In this episode of Lehigh University’s College of Business IlLUminate podcast, we are speaking with Eric Fang about digital transformation and the new Center for Digital Marketing Strategy and Analytics. Dr. Fang is a professor of marketing and the Iacocca Chair of Marketing. He is also the founding director of the Center for Digital Marketing Strategy and Analytics. His research focuses on digital marketing strategy in data-rich environments and international business.
He spoke with Jack Croft, host of the ilLUminate podcast. Listen to the podcast here and subscribe and download Lehigh Business on Apple Podcasts or wherever you get your podcasts.
Below is an edited excerpt from that conversation. Read the complete podcast transcript.
Jack Croft: A lot of your research is focused on digital marketing in a data-rich environment, and we certainly are in probably the data-richest environment we've ever been in. And that seems like a good place to start. By 2018, seven of the 10 largest global companies were based on platform business models. So how has data driven this revolutionary change in global business?
Eric Fang: If you look at the top 10 companies on the Fortune 500 list, seven of them, they're actually-- we call it data companies. Apple, Google, Microsoft, Amazon, Facebook, Tencent, Alibaba, the latter two being companies from China. If you look at those seven companies, there are three common attributes they occupy. Number one, all those companies have massive data about their customers. Number two, they are all based on some type of — we call it platform model. Number three, they are all based on building what we call connections. The connections between customers, the connections between customers and the servers, and the connections between customers and information. I think those are the three common attributes those top seven companies, they all occupy. In addition to that, we are seeing Netflix, we are seeing Disney, we are seeing Zoom. I mean, we are seeing Tesla. All those companies, they have those three common attributes: massive data, building a platform, and really to engage connections.
Customer-customer connection, customer-service connection, and customer-information connection — those are the common themes. What power does data give them? That's really the key question. I think there are three things data provides businesses.
Number one, data gives those companies massive insights into customers that was unimaginable 20 years ago. Data gives the businesses a weaponry to know their customers at a much faster pace and a much deeper level. Amazon knows what product we have purchased and Amazon makes predictions about what other products we may like. Think about that. Without data, it's almost inconceivable to think about businesses having that deep insight into consumers.
Number two is data provides businesses a tool to build connections. Facebook uses consumer data to build its social media website, building connections among consumers. That increases consumers', we call it loyalty or stickiness. All your friends are on Facebook, so that builds your habit. You have to be on Facebook to get connected with your consumers. Let's think about Google. Massive data. Google builds connections between consumers and information. Any time you search something, Google leads you to that information that you may need in less than a second. Data also gives you the tool to build connections between customers and the service. Airbnb connects you not with just typical hotel chains, but with maybe a landlord in Spain who happens to have a spare bedroom to rent out. That's a service. But think about 20 years ago, that's inconceivable. Without data, there's no way.
Number three, data gives the firms tools to really improve their efficiency. Think about Uber as an example. Uber is trying to replace the traditional cab service. Think about a traditional cab service. There was a high level of inefficiency in cab service. Why? As a passenger, let's say you go to Chicago or you go to New York City, you are trying to board a cab, what do you do? You either pick up the phone and call the 1-800 number to call a cab or you wait on the curbside to wait for a cab to come and you wave. There are a lot of time you are waiting. There are a lot of time that's being wasted. Think about a cab. Imagine if you are a cab driver, how do you get a passenger? You either wait for the call center to call you saying that you got to pick up a passenger at a certain location or you just drive around the street hoping to see a passenger. There was a lot of we call it matching inefficiency — match passenger and cab driver. Uber, with what we call LBS (location-based service), has massive data. Uber is able to match the cab driver and passenger in a very efficient way.
Croft: [Digital transformation is a term] we've heard a lot about lately. And I think that's a term a lot of people hear and perhaps even use, but may not fully understand what that is referring to. I think part of that is because the definition is a little bit fluid, but what is your idea of what digital transformation is and what effect is it having on business now?
Fang: Oh, that's a big question. Yeah, I think there are different levels, different layers of digital transformation. I mean, let's go from the technical level to really the strategic level. So from the technical level, digital transformation simply, basically means using digital tools to enhance the productivity of employees within an organization. That's a simple way. Adopting Zoom, that's part of the digital transformation. Using digital collaborative tools, using software as a service, called SaaS. So embracing this IT infrastructure. That's the technical way that we call it digital transformation, but that's really the basic way.
On top of that, we call it digital transformation from the strategic standpoint. It goes beyond the simple adoption of digital tools for the enhancement of productivity purpose, so it really involves the whole strategic change across the whole organization to move into the digital era. I see two strategic changes empowered by data and digital tools.
The first is we are seeing the U.S. economy, with the help of digital tools, is increasingly moving from product-based into service-based. Let's use Tesla as example. Tesla, unlike traditional auto manufacturers — traditional auto manufacturers make their profit based on the autos they sell. Tesla’s revenue model will be, to a large extent, based on its service. Tesla is just a gigantic moving iPad. Tesla, the car, is a digital tool, with big iPad, right?, with the autopilot driving, etc. So Tesla's business model will be based not just on selling Tesla, but on all those kind of service-based items. So that's one strategic change we're seeing. That’s one level.
The second strategic change we are seeing is really moving into customization. Traditionally, the U.S. economy from the monopoly standpoint is based on this kind of segmentation: I want to develop a cell phone to target the audience, which is aged between 25 to 35, etc. But in the future, it's not just going to be for us, it's just going to be for me. American consumers want product and services just for me, which is called digital customization. So on the strategic level, we are seeing digital transformation reflected in two strategic changes. One being reflected in the service transformation, the second being reflected in the customization. So that's the second level.
At the top level, digital transformation means building an ecosystem. Not just you, your firm as a separate entity. It's building an ecosystem to provide value to the consumers. What I mean by that, let's think about examples like Uber. Let's think about examples like Facebook. Let's think about WeChat coming from China. Using data, they build massive connections with third-party vendors. As a result, they can provide better services, better products, and better solutions to business users and the consumers.
So actually, there are three different levels when we are talking about digital transformation. The basic level is the adoption of digital tools, including IT infrastructure. The second level is organization-level transformation, reflected in service transformation and customization. And really the top level is to build an industry-wide ecosystem to connect with stakeholders in order to provide solutions to the consumers. Those are the three levels of digital transformation I'm seeing.
Croft: In a sense, everything we've talked about so far today provides context for the new Center for Digital Marketing Strategy and Analytics in Lehigh's College of Business. So let’s talk about what your vision for the center is.
Fang: The way I think about this center is I want the center to serve three fundamental roles. We are seeing American businesses really moving into the digital transformation, accelerated by COVID-19 and that momentum will continue even after the COVID-19 is over. We are clearly seeing that has been happening. So we envision the center to serve three different roles. Number one is we want the center to help research in this whole domain. Research really, if you will, is the lifeblood for anything that's built upon that. So we want to help young scholars to build their richest dream alongside the "big domain of data." That's the first role.
The second role is the teaching side. The center is willing to work with the executive education center, so we are planning several executive training programs around big data and around digital marketing, etc. That's the second role.
I think the third role, which probably at the end of the day will be the most important role, is outreach. We want the center to be a hub to connect the Lehigh research and teaching with businesses, particularly those businesses who are kind of feeding the urgency to do digital transformation across a variety of different industries. We are already in dialogue with some businesses in the Lehigh Valley area and also in the greater Philly area, in pharmaceutical and financial services, etc. So we are thinking about building some type of a coalition to connect businesses and academia in working on some questions of managerial importance to the businesses, but also it can enhance our faculty research.
So those are the three things I more or less envision the center to have: research being the foundation, teaching being the way we're going to provide the service we're going to provide to the relative stakeholders, and outreach to build a brand to connect businesses with academia. I think that's really the core mission.