The window is closing for firms slow to adapt to market changes.
The uncertain fate of many companies seems separated from the reality that most economies, labour markets, and industries are relatively healthy. Firms born with or driving customer-led, digitally-centred strategies are separating themselves from the pack. There is a nerve-wracking separation between customer expectations and the experiences most firms can deliver. And digital platforms are increasingly disintermediating brands, separating brands from their customers.
Consumer hyper-adoption (and hyper-abandonment) is unprecedented; the adoption of intelligent agents will outpace adoption of mobile. The pace of change for operationally transformative technologies like artificial intelligence (AI) and blockchain is far slower than marketers’ ambitions and talk tracks. Firms successfully driving digital transformation operate at a different speed than other firms.
The issues of separation and speed are not just interesting concepts – they are now impacting financials. Unmet customer expectations are resulting in churn; the lack of digital transformation gains is translating to loss of market share; industry lines that protected some are crumbling; and longstanding, durable business models are failing. All of this is happening while customer experience (CX) initiatives are struggling to drive the kind of financial performance promised.
In 2018, CEOs must show the political will and, with the CIO and CMO, orchestrate digital transformation across the enterprise.
The window is closing for firms slow to adapt to market changes. For them (and there are many of them), a smooth, methodical transition is no longer available. They must find strategies – whether that is acquisition, new leadership, or something else – to change the game.
That is the backdrop to our 2018 Predictions. We selected 13 predictions that embody these four themes. They tell a story about the age of the customer gaining steam – and a story about a coming year of reckoning for many companies struggling to keep pace with market dynamics.
The major dynamics that will shape 2018 include:
- Performance expectations for CX. Customers’ expectations will outpace companies’ ability to evolve or invent experiences, and the deferred transformation in 2017 means that companies can’t adjust fast enough or well enough. In 2018, 30 per cent of companies will see further declines in CX performance, and those declines will translate into a net loss of a point of growth. Smart executives will intervene to make CX an internal disruptive force; while executives who continue to ignore evidence of market disruption and procrastinate put their firms at risk.
- Success rate of digital transformation efforts. Digital transformation is expensive; CEOs can’t drive operational savings fast enough to fund it and are cautious about destroying margins. In 2018, CEOs must show the political will and, with the CIO and CMO, orchestrate digital transformation across the enterprise. Some CEOs will use their balance sheet to acquire digital assets and buy time. But 20 per cent of CEOs will fail to act: As a result, those firms will be acquired or begin to perish.
- How scarce talent affects the market. The news reports of a digital talent crisis are overblown. The real story is the lack of specialised roles like data scientists, high-end software developers, and experience designers that are critical to CX and digital transformation. These professionals want to work for firms further along in their digital transformation effort and with more ambitious strategies. In 2018, talent issues will widen the divide between digital predator and prey; laggards will need to more aggressively set up digital incubation centres in talent hotspots and pay up to 20 per cent above the market rate to change the game.
- Intelligent agents’ influence on consumer spending. Platforms and associated intelligent agents will collect preferences, behaviors, transactions, and emotions, creating a rich view of an individual. Intelligent agents will use that data to increasingly influence consumer options and decisions. In 2018, 10 per cent of purchase decisions will be guided by a platform’s agent and start the real economic impact of empowered machines.
- How brands will fare in understanding the lingua franca of platform algorithms. The algorithm is foundational to digital platforms like Google and Amazon. Yet brands have been slow to understand platform algorithms, especially when the brand is not part of the customer’s existing preference and the algorithm is choosing whether to introduce that brand to the customer. In 2018, CMOs will need to source talent to interpret and influence AI-driven platforms. Twenty-five percent of CMOs will fail, resulting in their brand becoming undifferentiated and silenced in the market.
- The impact of consumers cocooning themselves from “digital noise”. Current trends like KonMari and hygge can be seen as fads. But perhaps they are signals that individuals are withdrawing from clutter in search of simplicity. In 2018, many consumers will use intelligent agents to filter away the noise of the day. Intelligent agents will continue to strengthen their influence on consumers and pressure brands to engage through the subtle power of conversation.
- The fate of traditional advertising. Customers are avoiding ads and major brands have announced massive cuts in ad spending. This is not an advertising budget crisis but simply changing priorities. CMOs can’t defend underperforming media spend focused on customer acquisition as churn rates escalate or stand idly by as digital platforms threaten to disintermediate their relationship with customers. The result: Ad spend will be flat in 2018 and cause a painful correction in the agency and adtech markets.
- The chances firms will comply with GDPR. GDPR challenges how companies balance risk and cost. We predict that 80 per cent of firms affected by GDPR will not comply with the regulation by May 2018. Of those noncompliant firms, 50 per cent will intentionally not comply — meaning they have weighed the cost and risk and are taking a path that presents the best position for their firms. The other 50 per cent are trying to comply but will fail.
- How open banking will determine the future of many banks. The venerable and profitable banking business model is under attack. Changing customer expectations, the onslaught of fintech, and banks’ inability to deepen the value of customer relationships are to blame. Epitomised by PSD2, open banking lays siege to the banks’ traditional power centre: data. In 2018, more than 50 per cent of banks will fail to exploit open banking, starting down the slow, painful path to becoming an unintentional utility.
- How digital platforms will impact traditional retailers. Retail has been working in parallel linear tracks: improve store experiences, transform digitally, and connect the two pieces. Lack of skills, quasi-differentiated brands, and aged operations are hurdles for traditional retailers — but the role of intelligent agents will be the thorniest issue in 2018. Only 33 per cent of retailers understand the disruptive nature of intelligent agents; 67 per cent do not.
- The evolution and pace of artificial intelligence. AI is rapidly changing how companies create personalised experiences at scale; how consumers balance privacy and value with brazen democratisation of their data; and how employees shape their professional paths to include greater interaction with machines. But 2017 investments have focused on discrete use cases and projects to prove immediate business value. In 2018, 75 per cent of AI projects will underwhelm because they fail to model operational considerations, causing business leaders to reset the scope of AI investments — and place their firms on a path to realising the expected benefits.
- The evolution and pace of blockchain. Blockchain promises to fully enable bold platform and ecosystem strategies while defending against increasing cybersecurity threats. And that extraordinary promise is, in part, the problem. Eighty percent of projects failed to meet expectations. In 2018, the combination of rhetoric and enthusiasm will continue to limit blockchain gains. However, 30 per cent of proofs-of-concept will accelerate blockchain for those companies able to consider its operational impact.
- How security evolves to confront threats without degrading CX. In 2018, we will start to see security for profit measures driven by security, risk, and privacy teams with the support of their marketing and product peers. Central to this is identity management. Security and privacy teams need to know exactly who is accessing what and resolve identities across entry points. Marketing can use that same capability in the martech stack for personalisation — transforming a security mandate into a CX enhancement. In the coming year, 10 per cent of firms will crack this code and gain new and powerful investment leverage.
Victor Milligan is chief marketing officer at Forrester.
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