Digital transformation is not just another technology transformation

Many digital transformation programmes are bound to fail. One reason for this is that programmes often focus solely on technology, while the reality should be far more nuanced, with strategy, changes in supply and demand, and leadership all playing key roles.

Changes in technology and customer behaviour have introduced significant uncertainty for businesses, which many are trying to navigate by way of transformation programmes.

A fresh approach

While traditional transformation programmes tend to span several years and have rigid goals, digital transformations require a fresh approach. They should not have a clear end point, but rather take an organisation to a state where it can continually change and respond to market changes.

One way to achieve that is by carrying out a systemic review of the four areas below:

1. Technology: What new technology is there – and what use could it be to the organisation?

Technology is changing at a speed that is almost beyond belief. Cloud computing, artificial intelligence and mobile computing are becoming the norm; many of us have an ‘Alexa’ in our homes; and virtual and augmented reality will soon start radically impacting our lives. The inter-connection of devices and growth of data are also creating new ways of working and serving customers that are dominating executives’ agendas as they look for ways to adopt and leverage these technologies.

2. People: How are people’s interactions with companies and each other becoming more complex, and how does this affect the brand and value proposition?

It’s not just technology that is changing. People are evolving too as technology drives rapid changes in the way that customers and employees engage with companies and each other. Changing behaviour is also taking control away from businesses. For example, a company may be the subject of countless conversations on social media, without being aware or able to respond quickly.

3. Supply and demand: What changes are there in supply and demand – and what opportunities do they bring?

Consumer demands are changing, with customers increasingly asking for products and services to be more tailored and transparent. Technology can help organisations to respond to this, enabling them to better predict and customise their products and services. New distribution models and platforms are also disaggregating the old value chains, providing new opportunities for new entrants to provide innovative alternatives and new propositions and exerting pressure on margins.

4. Action: What actions should an organisation take to respond to these changes and opportunities?

Organisations must identify what level of change they need to implement. Some may find that they do not need a digital transformation programme at all – perhaps a more straightforward initiative such as optimising their current IT systems and leveraging some of the new technologies, such as Robotic Process Automation (RPA), will bring them the results they need. Some may focus on tailoring their value proposition or introducing new products and services just to remain competitive. Others will realise that they need a dramatic digital transformation if they are to stay competitive and relevant to their customers now and in the future.

Shifting focus on strategy, leadership and execution

As well as reviewing the four areas set out above, digital transformation requires renewed focus and a shift in perspectives on strategy, leadership and execution.

Strategy

Traditional forms of strategic planning do not suit digital transformations. A scenario-based approach is necessary to help organisations focus on what they can control and what they need to respond to using a ‘test and learn’ approach. An organisation’s strategy also needs to be refreshed frequently to respond to rapid developments in technology, people, and supply and demand.

Leadership

A company could have the best technology and strategy in the world, but they would be worthless if its people were not engaged with the process – which is where effective leadership comes in. While the role of leadership has always been critical, for digital transformation it is even more so. This is because of ongoing uncertainty and the increase in complex problems (i.e. those for which cause and effect are not clear) that companies are dealing with. To tackle complex problems, leaders – rather than external experts – need to adopt a test and learn approach and encourage a culture of safe failures that enhance their organisation’s learning capabilities.

Execution

Goals for digital transformation programmes should be both specific financial targets and strategic goals, such as developing new capabilities and an enduring culture. An execution plan needs to account for both of these. While many organisations have adopted the motto of ‘fail fast and safe, and capture the learning’, an execution model must assess which problems are complex – and therefore which need a test and learn approach. To tackle complicated problems (i.e. those for which cause and effect are clear), using external experts remains the better solution. Finally, as the goals of transformation programmes can change, organisations need to adapt accordingly, even if that means cancelling or significantly changing the scope of some projects.

Resources:

• The Digital Transformation Playbook: Rethink Your Business for the Digital Age; David L. Rogers, 2017
• Machine, Platform, Crowd: Harnessing the Digital Revolution; Andrew McAfee and Erik Brynjolfsson, 2017
• The Big Shift in Strategy - Parts 1 & 2; John Hagel, Edge Perspectives, 2014
• Immunity to Change: How to Overcome It and Unlock the Potential in Yourself and Your Organization (Leadership for the Common Good); Robert Kegan and Lisa Laskow Lahey, 2009
• A leader’s framework for decision making; David J. Snowden and Mary E. Boone, HBR, November 2007