It Ain’t Easy to Define Digital Transformation
In developing the concepts around business transformation at the MSSBTI, we found four areas we wanted to define. They are:
- Strategic Transformation – essentially changing what you do today
- Operational Transformation – changing how you do what you do
- Organizational Transformation – changing the structure and relationships among people in your organization, and
- Digital Transformation – changing the application of technology to your business
The last one, Digital Transformation is, in our opinion, the most difficult to define. In trying to do so, we ran across many ideas of what this actually meant. For some, it was essentially moving from manual to automated processes or digitizing the information the company utilizes to do its business. One article from a person I respect in other areas used this definition to even discount the actual existence of digital transformation stating that it is simply a continuance of automation that has been occurring since the industrial revolution. To me, this is like saying the space ships that will eventually lead us to Mars are just an extension of the steam engine. Still, the fact remains that there does not seem to be a prevailing definition of digital transformation; yet, we hear about it everywhere.
The concept of digital transformation seems to be something that people understand intuitively, like the Easter Bunny. It is ambiguous and explained slightly differently depending on who you ask. Is it a small, soft bunny? Is it the size of a dog with enough intellect to hide eggs from humans? Or, is it a 6’3” tall scary man in a worn, furry costume? Brrrr…
In defining digital transformation, we can start by deciding what it is not. It is not simply the application of technology to existing processes. The idea of transformation negates this definition. Transformation by its nature implies a change that fundamentally alters how and organization does its business. Simply applying technology may make an organization more efficient by optimizing existing processes is not a transformation of the business. Just as the application of machines changed industries from customized crafts into mass production, to be digital transformation, the business needs to make an evolutionary leap.
With this mindset, we can now start to see that our four areas of transformation are not mutually exclusive. Any transformational activity will involve several, if not all, of them. Digital transformation requires at least change in operational processes and perhaps a change in business functions, the operating model, or even the organizational structure.
What we should not assume, though, is that the application of technology is what leads to transformation. Many folks on the technology side will have this point of view. By simply applying a technology, we create something new. Sorry, no.
A few weeks ago, I attended a university fair where tech students displayed their capstone projects. One team was looking to better the delivery of packages to the student body by using drones to deliver on campus. When asked if they had investigated whether this was the best solution or simply the “coolest,” they had to admit that they were driven by the opportunity to apply the technology and had not looked at other ways of improving the business. This a challenge I have seen from many CTO’s in the real world. I specifically remember a time when I was working at a Fortune 50 company. They were dumping about $14 million per year into a technology that would free them up from an expensive supply chain partner. The CTO had built an entire facility to pursue the technology and after four years had failed to produce an applicable solution. In the end, the answer was found, but it came from a new CFO who recognized that by simply changing the nature of the supplier payments, the goal could be reached. There was some investment but the result was achieved in 6 months for less than $1 million. The supply chain was altered forever, and the company’s margins increased significantly. The moral is that the application of the technology has to be business driven and has to be the right solution to be transformative.
Another point in our thought process is that the application of the technology has to enable the organization to be innovative in ways that it otherwise could not be. Technologies that simply augment or enhance a company’s processes do not necessarily create new opportunities. One simple example is the digital transformation of media content over the last twenty years. There was a time when, if you wanted to see a specific movie, you had to go to a theater or wait for it to be broadcast on television. Then video tape was introduced. Tape enabled companies to distribute their content to stores and households and transformed the industry. Now people could watch a movie at home when they wished. By comparison, the move from tape to CD/DVD was simply an enhancement of this process. Sure, the content was now “digitized” making production more efficient, but it was still distributed by similar means and changed the industry in only minor ways. Not until the ability to perform bit-reduced encoding and stream or download content was the industry transformed again. Streaming and downloading has enabled people to watch content whenever they wish, reduced the cost of distribution of content, enabled distributors to personalize the experience and record consumption habits, and finally, enabled an exponential expansion of competition from amateurs on YouTube to the development of high-quality full television seasons that are released at one time. This has played out in a similar way in the music industry but only more so with stations that suggest what customer may like based on their input and behaviors. Add to this the coming of Blockchain, and we may be on the verge a new disruption as artists will now be even more confident distributing their own content directly to the market.
The availability of information on a mass scale, the ability to utilize and apply that information, and the ability to personalize products and services are key elements in what constitutes digital transformation. Companies are able to innovate and deliver things that they never would of have considered before due to limitations in information or the application of that information. How this impacts the strategy, business model, organizational structure of the company is what makes it transformational.
So, if we look at our definition now, we can note several key concepts:
- Digital transformation is more than enhancing current processes and capabilities of a company
- Digital transformation impacts some or all of the business model, the operations, and the organizational structure of a company
- Digital transformation is driven by a business purpose and is not just an application of technology for technology sake, and
- Digital transformation enables organizations to innovate in ways that they never could before because of the availability of information and the ability to utilize and apply that information in new ways.
Perhaps you disagree, and we suspect many people will, but we invite you into the conversation. As we are entering a new stage where companies will be applying technology in new, transformative ways like the Internet of Things, Blockchain, Artificial Intelligence and so on, we feel that by debating the definition of digital transformation at least we will have leaders thinking about what this means for the future of business and considering how it will impact them in the very near term.