How does 'digital' transform?
What is “digital transformation”?
Some believe that it is simply a matter of using digital technologies to sell and service clients more effectively, more efficiently, and in a more customized way.
There are also other interpretation of what digital transformation is:
- A new application of digital marketing initiatives;
- A matter of using technology to drive business process innovation;
- Nothing less than to be the Uber of taxi or the Airbnb of hoteling;
- and more.
The real problem is not so much a definition of what digital transformation is, but what should be the strategy in front of this challenge/opportunity and how do we align an organization behind the digital transformation vision?
Definition impacts strategy and the level of its conversation, so it matters. What often executives do not know is how to bring about the changes that will help their organizations to be profitable, sustainable and competitive in an era of disruptive change.
The reality is that most companies are reluctant to disrupt their own industries. Their concern is often because they fear cannibalizing their customer base or eroding their own margins. Hence, many executives prefer to make minor changes to their business with digital technologies rather than to innovate their business models in a fundamental manner. Many scholars like Clayton Christensen suggest that a new business, outside of the current business, is often the best way to have the better of two worlds. It means an organization can become more consumer centric by using data and technology well in its current business, whilst at the same time experimenting with more disruptive solutions enabled by technology.
Executives should start by discussing their business’s Four C’s: context, customers, challenges, and costs, competitors so that they can have a clear view of how digital solution, technologies, and customer behavior can affect their organizations in the years to come. This exercise is about clarifying language so the organizations can build a digital strategy based on a shared understanding of their challenges and desired outcomes.
In order to analyze the digital transformation, it might be interesting to refer to a sentence of Ruyard Kipling in his book: The Little Elephant. This classification is based on the so-called Five Ws, and one H. According to Kipling, a problem to be considered complete must answer these questions starting with an interrogative word. In the case of digital transformation, this would mean to answer to these questions:
- Why digital transform the organization?
- For Whom to do it?
- What is the product it should aim to provide?
- Where can it take place?
- When can it take place?
Some authors have added a sixth question to the list of Kipling: “how”.
- How a digital transformation can be implemented?
The broad questions executives should be asking are then:
- Why. The reason to do a digital transformation is to improve the business from an effectiveness, efficiency, and economic point of view. The real nature of the digital transformation for an established industry is not always obvious. Think, for example about Uber, which may have a dramatic impact beyond the taxi industry in the years to come. By making personal transport an affordable service commodity, it could eat away at the edges of the car and auto insurance industries.
- What are the best companies across the spectrum of digital enablement? What can the executives can learn from them about the future of the industry and the business? Organizations must understand how customers behave rather than simply looking at direct competitors. Remaining relevant is not simply a matter of creating an app or smartening up their website. It is essential to find ways to use customer data to create more meaningful and relevant customer experiences at every contact, physical or virtual.
- Who: Digital transformation require a change how institutions understand and engage with customers with the aid of digital tools and channels. This is an imperative and no longer up for debate. Unless this is done, nothing else is possible. This is an approach that has the advantage of being realistic and manageable to implement.
- Where should the organization change to defend and extend market share, grow profits and ensure relevance as digital technology evolves in the years to come?
- When should the organization invest in financial technologies? The simple answer “always” is in contrast with the realities of the possibilities of any financial institutions. By looking closely at competitors and the technology landscape, executives needs to intercept low signals on how emerging technologies and disruptive rivals could attack their market shares. They need to create, deploy and manage the strategies necessary to protect their market share and possibly identify ways to expand into new service/market domains using the digital transformation.
- How exactly is digital technology changing the way the organization’s customers behave and the way that existing, emerging and potential competitors do business?
The next step is how to implement the new strategy. The answer is not the same for every business. Some businesses will have visionary leadership, agile processes, innovative cultures, open workforces with digital skills, and modern technology platforms, so they are be able to embrace digital transformation more wholeheartedly.
In dealing with this digital innovation, it is important to refer to a model of innovation. Digital innovation should be approached in a holistic way. To approach this challenge, it is possible to refer to the combination of the Chandler model of connecting Strategy and Structure and the Leavitt diamond Model, by considering the four connected variables:
- Structure (organization);
Other organizations may be encumbered by conservative leadership, legacy technology, regulation, siloed processes, and non-receptive workforces. They will need to look at their assets – data, customers, resources and channels – and find ways to put them to work in a digital world. In some cases, they might need to launch new products, accept new business models or innovation groups to fast-track their digital programs.
On the other side, for the digital transformation, it is important to look at the 3 Ps:
- Products: The definition of services to be offered to the customers of the organization is really essentially;
- Processes: Processes are closely connected with the introduction of new products. The two goes together in an innovation.
- People: Last but not least, the innovation must be deployed and delivered by people. To them, the executives should devote a very strong consideration and help individuate and foster the talents.
So ultimately, underpinning the organization’s ability to perform a digital transformation lies in its ability to define a vision, define a plan, organize and make it real.