Digital Transformation (DX) - What it is/What it isn't
Article 1: You can't do DX alone. Don't even try.
Digital Transformation is one of the most over-used phrases in business today. That said, it’s also one of the most important and most mis-understood.
Digital Transformation is about leveraging technology in ways to differentiate your business in a landscape where commoditization happens at lightning speed. Companies relying on historical success to drive future performance or solely digitizing existing processes and offerings will find themselves out of business. The winners will be the companies that continually reinvent how they solve customers’ problems.
This newsletter is a guide to successful collaboration within an organization to build digital transformation capabilities—and the obstacles you’ll face in getting there. It is targeted at business leaders who are not as technically savvy as they think they should or could be. And at technical leaders who don’t feel they are collaborating effectively with their business counterparts. It helps to dispel the confusion around what skills and knowledge are actually important for individuals to have in order to drive successful digital transformation. It helps to bridge the divide between the two organizations that are both critical to include.
Building strength in Digital Transformation doesn’t just happen. An organization needs to be committed to doing the hard work, but once you make that commitment, the result will be ongoing competitive differentiation. If you’re ready to make that commitment, then this newsletter will help you figure out what you need to do, and not do, to get there. Think of this like getting a map and training for the obstacle course, making you like a Navy Seal of Digital Transformation.
Before we run the obstacle course, though, we need to make sure we’re clear on two fundamentals:
1. What is Digital Transformation and why is it important?
2. What do you need to successfully Digitally Transform?
What is Digital Transformation And Why is it Important?
Let’s start out by explaining what digital transformation is not. It is not digitization. These terms are often used interchangeably, and while they are complimentary, they are definitely not the same thing.
Digitization is using technology to as effectively as possible optimize your processes.
Digital Transformation is examining your goals/your customers’ goals and finding technology-based ways to do your business more effectively even if it changes how you do your business
Digital Transformation is about reinvention, digitization is about incremental improvement. These are both incredibly important, and while in this newsletter, we’re focusing on reinvention, keep in mind that while you transform your business, it’s great to look continually for ways to digitize.
Digital Transformation is what will keep you in business. There are too many potential competitors out there. Whether your future competitors are your existing competitors, start-ups or existing companies expanding to a new market doesn’t matter. If you don’t figure out how to use technology to find new ways to solve your customers’ problems, someone else will.
Note that as we discuss this, we are not talking about technical innovation. Digital transformation is not about building cool technology. It is about solving problems by leveraging technology. If your goal is to use specific leading-edge technologies, you may be happier reading a newsletter on innovation.
What Do You Need to Successfully Digitally Transform?
There are three principal components to a successful digital transformation strategy:
Commitment to ongoing transformation
Engagement of all constituents
Clarity on business differentiation
If these seem like no-brainers, then you’re lucky because you’re already headed in the right direction! That said, most organizations who say they want to do digital transformation are missing one or more of these.
Commitment to ongoing transformation
Without committing to the goal to actually transform, you will fail. Transformation is not comfortable and so doesn’t just ‘happen’. There are many companies that say they want to innovate and evolve, but their culture, their organization, their strategy and/or their processes do not support it. One of the biggest mistakes that companies make is in thinking that digital transformation is a side project owned by IT and run separately from the business. To be successful, you as a leader in your company (or at least your organization), must commit to working together to make the change happen.
Engagement of all constituents
The commitment to transformation needs to be supported by making the right resources responsible for the overall digital transformation strategy (this doesn’t necessarily mean an enormous investment, the right resources are more important than a lot of resources). The overall organization needs to be willing to adapt the company’s strategy and processes as the digital transformation efforts progress.
Now the ‘right resources’ is an interesting topic because usually, people hear the ‘digital’ and stop listening, immediately handing the responsibility over to the CIO/IT. But digital transformation is not about scattering the latest microprocessors around like rose petals. It’s about figuring out the transformation that your business needs and using all available tools, including some that might be older than you are, to make that change most effective.
Some of the most effective digital transformations that we’ve seen have been driven by ideas from a Board of Directors or the C-suite. This is not the old-school, bottoms up digitization where a few crack guys from IT install a new router or put up the first website and suddenly business is better—this is about the people who understand the drivers of the business taking advantage of the rapid pace of innovation to push their business forward by collaborating with their IT peers. This is a partnership to identify business transformation opportunities which can position your enterprise for market leadership. Of course, your CIO/IT leader needs to be on the team, but so do some of your best business leaders.
Clarity on business differentiation
This is going to sound completely obvious, but ironically is potentially the most common mistake that companies make: you need to understand what value you offer to your clients. The complexity is in a large part because this is not the same as understanding what your offerings are. Imagine that you are visiting New York City in August for some client meetings. You have just finished an indulgent lunch as part of your wining and dining. You have another meeting in one hour that is a five-minute walk away. Your hotel is about forty-five minutes away. Instead of standing outside in the 90+ degree heat/100% humidity and arriving at your meeting looking like you just ran a marathon, you go into a coffee shop.
It may seem like the value of a coffee shop is going to be coffee. It’s right there in the name: ‘coffee’ shop. They sell coffee. But the value of this coffee shop to you is its location. Even if they had the best coffee and pastries in the world, you are so full you couldn’t enjoy them. You buy a coffee, but not for the quality of the coffee. You buy a coffee for the right to a seat and air conditioning. You might be an outlier, but you might not be. This particular coffee shop is going to be more profitable if they figure out whether their clients are coming for: great coffee, convenient location, delicious pastries, wi-fi, availability of bathrooms and/or air conditioning, etc. Guessing incorrectly can put them out of business. If most their customers are like you, but they think their value is coffee, they’ll over-invest in expensive coffee beans and high-end espresso machines when they could get by with hot water and brown food dye. The secret to success in today’s crowded markets is to figure out where you provide value/differentiation and treat everything else in your business like a commodity. If it doesn’t provide differentiated value to your customers, you can’t afford to invest above commodity rates in it.
Digital transformation done well allows your company to reinvent itself to remain attractive to your customers. It’s what allows you to compete in the market, whether with existing competitors who are becoming more aggressive or new entrants (start-ups or enterprises from other industries). Digital Transformation is about enabling business transformation with technology. It’s about continually enhancing the value of what you offer, by taking advantage of innovations that others are making. It is for this reason that most successful Digital Transformation projects are not started as IT projects; they are business-led, customer-focused projects which require significant IT enablement.
This Sounds Great, But It Also Sounds Really Hard
Digital transformation isn’t easy, but it’s worth it. Without it, you will go out of business. But this doesn’t mean that you should rush out and hire a consulting firm to give you a Digital Transformation Strategy because unfortunately (or fortunately?) this isn’t something that you need to do once. This is a change that you need to make to your organization’s culture. If you want to work with a (good) consulting firm your first time, that can be helpful since they’ve done Digital Transformation before, but it isn’t necessary. If you have one business leader and one technical leader who commit to working together to introduce a Digital Transformation culture and follow the guidance of this newsletter, you can make it happen.
Each digital transformation effort is different (that’s a big part of what makes people like me digital transformation junkies), but the digital transformation process is remarkably predictable. And even more predictable are the obstacles that most folks run into. I will introduce the different priorities and activities and highlighting many the obstacles that you will face. Because the more that you understand what obstacles you’re going to face, the easier it is to face them.