In 2022 we took a look at market darlings who lost their way in a fiercely changing digital landscape, and what brands can learn from the experience. Failure in the digital transformation space is not uncommon. According to McKinsey, 70% of all digital transformation projects end in failure. They either exceed budget, fail to meet their basic goals, drag on continually, or ace a combination of all these hitches before they're cut short. So, the territory is known for many. But what about the remaining 30% that make it? The brands that re-invent themselves in the face of change? Who are they and what can we learn from them? In this second article of the series we look at the brands that stared down the changing landscape and successfully transformed.
How Adobe turned its back on CDs to deliver sustainable long-term growth
Whilst today Adobe is known to be a successful SaaS (Software as a Service) company, it wasn’t born in the era of SaaS. Adobe was established in 1982 and quickly became synonymous with Photoshop and other creative and publishing tools. In the 1990s, Adobe began shipping boxed creative software, and by 2003, launched its full creative suite distributing software to designers and budding creatives via CD-Rom. By 2008 the recession hit and Adobe felt the pain. Revenue dropped more than 20% and the company announced it would be laying off ~600 employees, or roughly 8% of its workforce. Simultaneously the shift to cloud had already begun – which signalled to Adobe that the market was changing. Within 5 short years, Adobe undertook a substantial transformation, and by 2013 it had announced it was discontinuing shipping physical boxed software and that future versions of their creative software would only be available via their Adobe Creative Cloud subscription model. By 2021, creative cloud subscriptions generated $US9.55 billion for Adobe.
Adobe was a company that was generating strong revenues via CD-Rom sales, which were paid in one lump upfront payment. Moving to a subscription model would see consumers pay over time and meant Adobe was not able to bank revenues upfront. Moving to a subscription model challenged Adobe to re-think how they built and developed products, as a subscription requires a brand to demonstrate value ongoing or risk cancellation.
So how did they get there and what can we learn as brands facing into transformation? Whilst we don’t know everything they did – here are some of the key learnings from their transformation.
Leadership actively sought out inspiration. The first thing Adobe did was to look for inspiration from other companies that had successfully transformed. They looked at companies like Salesforce and realised that they had weathered the storm of a recession and a changing market, and that they were doing that through a re-occurring revenue model.
They primed their audience for the change. Adobe had a dedicated, loyal and passionate following – engaging them as part of the change was critical. They invested time and energy in explaining “why” the world was changing and why their product is therefore changing. This is an important learning for many brands. Often brands start looking to drive change but they fail to communicate the “why” to their teams, stakeholders and customers.
They were prepared to kill their sacred cow. Transformation often calls for us to re-invent ourselves and that sometimes means that products or offerings which were once successful need to evolve or be exited from the portfolio. Whilst Adobe wasn’t faced with the need to exit the product, it had to be prepared to move away from its existing business model of build and ship. To be successful, the company had to be prepared to reorient around a new way of delivering their product and double down on a subscription-based approach. This meant they had to be prepared to kill off their physical shipping software business. It was high risk but the focus allowed them to transform the business and deliver sustainability over the long term, whilst forgoing revenue in the short term.
Starbucks - a true innovator in the Digital Era
The Starbucks story started in 1971 in Seattle, long before the digital era was upon us. Whilst the first two decades of its history saw modest growth, it wasn’t until the 1990s that Starbucks growth shifted into overdrive. From 1990 – 2000, Starbucks grew from a modest 94 stores in 1990 to reach 3,500 stores by the turn of the century. By 2020, Starbucks had over 32,000 stores globally – a far cry from its humble beginnings in Seattle. However, it wasn’t always smooth sailing. In 2008, Starbucks was forced to shut 600 stores that were not making profits. By March 30, 2008, its profit had fallen 28 per cent compared to the same period in 2007, and in 2009, it was forced to closed another 300 stores and lay off 6,700 employees.
Howard Schultz, the original Founder of Starbucks, returned to take the reigns and turn around the company. Schultz observed that the company had lost its focus on the customer and in March 2008 Starbucks launched a new initiative called “My Starbucks Idea" to allow the brand to exchange ideas with customers. As part of the initiative, customers were able to give opinions on everything such as products, services, layout, advertising, corporate social responsibility, in-store music and so on. More than 93,000 ideas were shared and Starbucks implemented over 100 ideas generated by its community.
But it wasn’t just re-connecting with its customer base that helped turned the company’s fortunes around. In 2011, Starbucks began to embark on one of the nation's largest mobile payment programs, with the goal of offering a truly innovative mobile experience for customers worldwide. An early adopter, Starbucks gained much from being a first mover in the mobile app space. In its first year of launch, Starbucks notched up 26 million mobile transactions. By 2017, Starbucks were touting that more than 36% of their sales were being derived from their digital flywheel – a series of interconnected digital and data strategies that were at the heart of their corporate strategy.
Today over half of all Starbucks revenue comes from its loyalty reward members – a program facilitated and underpinned by digital. So what can brands take-away from the Starbucks transformational success?
They stopped obsessing about competitors. As the recession hit in 2007/2008 the company blamed the economy and new competitive pressures from the likes of McDonalds for its lacklustre performance. But the company had become obsessed with growth and had become overly bureaucratic. A re-orientation back to the customer helped to create clarity about what was important for the business.
They innovated in digital where it matters. Coffee is a high frequency category and convenience matters. Starbucks invested heavily into areas that made the most sense for its category to better serve its customers (e.g mobile payments, app, loyalty).
They stayed the course. Over the past 12 years, Starbucks has continued to heavily invest in the digital space. It has continued to test and trial new concepts and channels to more effectively serve its customer. Starbucks understands that digital is central to delivery of their business strategy and success – and invests accordingly.
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