Present-day’s consumers are more demanding than ever. Further, digital technologies are reshaping every industry, even those traditionally least innovative. These two phenomena have changed the way firms and brands compete with each other. Business is now about building deeper customer relationships to better understand consumers and offer them the type of customer journey they look for.
A 2018 Global Survey by McKinsey found that more than 80% of the organizations interviewed had attempted some form of digital transformation in the past five years. Yet, only 23% reported having successfully improved performance through digital transformations. Of that 23%, circa one third of the companies declared the improvements they had made hadn’t been sustained through time.
Royal Caribbean and the cruise industry offer a great business case to understand the essentials of digital transformation. CEOs from any industry can learn a lot from the way Royal Caribbean’s executives successfully managed this arduous but ineluctable process.
Royal Caribbean: disrupting the cruise industry through digital transformation
Royal Caribbean Cruises Ltd. is one of the biggest players in the cruise industry and owns three main brands: Royal Caribbean (RC), Celebrity and Azamara. In 2018 all brands together have hosted 23% of the global cruise passengers. The RC brand alone accounts for 19.2% of the global 2018 cruise passengers and made 14% of the global 2018 industry revenues. The only other comparable brand in the industry is Carnival, controlled by Carnival Corporation & PLC, the industry leader, that welcomed on its fleet 22% of the world cruise passengers but “only” accounted for 8,9% of the annual global industry revenues (57% less than RC).
The RC brand built its success on innovation. In 2016, the main concern of the company was finding new ways to drive growth and attract a new generation of customers in the digital age. Knowing millennial passengers expect digital on-board experiences, the company executives decided to heavily invest in technologies and partnered with EY to manage this process of digital transformation.
“We are always thinking about tomorrow; that requires us to be constantly looking to be the disruptor, not the disrupted” - Jason Liberty, CFO at Royal Caribbean Cruise Lines
Royal Caribbean started its process of digital transformation before its competitors, forcing them to make some initial steps towards digitalization as well. RC brought in new talents and even created new specific positions, like in the case of Jay Schneider, former Walt Disney Co. guru of digital transformation, who became Senior Vice President of Digital, or Sol Rashidi, who had started working on this project for EY and eventually was named Chief Data & Cognitive Officer at Royal Caribbean.
A part from forming a solid team, RC’s first step towards digital transformation was identifying the real question that would lead the process. Instead of focusing on technologies or on how to disrupt the industry, RC started wondering about how to give customers back time in their vacation. Since the cruise industry is an amalgamation of many different industries (hospitality, transportation, retail, entertainment...), they looked at what had been done in those sectors and let digitally advanced firms inspire them.
By 2017, when other cruise companies also started working on their digitalization, RC was already announcing the first tangible effects of this huge process of change by unveiling the 3D cave, a 3D lab using the latest technologies for ship design. Thanks to the 3D cave, today RC owns the world’s 3 largest passenger ships and has successfully turned all of them into “smart ships”, which incorporate virtual reality, facial recognition, artificial intelligence, wearables and data collectors, just to name a few technologies.
Shortly after, they launched an app: "The whole idea is a pipeline of new products and services for guests that will be available through the app. Right now, it's just a simple content app available on two ships, and the reason for that is we wanted to make sure that every new product we get into market, we disrupt the guests' and employees' experience as little as possible. I want to make sure that, even if we build a great app, that every aspect of the technology works flawlessly. So we're being diligent, we're taking our time, and we're testing, adjusting, and scaling as we like to say," - Jay Schneider.
What CEOs and executives can learn from Royal Caribbean’s successful digital transformation
Based on a survey from EY, 50% of CEOs do not believe their companies have implemented the necessary steps to counter digital disruption and fear this could put market leadership and capitalization at risk. They wonder how to manage technologies they may have not completely understood yet, or that are far from their area of expertise, and to what extent they can delegate without hurting their leadership. Here are 5 tips to help CEOs develop the roadmap they need to nail digital transformation.
I. Understand and define what digital transformation means for your company
In the last few years, the term ‘digital transformation’ has been used by companies to describe any kind of initiative involving new technologies. Unsurprisingly, most of such efforts have failed to bring tangible results.
Asking yourself “how do we become digital” might lead you to the wrong path. Rather, focus on your core business and the main challenges you are facing. Ironically, successful transformations require to focus primarily on business results, leaving technology on the side. Always keep in mind that your goal is value creation, which is a constantly evolving concept, and technology is just a (powerful) tool.
Given the speed at which technology develops and evolves, thinking in terms of which shiny piece of technology you need the most might lead you to betting on something that in a few years will be out of the picture. Instead, taking a non-proprietary approach to technology will bring you many advantages. It will allow you to focus on building a flexible organization that understands how to use new tools to respond to its constantly changing needs and opportunities.
“Our biggest challenge is not necessarily how to apply cognitive capabilities, but where to apply because there’s just so much room for opportunity. […] A lot of it is being able to predict, infer, and suggest in advance of the customer asking so that we could either do one of two things: either enhance the experience […] or course-correct anything that may go wrong or is about to go wrong, in advance” - Sol Rashidi.
"What we've come to appreciate is that the technology is simply moving so quickly, that nobody can afford to do the perfect app. And if we try, we will have something that is an app up to speed as of that nanosecond, but we won't be able to continue to upgrade and that will affect all technology advances" said Richard Fain, President and Executive Director at Royal Caribbean.
In most cases, the main implication of this approach is that digital transformation will be aimed at enhancing the customer and employee experience. Technology brings great results when used to empower workers and consumers. This is what Royal Caribbean did as well. They looked at consumers’ trends and expectations and built their transformation on the insights they got from the data they had access to. Once they knew which direction they were taking, RC and EY made a roadmap to ensure they were sharing both the goals and the journey to reach them.
II. Develop a mission-driven culture of continuous improvement
One of the most critical tasks CEOs deal with is defining what type of corporate culture their organization needs to be successful. Digital transformation without a clear and mission-driven culture is set up to fail. It will not lead to any amelioration of the customer experience. Therefore, before launching the digital transformation of their company, CEOs should consider where their culture stands and what steps are required to optimize it so it can sustain the whole evolution.
A culture of digital transformation should have customers and employees at its heart. It should empower people to embrace change and work in new ways. It should allow for failure, encourage curiosity and promote the principle that “fast is better than perfect”.
In general, organizations should develop a digital-first mindset that influences both customer experiences and business operations by promoting continuous improvement based on the constant evolution of technologies and customers’ expectations. Ultimately, a strong organizational culture should be able to transform on its own and promote the understanding and management of change processes.
In order to make the new organizational culture more tangible, executives could develop new policies that embrace the new values of the company. For instance, new policies could make information more accessible in the organization or raise awareness among employees about cyber security best practices. Hence, the role of the CEOs in digital transformation is not to be the expert in technology, but the engine of cultural change.
III. Manage change processes
The idea that change processes require active management should already have been absorbed by most companies in the world. Unfortunately, this is often not the case and many projects fail due to a lack of understanding of change management best practices. Change management can make or break your digital transformation, so make sure your organization understands change processes and how to tackle them.
Best practices include, among others:
making communication frequent and easy to understand;
clearly identifying the persons in charge of each process;
directly involving the leaders of the organization;
reconceiving standard operating procedures to include new technologies;
setting clear goals and making sure everyone is on-board;
developing the right incentives plan...
Communication is probably the most critical factor in change management. Without good communication, spreading new cultural values to a whole complex organization will be very challenging and might undermine your efforts to effectively evolve into a digital company. Developing a change story is a great way to helps employees understand where the organization is headed, why it is changing, and why the changes are important.
IV. Lead by example
Leadership is one of the pillars of successful change processes. Leadership commitment is critical and the case of Royal Caribbean greatly exemplifies that. Every piece of content developed to communicate about RC’s digital transformation involves at least one leading figure of the company. They are undoubtedly the ones in charge of making sure everyone understands where the company is aiming, both inside and outside the boundaries of the organization.
It does not matter whether it is the CEO, the CFO, the Director or the President, the important is that everyone in and out of the organization understands that the change process the company is undergoing is an absolute priority for the organization’s leaders. People in key roles should act proactively and bring order and clarity down the pipeline.
They are the living examples of the organizational culture the company has developed, so everyone will be looking at them when challenges arise. The higher in the organization chart, the more responsible you are for the success and failure of your company’s digital transformation.
V. Develop the right skills
Digital transformation will require your organization to develop certain skills, whether internally, or externally through hirings and external collaborators. For instance, neither Royal Caribbean or EY disposed of the breadth of skills required in-house for RC’s digital transformation.
To access all the knowledge and expertise deemed critical, EY developed and coordinated a whole ecosystem which involved existing Royal Caribbean partners, large strategic partners and tech-savvy startups. This was definitely one of the keys to their successful digital transformation.
Further, McKinsey reports that when companies achieve transformation success, they are more likely to have certain digital-savvy leaders in place. Some companies actually open new positions, such as Chief Digital Officer, to develop the digital leadership they need. CEOs and executives play a critical role in redefining the type of employees the company is looking for and ensuring HR is looking for what the organization needs the most.
Coherently with what was previously discussed, CEOs should give the example by making sure every person on the board understands the challenges and opportunities of digital transformation and by adding qualified technology experts to the board or the management team.
CEOs and executives play a critical role in digital transformation. CEOs don’t need to be innovators, but must be able to direct the whole organization towards new ways of operating. Their ultimate goal must be to empower employees and customers so that innovation becomes a constant feature of the organization they lead. They should make sure the new mission, strategy and culture of the company are understood and shared by everyone. Eventually, it all goes down to culture and the fact that CEOs are the impersonation of the organizational culture they want to implement.