. A true digital project involves much more than simply allowing online shopping. After all, anyone can set up an ecommerce site today.
Our recent research, where we surveyed digital leaders charged with driving such projects, shows this challenge in no uncertain terms. Despite an average outlay of almost £5m per year on digital transformation in the enterprise, nine in ten projects don't meet their target goals, and you don't have to look far for real word examples of this trend. The BBC's notorious failed digital project cost nearly £100m of licence payer money, over a period of five years, and led to widespread condemnation. More recently, the aforementioned fashion retailer Jaeger went bankrupt this year part-way through its own – and much needed – digital transformation attempt.
Businesses are in a precarious situation. Digital transformation projects are challenging and often expensive. Many fail. But doing nothing is an almost certain path to corporate extinction. Many companies have seen their entire industries change beyond recognition, seemingly overnight. They've lost ground to competitors old and new, and have lost touch with their core customers, who want something else, somewhere else. They may understand the urgent need for change, yet successfully adapting to this digital-first world has proven to be an insurmountable task for many.
The way out
For businesses like H&M which are in this situation, the clock is ticking. Our research also shows that organisations that don't keep up with their rivals' digital transformation efforts should expect to go out of business or be absorbed by a competitor in less than five years, and 80 percent say their own organisations are already at risk of being left behind by the competition. But there's hope. Thankfully the very same research also signals how companies can avoid a similar fate, with a widespread agreement of what constitutes a truly successful digital transformation project: better customer engagement and experience.
In short, digital transformation projects that focus on the wrong things – like doing the same things better, stronger, faster – fundamentally ignore the bigger issue. After all, a beautiful website doesn't count for much if it doesn't keep customers engaged and coming back for more (assuming the underlying services meet customer expectations to begin with). We've seen this within ecommerce where the likes of Amazon have fundamentally changed consumer expectations. Shoppers increasingly expect one-click purchases, free returns, customer reviews, "buy it again" options, Apple Pay, and same day delivery. New ideas that were once the pinnacle of customer service have quickly become the new normal, invariably enabled by advances in technology.
As such, the right approach to digital transformation is one that allows businesses to constantly adopt new technologies that align with ever-increasing consumer expectations. It's one that creates exceptional interactions between businesses and customers – not just transactions. And it's one that can make the difference between being in or out of business in five years.
Perry Krug is principal architect at NoSQL engagement database company, Couchbase.