The coronavirus pandemic crashed into everyday life and disrupted established ways of working and doing business. As this terrible infectious disease swept through our society, people moved into lockdown and migrated their face-to-face activities online. 

The impact was immediate. In April 2020, just two months into the pandemic, Microsoft’s CEO Satya Nadella observed that the company had “seen two years’ worth of digital transformation in just two months.” A year later, he was even more emphatic: during a call discussing the company’s outstanding financial results, he said “What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry.”

Clearly, the pandemic acted as a forcing function, making companies accelerate their ongoing shift to online offerings. Target, for example, rolled out an “order online, pick up curbside” capability and saw it grow 734%. 

On the other hand, in the US at least, we appear to be coming out of the pandemic and many business entities appear to be looking forward to returning to business as usual. Goldman Sachs has asked its workers to return to in-person office working full-time by June 14. 

Likewise, JPMorganChase’s CEO Jamie Diamond said that workers should expect to return to the office, notwithstanding any preference for the convenience of working from home: “We want people back to work, and my view is that sometime in September, October it will look just like it did before. And everyone is going to be happy with it, and yes, the commute, you know people don’t like commuting, but so what.”

The implication of these statements is that digital engagement is an acceptable substitute for IRL interaction in an emergency, but IRL is the preferred mode of living and will be the norm going forward.  

But is that really true? 

Actually, Diamond and his counterparts at Goldman profoundly underestimate the phenomenon of digital transformation. They don’t recognize that their preference for in-person, real-time interaction is out of step with the changed expectations wrought by the pandemic. Going forward, people will expect organizations to respond to their preferences rather than accept having those organizations’ preferences forced upon them. Digital transformation means online remote interaction is first choice, with face-to-face, real-time interaction a last resort used only when unavoidable. Any institution that doesn’t optimize with this reality in mind is going to lose out in the most important measure — economic results.

The digital-first reality hit home for me in the last week when I bought a car. While I avoided the dreaded haggling with a car salesman by purchasing online through a fixed-price dealer, I still needed to arrange financing. When first looking for pre-approval, I chose to go to a small, local financial institution’s website, which quickly informed me I was pre-approved. But when it came time to finalize the transaction, its digital capabilities ran out of steam. I emailed the  purchase order to the institution and…crickets. I followed up over the next couple of days with emails asking what I needed to do, with no response.

Eventually, I went to a large national bank and applied online. Upon submission of my information it immediately informed me the loan was approved and all I needed to do was have the dealer contact them to finalize the transaction. The entire process took no more than five minutes.

Eventually the first institution called me. They left a message asking for a call back and apologizing for the delay, but the caller had been away from the office for a couple of days. I responded via email and let them know that I had arranged financing elsewhere.

Let’s contrast the two experiences. Each bank allowed initial application, but one was able to complete the transaction immediately. It optimized the entire experience to be conducted digitally. The other clearly treated digital as an overlay onto the legacy analog process. I mean, the loan was held up for two days because one person was out of the office?

Even more interesting was my reaction. I was ticked that this process dragged out over days — even though a decade ago, I wouldn’t have given a second thought to needing to arrange an in-person meeting to discuss financing options, fill out paperwork, and get a pre-approval letter. Today I expect immediate commitment for routine transactions, and this organization failed that test miserably. And I’m not alone in this expectation. Ongoing demographic shifts mean age cohorts coming into prime earning years will bring this level of expectation, and woe to the institution that continues to move at an analog pace.

The result of this auto financing exercise? The digital-forward company closed the loan and made money. The other lost out. I wonder how it evaluated the lost deal — an opportunity for improvement kata or just one that didn’t pan out? And, by the way, which of these institutions am I like to turn to for my next car financing…or credit card…or mortgage?

Nadella’s statement “What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry” is deceptively innocuous. It vastly underplays what the digital phenomenon represents — an entirely new operating model that responds to changing consumer preferences of an increasingly larger proportion of the populace.

Imposing institutional preference on those who prefer digital engagement will lose out at the margin, by which I mean the incremental decisions that are made at the interface of changing consumer preferences and frictionless processes. Of course, that first financial institution will still make plenty of car loans. And JPMorganChase will still retain employees and hire new ones. But given their markets — car buyers and talented employees — will they land their full measure or will they miss the most desirable, highest return three or five or ten percent? As consumer preferences continue to evolve toward digital-first, that marginal loss will only grow and reduce an institution’s competitive position vis a vis competitors that meet buyers on their own ground. And, of course, given the demographics of customers who prefer digital transactions, the lost deals represent the tip of the iceberg — one lost transaction that forfeits the highest lifetime value customers.

The Hierarchy of Interaction Methods

The ongoing growth of digital transformation and changing consumer preferences means we’re in a time of transition, with multiple modes of provider/consumer interaction simultaneously available. This presents the need to decide which mode should be preferred and offered first. Digital transformation establishes a clear hierarchy of consumer interaction modes:

1. Pure automated digital interaction — the best interaction mode. The second financial institution I dealt with provided this as the primary interaction mechanism. I achieved my objective in one short session, and the bank had clearly optimized its workflow to support this. There was no need for me to interact with anyone else to complete a fairly significant financial transaction.
2. Asynchronous digital interaction. One workflow methodology lots of institutions implement is an initial online information gathering website followed up with email exchanges. It’s great that this model allows processing the transaction remotely, but it still imposes delays in completing it. 
3. Synchronous analog interaction. Or, in other words, a telephone or video conversation. Again, this allows remote interactions, but it requires getting both parties on the line at the same time, which is pretty inconvenient, and can also require multiple email exchanges to identify a mutually available time. 
4. Face-to-face. This is by far the least convenient interaction mode, given it requires two individuals to not only coordinate their schedules, but to arrange occupying the same location at a mutually workable time. On the other hand, F2F is good for more complex interactions, particularly those with heavy legal/regulatory implications, and interactions that require trust to be established. 

“Every Phone Call a Failure”

Organizations should attempt to push transactions to numbers one and four, with as high a percentage as possible being automated and no-touch, and F2F interactions being used only for legal reasons, exception handling, and relationship building. Number three should be avoided for all routine matters, and only used when number two is not possible. A shorter way to say this is “every phone call a failure.” Requiring a synchronous interaction without the need to meet physically is an indicator that the transaction process is broken and needs to be examined and improved.

One company that has done a really good job of implementing this “avoid numbers two and three” strategy is Amazon in how it handles returns. When Amazon first went into business, returning a book or CD to Amazon required email exchanges with a customer service representative. This evolved to Amazon enabling customers to fill out an online form indicating a desire to return an item, which resulted in a return form being presented, which the consumer printed off and taped to a box containing the returned item before taking the box to a physical location like a UPS store. Today, a request to return an Amazon item results in choices of how to return it, with a physical store drop off requiring nothing more than the boxed item and a QR code emailed to the customer; alternatively, if one doesn’t wish to go somewhere to return an item, the old print-and-tape-to-box method can be used but with pickup at the customer location, thus imposing no requirement to go anywhere. No matter which method is used, there is no need to interact with a human in any part of the process (save actual dropoff at a physical return location).

Amazon clearly spent a lot of time analyzing the characteristics of returns and a lot of money in implementing systems to support greater and greater automation. Over time, given the volume of returns the company needs to manage, and the cost of using humans to support the original return model, it made sense to make the investment. Beyond the time and money, this incremental improvement reflects another aspect of Amazon — a strong willingness to pay attention to existing processes that probably work OK and perform incremental improvements to reduce costs and improve efficiency, aka reduce marginal costs in what is of course a small part of the business.

The Most Important Lesson of Digital Transformation

And this brings us to the most important lesson of digital transformation: You’re never done. Digital transformation requires ongoing and detailed examination of organization assumptions, tools, and processes along with a commitment to incrementally improving customer experience. Underlying this must be a willingness to maintain continued investment in moving as much traffic as possible to interaction modes number one and four. Only those organizations with the stomach to sign up and maintain a digital transformation mindset will succeed. Those that lack this motivation will become less and less competitive over time and will wither away to niche brands, used only by the least attractive consumers in the market.