What’s your favorite TV channel to watch when you’re looking for some down time? My favorite channel is Home and Garden TV. The shows I love to watch are the ones where people are searching for the type of home they want. At the beginning of the search, they’re focused on the style of house or neighborhood they want to live in. As they go through the process, the conversation shifts from the lifestyle they currently have to who they need to become. That’s why they’re often surprised by the home they select.
Companies today are going through a similar experience. According to Gartner, 63 percent of CEOs are likely to change their business models by 2020. The question is what’s the main reason why CEOs radically rethink their company’s business model?
Digitalization is about turning products and processes into a digital service that drives “revenue and value-producing opportunities,” according to Gartner. Let’s take a look at UPS and Nordstrom to see how rethinking their business models are opening new opportunities for them.
UPS, a 111-year-old package delivery and logistics company, needed to quickly jump into the deep-end of the 3D printing market before their competitors and customers could. Manufacturers and companies use forwarding and logistics services to manage the transportation and storage of products around the world to meet on-demand requirements of their global supply chain.
Realizing their customers could become their competitors, UPS developed a partnership with Fast Radius, built a 3D printing factory, and extended their partnership with SAP to provide new digital services to their forwarding and logistics customers. Today, small and medium businesses can take advantage of 3D printing services through UPS’ 5,000 plus 3D printing retail stores around the world. As a result, 3D printing has contributed to the 18 percent growth in UPS’ forwarding and logistics business.
Nordstrom is rethinking what department stores will look like in the future. While department store sales in the retail industry have declined 3.9 percent, Nordstrom has seen a 1.7 percent increase in same-store sales in 2017. Their early investments in IT and e-commerce, as well as managing the number of stores they have compared to their competitors, has helped them weather the turbulence in the industry. And now, Nordstrom is working to lead the retail industry again in a new area.
Learning from Millennials (born 1981-1996) and Gen Z (born 1997-present), experience, not inventory, is the new product. Nordstrom used this strategy with their Nordstrom Local stores, particularly by placing stores within walking distance of customers and by creating a different in-store experience. The experience can start online with an online stylist, who selects and places orders for clothing items to be sent to your local store for you to try on in one of their dressing rooms. You can then select the outfit and have a tailor fit it to your specifications.
If you’re the local bar, juice shop, manicurist, or dry cleaner, now you’ve got a 117-year-old national company that’s your new local competitor. If Nordstrom understands your local customers better than you do, it could potentially disrupt your business.
So, what do you do? Leverage Design Thinking, a design process to solve complex problems from the customer’s perspective.
Develop a plan. What’s the challenge you’re looking to address, who are the people who need to be involved? If you’re Nordstrom, your challenge would be to understand how the next generation of customers shops.
Empathize with customers by interviewing them. Go deep. Ask them what their day looks like. Let them talk. And, ask why more than once. This will help you figure out what they want and what could make their lives easier. For example, an insight Nordstrom may have picked up from talking to customers was that the next generation of shoppers was more focused on embracing local, in-store experiences as opposed to walking immediately out of the store with a clothing item.
Reframe the challenge. Based on the insights from interviews, is the challenge you identified the one that’s actually facing your business, or is there something different that you should be focused on? UPS may have framed their initial challenge with a focus on the reason for using 3D printing in their business. They then reframed their challenge to delivering 3D printing services to customers.
Ideate. What are several ideas you can come up with to solve the reframed challenge? The idea of putting all of the different services under one roof could have come from the individual ideas for the different services.
Prototype. Building a low-cost example of what you brainstormed can help customers better understand your idea. For UPS, it may have been building an example of a retail store for 3D printing for small and medium businesses.
Test and Refine. Testing the prototype is a quick way to figure out what works and what doesn’t at a low cost. Then refine the prototype based on feedback and test again. Nordstrom Local wasn’t the first prototype tested. Shoes of Prey was a partnership Nordstrom created with an Australian company to showcase shoes that could be customized, ordered, and delivered to your home. Even though Shoes of Prey was discontinued, think about what Nordstrom learned from their testing that enabled them to develop the Nordstrom Local concept.
UPS and Nordstrom embraced the digitalization trend, rethought their business models, and invested in developing new services. The alternative was losing revenue, ceding market share to competitors in a market where the pace and speed at which customers and companies are innovating makes a recovery extremely difficult, if not impossible. Thinking about the changes in your industry and embracing digitalization could be the key to new revenue streams and a bright future for your business.
 Gartner, “Digitalization,” IT Glossary.
 Reuters, “UPS Expands 3D Printing to Stay Ahead of a Threat,” Fortune, September 19, 2016.
 “2017 UPS Annual Report: Transforming UPS… for Today and Tomorrow,” UPS, 2017.
 Bowman, Jeremy, “Why Nordstrom is Bucking the Trend in Department Stores?”, The Motley Fool, August 20, 2017.