The risks of a narrow view of digital transformation
The notion of digital is a misleading, ethereal, almost uncatchable concept, which comes with no clear threshold on its domain, with no clear boundaries. Sometimes it means everything, some others it really is used as an empty concept.
The issue is not really with the notion per se, but with the level of understanding – or level of misunderstanding – that many firms display about the idea. In a previous post we have already explored the myths of digital transformation, whereas the objective of this article is actually to share some experience on what makes the process successful.
First of all a question: have you ever wondered whether there is a difference between digital, digitalization of digitization? As often happens, the answer is not as insightful as the question itself. With the answer being: “of course” they are three different concepts, but actually the nuances are so limited that they are often and most likely used interchangeably.
But from the question itself, derives the first important insight: most companies think of digital as a channel. The truth to the matter is that – organizationally – both marketing and sales have evolved because of the digitalization. Think of social media, on consumers who are digital natives, whose awareness of new brands and products is generated on smartphones.
But of course “digital” it’s not just a sales or a communication channel. More and more, fully digital ecosystems are appearing: those ecosystems are constructed around a fully digital supply chain: front/middle and back-office, from production to sales and distribution. As an example we provide the evolution of Fintech. Which started somehow as a way to provide on-line and mobile payments, e.g., the channel view. To evolve into blockchain, robo-investments, peer-to-peer lending and insurance, and crypto-currencies (e.g., middle-/back-end of infrastructure); beyond that FinTech is now proposing new ex-novo digital ecosystems completely developed for the under-banked, under-insured, or consumers that rejected traditional banking and insurance.
Going back to the focus of the post, interestingly enough, the one, single, most accurate predictor of success in the digital transformation process, is the broadness of the strategy. The bigger your digital dream, the more likely to happen.
Metaphorically the wider your organizational lenses, the better the chances of success. In other words, the ones who focus on a digital channel, rather than a digital ecosystem, are more likely to fail in a digital transformation process. With the broader lenses, also come more strategic choices, which are less constrained by the status quo. The organization executes in a more agile fashion the transformation process, which enables the organization to adapt and re-act faster and more efficiently. With the narrower focus, pre-existing structure, political agendas, fear and – ultimately – inertia prevail. The organizational lethargy wins, by blocking the transformation. This is what happens when you over-think you past successes: for example, when you assume as leader in the film production that nobody is going to buy digital cameras, because there are millions of films development stores around the world. Or when you assume that nobody is going to stream movies on-line, because you are the leader of DVD rental in the world, and you know there are a billion DVD players out-there.
The second most important dimension in delivering a successful transformation process, is the customer-centricity of the transformation itself. The firms keeping an eye on their customers, and developing an ecosystem on the basis of customers’ relevant needs, have more chances of success. While this seems intuitive, at executional level, it is not. It is – often times – the center of a conflict between the organization’s current assets and income streams, and future assets and income streams, which are riskier because not likely yet. For example Caterpillar has developed a big data strategy for their heavy machines, with deep learning algorithms, that optimize the maintenance and develop predictive maintenance plans to reduce total cost of ownership and downtime: great for Caterpillar’s customers, not so great for the P&L of Caterpillar, which has an important revenue stream from extraordinary maintenance and last minute delivery of spare-parts.
A digital transformation process is more likely to be successful when the strategy is set in terms of digital ecosystems rather then digital channels. Moreover a putting the customer at the center of the process, ensures relevance and long term success.