What is digital transformation?

digital-transformation-caterpilllarTwo caterpillars bump into each other whilst scaling the underside of a cabbage. They go back a while, so they both comment on how each other has changed, before getting back to business. A month or so later they meet again. This time they have landed on the same flower. And this time they remark on how they have transformed since they last met.

This might help us to understand why we call it digital transformation and not just digital change. And it helps us to recognise how today most organisations in their attempt to prepare for a post-industrial world are doing little more than digital change. Some refer to this half-hearted approach as ‘doing digital’. I sometimes use the term ‘industrial digital’ because such an approach is merely tinkering with the industrial era model around the edges, an app here, a bit of automation there.

Clearly business leaders are understandably loath to dismantle the existing cash machine with a view to building a new business, where cost and risk are the only guarantees of such an endeavour. The good news, as you will read further on, is that they don’t have to.

So, what is digital transformation? The digital aspect of the term is perhaps a misnomer. It conjures up images of digital technology. But that doesn’t really cover it. Digital is really a reference to the digital age, or the post-industrial era. An era where innovation, chaos, data and ecosystems rule.

It might help to dig a little deeper in respect of where transformation will be required:

People: The employer-employee power axis is changing. The talent is increasingly in the driving seat. The shift from cog worker to cognitive athlete is well underway (This might be a moment to pause for reflection, if this doesn’t resonate with you). In any case, this has significant implications in respect of talent management, leadership styles and workplace branding. My Biz 4.0 model puts people at the centre of digital.

Process: The various process management disciplines will need to evolve from what today is largely process refinement of the factory model. Processes that are adaptable and data-sensitive are required to both sidestep threats and capitalise on new opportunities; both of which are currently, and invisibly, accelerating, and not just speeding, towards your organisation.

Technology: New ‘new technologies’ are increasingly becoming the enablers of new business models. The industrial era idea of regarding new technologies as a matter solely for the IT department is the strategic equivalent of tying both your shoelaces together in preparation for a track race.

Data: Traditionally data is the stuff that is retained by the ‘systems of record’ of industrial era business models. Today it is the fuel that fires up ‘systems of disruption. Failure to make this transition is akin to adding a blindfold to your pre-race ‘hacks’.

Ecosystem: Back in the day, you decided where you sat in the supply chain and built your business with a variety of client and supplier interfaces. You might even have taken ownership of players either side of you on the chain to increase your market power. Today there is a move towards an ecosystem model, whereby a platform enables a variety of partners to play a role in serving the customers. The trick is to own the platform, but at the very least you need to establish which ecosystem bets you are willing to make.

The good news is that you do not need to abandon your current business model. Unless of course it is on fire. It would be unwise to dismantle something that is generating cash, and which might have years of cashflow ahead. But in an age where the Fortune 500 represents more a hotel (a temporary residence) than a home (your permanent residence), you would be wise not to be reliant solely on ‘Plan A’.

I am advocating that your transformation is not so much a morphing of your existing model, but the creation of a portfolio of business models, which includes your Plan A. In a perfect world, each new business model would represent each of your organisation’s potential destinies. In this respect, it would be like a portfolio of bets, where you have in fact placed a bet on each horse. This may not be practical, but it is what we should be striving towards. The business of being in business in the digital age is being in the business of creating and evolving new business models. Much of the associated activity will end in failure. Welcome to innovation.

In general, I would:

  • Constantly be looking at the intersection between new technologies, data and issues facing your market.
  • Build your business with people at the centre. Keeping the anthropological needs of your people and your customers in mind is critical to success in the digital age.
  • Harness new technologies such as AI to optimise the cognitive capacity of your talent.
  • Consider how you can hyperscale your business model so that you can trade margin for volume. Technology offers the opportunity to do much more with less. Your customers know that, as do your competitors.
  • Be bold. For many of us our education and upbringing have made us fearful of failure. It is within the ore of failure that we extract value.

So, if I had to sum up on ‘what is digital transformation?’, I would say that it is an exercise where an organisation remodels itself to secure its ongoing economic relevance in the digital age. Unlike the caterpillars, you do not have the option of shutting down shop and engineering your transformation in the privacy of your own chrysalis. But unlike this transformative insect, you can run the old and new versions of your organisation in parallel. In the grand scheme of things, butterflies do not last very long, so expect digital transformation to be less of a metamorphic event, and more of a business habit. The nectar awaits you.