June 21, 2018

Market Analysis

LA Fitness, ‘Hotel California’ and the fallacy of digital transformation

This article first appeared on CIO.com.

Digital transformation is about more than technology — it’s about delighting your customer during every stage of their journey with you. Even when they leave.

It felt like I was living the lyrics of one of my all-time favorite songs.

As I sat there staring at the four rows of idle ‘sales counselors’ at LA Fitness, the words from “Hotel California” by the Eagles rang in my head:

‘Relax’ said the night man,

We are programmed to receive.

You can check out any time you like,

But you can never leave!’

When we signed up with LA Fitness just a few months earlier, we knew that it would be for only a short time. We were about to move to New York but didn’t want to wait any longer to begin ‘getting fit.’ So, knowing that we would lose our initiation fee and that we would need to give a thirty-day notice to cancel, we signed up anyway.

As an industry analyst, author and frequent speaker on all things related to digital transformation, I was pleasantly surprised by the company’s completely-on-line sign-up process (I didn’t need to talk to a sales counselor!) and digitally-enabled customer engagement. We could view class schedules, book time with a trainer, and do almost everything online or on our phones. They even had an Apple Watch app so that I could sign-in without bringing either a key tag or my phone to the gym!

It was fantastic — or so I thought.

It was only as the sales manager explained, however, that neither she nor any of the idle counselors could help me, and that only the manager could cancel our membership (and, of course, she was gone for the day), that I realized just how badly LA Fitness had missed the mark with their digital transformation initiative.

And it made me wonder how many other enterprise leaders were making the same mistake.

The digital transformation fallacy

At a recent event in Boston, I gave a speech to a group of IT executives entitled, “Is Digital Transformation Dead?”

In the talk, I discussed the misconceptions around digital transformation and the fact that technology companies and pundits are so overusing the term — and misusing it — that they have rendered it virtually meaningless.

The biggest challenge — and the mistake that LA Fitness appears to have made — is that organizations are using digital transformation as a synonym for technology modernization, the adoption of cloud technologies, or for digitizing some element of the customer experience.

Digital transformation will likely include one or all of these activities (and many more), but that’s not the essence of what it means to transform.

LA Fitness’s CIO did not respond to my request for a comment, so I don’t know how they’re approaching it or if they even see themselves as in the midst of a digital transformation effort. What my experience made clear, however, is that the company’s focus was on applying technology to specific elements of its business processes rather than on a wholesale transformation.

While that technology-focused approach may deliver near-term benefits to the organization, it misses the real point of digital transformation, which is the reorientation of the entire go-to-market strategy and business model around the customer — and delighting them during every stage of their journey with you.

Including when they leave.

Why you need ‘journey-centricity’

When I signed up with LA Fitness, I was thrilled with the simplicity and digital nature of the process. When it came time to cancel my membership, I figured it would be just as simple.

Boy was I wrong.

Digital frontrunners like Netflix and Amazon have conditioned us to expect complete digital control. Canceling a service with a digitally native company is just as easy as initiating it in the first place. These companies operate this way because they understand the power of the customer journey and the fact that terminating your service now, does not necessarily mean that their relationship with you is over.

To most industrial age companies, however, this idea of an on-going, never-quite-ending, customer journey is a foreign concept.

LA Fitness demonstrated this fact in spades when I tried to cancel my membership. I expected to go online, log in to my account and click a big, obvious ‘Cancel’ button somewhere.

Instead, after hunting around for a while, I discovered that to cancel my membership I needed to print out a cancellation form, fill it out, sign it and send it to some corporate processing center.


Sure that we must be missing something, my fiancé called our local gym and asked for help. They helpfully (and almost apologetically) explained that the only options were to send in the form or come into the gym and cancel in person.

It was becoming evident to us that LA Fitness had instituted what I’m now calling a Hotel California customer retention policy — they were going to make it as hard as possible for us to leave.

The irony, of course, is that up to this point, I had loved my experience with LA Fitness. But the company’s failure to apply technology to delight me at every step of my journey — even when it was time for me to cancel — turned that experience from a positive into a massive negative.

There is much talk today about the need for so-called customer centricity, particularly as it pertains to digital transformation. Too many organizations, however, translate that only in terms of customer acquisition and the consumption experience — what Proctor & Gamble famously called the two moments of truth.

But in a digitally-powered world of social engagement, instant sharing, and consumer exploration in which most of the buying process occurs before a customer engages with you, this limited view of customer centricity is not enough.

Instead, digital transformation demands what I’ll call journey centricity. And that requires a transformation beyond technology.

The business model transformation proof

Executives sometimes ask me how to define digital transformation success. While there is no simple answer, there are some organizational state-changes that are good indicators that an organization is on its way.

One of the greatest indicators of digital transformation is what I call the business model transformation proof.

The journey centricity that digital transformation requires demands that organizations reorient everything — starting with how they acquire customers throughout the engagement process during and after the delivery of services. What organizations quickly realize, however, is that it is almost impossible to accomplish such a reorientation without re-envisioning their business model and underlying operating models.

The existence of a transformed business model and its supporting operating models, therefore, becomes one of the most reliable indicators that true digital transformation is occurring. The converse is also true — if your business model does not become almost unrecognizable, there’s a high probability that you’re not transforming anything at all.

Despite all of the high-gloss finishes that I mistook for digital transformation, LA Fitness’s business model remained unchanged. There is still an army of sales counselors who can do nothing but sell me a membership. And, once signed up, the business model is to make it as inconvenient and as hard as possible for me to leave.

The company has retained a linear approach to my customer journey, operating under the assumption that if I leave, I am never to return. Ironically, their failure to embark on a true journey-centric digital transformation has made this faulty assumption a reality.

Moreover, however, the company — and many other industrial age organizations just like it — have failed to recognize that the power has shifted to the customer. More so than at any other time in history, customers — whether they be business customers or retail consumers — have more information available to them, more choices and options, and can share information about their experiences, delights, and disappointments relentlessly and instantly.

Digital transformation should be a response and acknowledgment of this new reality. It should, therefore, result in a complete pivot around the customer in every way — from the business model to the technology stack.

And when that pivot occurs, there is one thing you can be sure of: there will no longer be a place for a Hotel California approach to customer retention.

This article is published as part of the IDG Contributor Network.


You may also like

Has storage become sexy?

Has storage become sexy?
{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}