By Adrian McGrath, Digital Strategist and Digital Business Lead
23rd November 2020
What is Digital Transformation?
A simple search on Google for the definition of the term “Digital Transformation” will yield thousands of results. However, for the most part, they are all roughly getting across the same message, just from different perspectives.
As a “mash-up” between the different definitions I’ve read, coupled with my own perspective from having implemented many Digital Transformation projects, my interpretation is that Digital Transformation is:
The application and integration of digital technology in new and innovative ways across a business to meet ever-changing business and market needs at speed and scale, driving fundamental change in how the business operates and delivers value.
Digital transformation goes beyond introducing a set of new technologies and simply injecting some “digital” into an existing operating model as that is likely to only provide benefits to a specific, targeted area.
The Transformation element is key. Transformation signifies change, thinking differently and adapting the business model and corresponding operating model to enable smarter decision making, drive productivity gains, facilitate new revenue models and deliver a step change in customer experience.
Digital Transformation can be complex, with many “moving parts” to coordinate, and with multiple phases along the journey. However, too often, the critical role of leadership is not taken seriously enough. Technology tends to take centre stage but the role of digital technology is simply one of an enabler. In order to succeed, this transformational change needs strong leadership to clearly promote a shared vison for the new business model, stand behind it, remove barriers and siloes, and motivate and energise people to work in collaboration. Employing a leader with a title prefixed by “Digital” won’t be enough; the digital agenda needs to permeate from the top down.
Digital Transformation is the beginning
The Transformation element can also give the impression that it is a transactional event, implying that there is an end once the Digital Transformation is complete. “Well done, you’ve been digitally transformed, here is your Cert to hang on the wall, job done”.
However, once the foundation Digital Transformation has been successfully completed, the focus then needs to build on this and become a Digital Business:
Embracing a new way of thinking to become a permanently adaptive organisation, which continually innovates, invents and adapts in response to change.
The foundation Digital Transformation is version 1.0. In reality, once complete, the Digital Transformation will open up so many new opportunities, with new channels and enriched data that this will naturally drive the business to continually evolve anyway. In terms of board investment, the greatest return in investment is typically realised after the business takes advantage of the new opportunities that arise as it continually evolves, rather than in the immediate aftermath of the Digital Transformation.
This doesn’t mean your business needs to be a digital disruptor!
There are lots of well known, and well documented, companies that have successfully digitally disrupted the marketplaces they’ve entered, such as shown in the image below. Phil Darby has written a great article on the “domino disruption” effect whereby the majority of disrupters emerge from adjacent sectors, whereby a business’ traditional competitors are often not their primary threat. Uber Eats, reference in image below, is probably a good example of this.
However, to become a successful Digital Business, it is not necessary to target the transformation from the outset to radically disrupt the marketplace. In the grand scheme of things, only a small percentage of companies achieve this, and the majority are loss making for years (with some never making a profit). Instead focus on what is important for your business, taking existing and emerging competition into account, and what needs to be done to enable the business to deliver on its strategic vision. In the course of doing this and evolving the business, disruptive opportunities may present themselves.
But you’ve got to be able to move fast
It is absolutely critical that the Digital Transformation establishes an architecture and operating foundation that enables the business to pivot, adapt and quickly introduce new features/products and services, underpinned by a workforce that is energised up to rapidly innovate. The title of a book by Jason Jennings summarises this quite nicely – “It’s Not the Big That Eat the Small…It’s the Fast That Eat the Slow”.
This isn’t a “David and Goliath” analogy, with the smaller start-ups biting away at the larger, established companies. It is about being fast, no matter the size of the organisation. Clearly bigger organisations that are geared up for innovation and change, and move at speed can be a formidable force.
Apple’s new Apple Watch Series 6 is probably a good example. It comes with a whole range of new features around health (measuring blood oxygen levels and heart) and fitness (competing directly with Fitbit and Peloton … and indeed traditional gyms) that will especially resonate with a lot of people during Covid-19 times.
Learn from Start-ups
Unlike most Start-ups, established businesses have a significant amount of change (and baggage) to deal with, and therefore face many obstacles across people, process and technology when it comes to executing a Digital Transformation. In some ways it is analogous to how people age, as illustrated in the figure below.
Start-ups usually as see gap in the market that others haven’t seen, or have seen but are ignoring, or taking too long to react to. They then move fast to capitalise on the opportunity, all too often leaving larger established businesses scratching their heads and wondering how that just happened.
I believe there is a lot of merit for larger businesses to study start-up operations, perhaps remind themselves on what they had to do to successfully get their original business started and running, reflect on the approach and techniques that Start-ups use, learn from them and identity which aspects could be applied to improve their business. The application of this learning will take time, however, from my experience there are too many excuses and obstacles that larger companies cite to rationalise why it isn’t practical and/or to delay progress, that just don’t stack up any more. As mentioned earlier in this post, leadership is critical to driving this change.
I’ve summarised below that typical barriers that I often come across with larger companies that inhibit change. Whilst a great deal of them are perfectly legitimate, they can be addressed and resolved. As a comparison, I’ve then summarised the alternative approach that most Start-ups take.
What excuses / obstacles do established companies often make for not adapting / evolving?
People & Culture
- Culture is more focused on Business-As-Usual activities over improvement (it is what it is, we just need to put up with it)
- We’re doing okay, no need to get radical, just focus on what we know best, don’t rock the boat
- More adverse to risk
- Denial – it will never happen
Organisation & Process
- We’re too big and complicated, too many moving parts, too hard to change, too much red tape
- Hierarchy inhibits speed of change
- Too much focus on cost reduction over top line growth
- Working at Project speed rather than Customer speed
- Lots of baggage, systems heavily customised and duplicated, embedded in how we work, too expensive to change
- Focus is more on managing and controlling complex estate over realigning estate for future growth
- Software development methods don’t allow for sufficient business agility and flexibility
How do start-ups approach things differently, what advantages have they got?
People & Culture
- Foster a winning culture of innovation, energy and pace
- No fear and willingness to take measured risk
- Bring in like-minded people, passionate about disruption
- Prepared to sacrifice, invested interest to succeed
Organisation & Process
- Laser-focus to pursue goals
- Full speed ahead, persistent, quick decisions
- Set up to be agile and flexible
- Sponge-like nature, eliciting customer feedback and pivoting quickly as necessary
- Less rigid structure/hierarchy, fluidity in responsibilities
- Constant communication
- Cloud and mobile first
- Greenfield, designed for maximum flexibility and change
- Ability to fail fast and lead the market with continuous innovation
- Software development methods set up for maximum productivity and agility
Back in 2016, the World Economic Forum predicted that “Creativity” would be seen as a top three skill to have by 2020, up from 10th place in 2015. The rationale given was “With the avalanche of new products, new technologies and new ways of working, workers are going to have to become more creative in order to benefit from these changes”.
Larger businesses cannot afford to ignore the speed at which many of their competitors (with those competitors often emerging from different sectors) are now moving.
It is time to press ahead with Digital Transformation, creatively learning from and applying the techniques from Start-ups, and transition into a Digital Business. For larger businesses, this should be addressed within a 3-5 year strategic plan (depending on the starting point), phased to allow value to be released throughout the programme, potentially self/partially funding other phases. With the resources, money, networks/supply chain and experience behind them, larger businesses that successfully execute on this will be a formidable force.