Type of company vs digital maturity

When I described what is a product, I also described the 3 types of companies that can own digital products and the impact of the type of the company on the role of the product manager in the organization that owns the product:

  • Digital companies: the product sold by the company is the software or technology developed by the product development team. Product Management is the “core” of the company, responsible for the vision of the future and the company’s strategy. Product management will play a central role in defining and executing the company’s strategy. Examples: Google Search, AWS, Facebook, Locaweb, Conta Azul.
  • Traditional companies: the product or service sold by the company has probably existed for many years without the technology, but the company is beginning to understand how technology can power the product. Product Management is an “enabler”, but it is not the “core”. It is seen as the “digital area”. Product management will have to earn its space, showing what technology can bring to the business. Examples are any traditional company we can think of like supermarkets, banks, stores, industries, airlines, etc.
  • Born-digital traditional: the product sold by the company could exist without the technology, but the technology greatly enhances the product. The business was designed considering all the benefits that technology can bring. For instance, a born-digital bank may decide to carry all its customer relationships online, without the need to open any physical offices to serve its customers. Product Management is an “enabler”, but it is not the “core”. Product management will play a very important role in defining and executing the company’s strategy, but it will not be central. Business areas will likely play a more important role or, ideally, both areas will have similar importance. Examples: Amazon, which is a born-digital store. Netflix, which is a born-digital video watching service, any born-digital bank, etc.

Digital maturity

When presenting this classification to a product leadership coaching customer during an in-company training session, they pointed out that they were investing a lot in their digital transformation to become a digital company but, according to this classification, they will never be digital, since this classification does not allow for any movement between categories.

This is true, this classification talks about the type of a company in terms of its nature, i.e., how it was conceived and what is its primary product or service. The only way a company can be more digital in this classification is by creating new businesses. For instance, Amazon, a born-digital store, created AWS (Amazon Web Services), a new business to offer technology infrastructure as a product, which makes AWS a digital company. On the other hand, Amazon also build physical stores and that didn’t made them more traditional, they continue to be a born-digital store. Another interesting example is Itaú, the biggest bank in Brazil, which is investing a lot in its digital transformation and recently launched iti by Itaú, their born-digital bank and íon by Itaú, their born-digital investment platform. These are new born-digital businesses, but Itaú is still Itaú, a traditional bank.

So, besides the type of the company, we also need to understand its digital maturity, which means how much the company has been investing in digital products to potentialize its results and how much the results have been actually potencialized by digital efforts.

For instance, Itaú has matured a lot in terms of using digital to potentialize its results. The creation of iti and íon are good examples but, besides that, I’m an Itaú customer since they acquired BankBoston operations in Brazil back in 2006 and I’m do everything that I need from a bank using their digital channels. Another good example is Lopes consultoria de Imóveis. Lopes is the biggest real estate company in Brazil, a company founded in 1935 that made a follow-on offering in the stock market in late 2019 to raise funds to invest in their digital transformation. I.worked at Lopes between 2020 and 2022 leading this digital transformation and learning a lot in this journey. During this period we were able to go from 40% of sales coming from digital to more than 55% of the total sales. We were able to build digital products to solve the problems not only of the people who wanted to buy a house, but also for people selling a house like data science property valuation and brokers, who received better leads, more aligned with their experience and knowledge, increasing their conversion rate. So we can say that both Itaú and Lopes are digitally mature companies.

Digital maturity is a concept that applies only for traditional companies?

We may think that discussing the digital maturity of company only makes when we are talking about traditional companies. Afinal, born-digital as well as pure digital companies are digitally native, right?

Wrong! I’ll provide 3 examples that shows that born-digital and digital companies can have low digital maturity:

  • Gympass: when I joined Gympass, in mid-2018, the company already had 800 employees, and operation in 14 countries. However, their entire product development team, including engineers, produto designer and product managers, had only 30 people, i.e., less than 4% of the company was in product development. The impact of this very small team compared to the size of the company was that, back then, many of the day to day tasks with clients and partners had to be performed manually, so Gympass had a huge operations team in order to carry all this manual work. And the app was still a webview version. The C-level and the board recognized the need to invest in digital in order to scale the company, and this team grew considerably to around 250 people, who automated many of the manual operations tasks and delivered and evolved a fully native app. This is an interesting example of a born digital company, that offered a corporate benefit to its customer to offer to their employees access to a network of tens of thousands of gyms and studios, which had a low digital maturity. This normally happens when the founders of a born-digital company which is using digital to improve a traditional business have little to no previous experience with digital products. If they don’t bring someone with this experience to be part of the founding team, there are good chances that the digital maturity of this company will be low.
  • Locaweb: when I joined Locaweb in 2005, the company was around 100 people and the product development team had around 30 people, so a good size. However, product development was done a very old fashioned way, waterfall, based on ideas from C-levels and sales, with not conversation with the customer. I do remember one time filling out a PRD – Product Requirement Document – with all the requirements for a new product we were planning to launch based on ideas from C-leves. After filling out all the details, which took me 2 months to write, I hand it over to engineering to receive the product built 5 months later. Then I went on testing the product just to find out that some expected feature was not there. I checked the PRD to see if I had forgotten to include that specific feature but, no, I’ve not forgotten, it was there. Then, talking to engineers, they saw the documentation, did not understand all the details, and due to the rush to deliver, decided not to include the feature. So it is quite clear that our digital maturity back then was quite low. We were able to evolve and increase our digital maturity over the years, but this is a good example of a digital company, whose product sold by the company is the software or technology developed by the product development team, but with very low digital maturity that improved along the years.
  • Aurum: this is the company of 2 good friends from college. They graduated around 1990 and back then created a product to help lawyers in their day-to-day tasks. As all software back in the 1990’s, it was an on-premise software, to be installed in the computer of each lawyer. Later they launched a client server version where lawyers could exchange information through the system and the work done by each lawyer was stored in an on-premise server. Around 2010 they started to perceive the need to move to the cloud and I helped them as one of my first consulting engagements. If you wat to dive deeper in their digital transformation journey, you can check this interview. Aurum is another good example of a digital company, whose product sold by the company is the software or technology developed by the product development team, but with low digital maturity that improved over time.

In order to improve its digital maturity, no matter if it is a traditional, a digital or a born-digital traditional company, these companies need to:

  1. bring people with digital experience, i.e., experience in bringing digital products to the market that solve problems to the customers while achieving the expected company results. These people will help the company to understand the potential of using digital products and will help design a strategy to fully use this potential.
  2. go after education so people without the proper experience in digital products can learn faster. Can be books, courses, events, blogs, in-company trainings. This topic should be center, not only for people working directly in the product development team, but all other areas of the company must understand how digital can positively impact the company and their areas.

Summary

  • There are 3 type of companies. Digital companies, where the product sold by the company is the software or technology developed by the product development team. Traditional companies, the product or service sold by the company has probably existed for many years without the technology. Born-digital traditional companies, where product sold by the company could exist without the technology, but the technology greatly enhances the product. This is the nature of the company and can not be changed.
  • On the other hand, we can also analise a company based on its digital maturity, i.e., its ability to use digital products to deliver a better experience to its customers and to improve company’s results. Normally, traditional companies have low digital maturity, but it can evolve over time. However, even digital and born-digital traditional companies can also have low digital maturity as shown by the 3 examples: Gympass, Locaweb and Aurum.
  • In order to improve its digital maturity these companies need to (1) bring people with previous digital experience and (2) go after education so people without the proper experience in digital products can learn faster.

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