Making Sense of Digital Transformation

Introducing the basics of digital transformation, and setting the course for the transformation journey. 

Born during or after the 1980s? Most likely, then, you are digitally capable, or even a ‘digital native’, someone born into a digital world and for whom the Information Age and its Internet-of-Things is a birth-right.   

Still, you may nevertheless be amazed at the pace of technological change. About a decade ago business and technology analysts started calling the escalating scale of change – specifically reference to technologies used in the world of work – a ‘digital transformation’. 

 The phrase can intimidate. What does it actually mean? 

Today, it’s nearly impossible to read a business consultancy blog or talent-focused article – yes, this is another! – which doesn’t refer to digital transformation. The auspicious World Economic Forum focuses strongly on the issue, with reports on over thirty related topics and themes on its website.   

However, when a phrase becomes a buzzword littering the lexicon, it can lose context and its original meaning. What is the correct understanding, why it is important, and how can organisations embark on the transformation? 

Digitisation is the conversion of images, text or sound into a form that can be understood and processed by a computer. It has been under way since the very first computers were invented; although it’s generally accepted that Ada Lovelace wrote the first “computing program” in 1848, what classifies as the first actual computing machine is hazy. Computers as we know them today have roots in the 19th century but were fast-tracked for practical uses during World War 2.  

Transformation is a significant change in form, nature or character. Putting ‘digital’ and ‘transformation’ together conveys the enormous change the world  has undergone – and is still undergoing – attributable to the advent and rise of computers. A tipping point occurred some 30 years ago when the World Wide Web, or the internet, took root, creating an ecosystem with vast connectivity. The economic benefits of the technology revolution were now scalable, and the transformation really started. (This is also understood as the inflection point for the Fourth Industrial Revolution, or Industry 4.0.)   

 How does digital transformation benefit an organisation?  

Digital technologies, on their own, are now rarely a game changer. But, blended with other ingredients, they can catalyse massive productivity boosts and competitive advantages. 

Digital maturity can deliver a surprising breadth and degree of performance improvements. Across five measures – revenue growth, net margin gains, product or service quality, employee engagement and customer satisfaction – digital raises the bar. Astonishingly, digitally mature companies are three times more likely to achieve higher revenue growth and net profit margins than low-maturity companies.1  

The studies from which these kinds of numbers originate may have, as yet, a relatively small data pool for comparisons. There may also be confirmation bias in the analyses. But the broader point is that digital technologies have unlocked enormous value creation. Businesses have only started to deliver on the potential of Industry 4.0 – projected to generate $3.7tn value uplift in the manufacturing sector alone by 2025 2 – but emerging Industry 5.0 Revolution signals were already identified 4-5 years ago! 

 Where do people fit in?  

Actually, digital transformation is, first and foremost, about people. Says George Westerman, Massachusetts Institute of Technology researcher and author of Leading Digital: Turning Technology into Business Transformation, “When it comes to digital transformation, digital is not the answer. Transformation is.” 

The right technologies are, of course, vital. But to pin down what digital transformation is not, consider practical illustrations of Westerman’s point. Upgrading the e-commerce platform, or upweighting marketing spending in digital and social channels, is neither here nor there. Hiring an expensive team of computer programmers doesn’t cut it. Nor does transferring all the company’s records into cloud-based digital storage. Even investing millions into new IT infrastructure may achieve nothing.    

These are examples of capitalising on available technologies. But they aren’t, on their own, transformative. Companies well down the road to digital transformation are characterised by other crucial, talent-focused attributes: 

  • There have an engaged, motivated and digitally capable workforce, attuned to a performance culture. 
  • Soft skills are also prevalent. Digital acumen is accompanied by critical thinking, communication, and team-building skills. A sense of empathy, and conflict management abilities, are also recognised as especially valuable leadership qualities in times of transformation.   
  • People are paramount, too, because transformations are led. The C-Suite should set the agenda, and the tone of change. Culture can make or break a transformation, and a rejuvenated, growth mindset starts with leaders – as people – leading by example.     

 Can case studies to infer key learnings? 

American-headquartered global industrial conglomerate General Electric launched GE Digital in 2016, positioning it as a Centre of Excellence within the GE group. As a separate unit, GE Digital was mandated to deliver the digital skills and strategy requirements across GE’s multiple businesses. But within five years GE Digital had been disbanded, folded into the Energy and Power entities in the company’s re-revised structure. The consensus is that GE Digital failed mainly because it was too ambitious, it wasn’t underpinned by a clear idea of what digital transformation meant for the Group, and there wasn’t an effective change-management plan.   

Focus is key, seems to be lesson from GE. Starting small, but with a clear agenda, is part of the recipe for success, especially in large organisations. 

A reminder, however: transformation is about new shapes and frontiers. Big ideas do not have to come from the top, but leaders should be in a position to identify concepts with enormous potential, back them with resources – including digital tools – and lead the way. This is about a vision, which is often confused with the digital strategy implementing the vision.   

The transformative idea behind M-Pesa, a mobile phone-based money transfer and microlending service started in Kenya in 2007, was rooted in community upliftment. Certainly, Kenyan mobile network operator Safaricom saw commercial opportunity in the gap which the conventional banking industry wasn’t meeting: Kenya’s enormous unbanked population. These people needed financial services, and mobile technology was the digital platform to provide them.  

M-Pesa has since expanded to seven countries in Africa, with over $300bn in annual transactions. Is the model’s success an example of digital transformation, or is it attributable to someone at Safaricom in Kenya asking, “How can we help half the country get access to basic banking services?” 

The learning is that digital transformation is about reimagining the existing business model for 21st-century relevance. Immersing new technology into the current model is not transformative. Like GE, most companies do this – often, because true digital transformation is more difficult.3  

 How to effectively direct the transformation agenda  

What’s clear about digital transformation is that the ‘digital’ part is the enabler of better strategies, innovative ideas, and wider collaboration. The ‘transformation’ aspects are the better strategies, innovative ideas, and wider collaboration.  

There isn’t one path to digital maturity, nor a standardised blueprint for transformation. However, future-focused leaders committed to transformation can direct five broad strategies:  

  • Engage the workforce. Two common transformation pitfalls are to underestimate the scale of change, and to underappreciate the impact upon people. Proactively manage the change so that the company’s employees embrace the journey. 
  • Upweight data-centricity. If people are at the heart of the transformation, data is its lifeblood. Data mastery, enabling smarter and faster decisions, is a characteristic of digital maturity. A technology plan to phase in cutting-edge data and analytics will reap rewards.  
  • Workforce upskilling. Holistic talent transformation requires an ongoing programme for acquiring new digital capabilities, and a culture of learning and development.   
  • Organisational design. Silo-ed company structures miss a key opportunity within digital transformation: they inhibit cross-functional connections and collaboration. Value creation can be improved by building a digitally-enabled and networked ecosystem.  
  • Incubate innovation. Customers and consumers buy products and services that meet their needs or match their aspirations. These come from great ideas. Digital technologies and tools give businesses new capabilities which should be channelled primarily towards liberating these ideas.  

 Where does AI fit in? 

The short answer is that Artificial Intelligence is important. At some point, the power of next-generation computing and automation will impact almost every business. (Apart from science fiction novelists, who would have thought a decade or two ago that self-drive cars would be viable? Even whisky is now being made by AI!) 

But not all businesses require a prioritised timeframe for AI adoption. Much depends on the industry and sector. Innovation is not tied to a specific, cutting-edge technology. Data, analytics, new software and processing capabilities may currently be more important for growth than investments in AI.  

 What about the future?  

Although it may be impossible to predict the shape and magnitude of the next technology leaps, one thing is certain: they will keep coming. In that sense, ‘transformation’ is the wrong word, because it implies eventually reaching a new state. More realistically, digital transformation is a growth enablement journey towards digital maturity. Change and learning will be never-ending.   

So, spare a thought for your colleagues who were born before the 1980s! 

DigitalCampus will soon be scheduling a Digital Transformation Lifecycle course. If you are interested, please pre-register here, with no obligation. We will contact you when the course details are confirmed. 

1 ‘Uncovering the connection between digital maturity and financial performance’, Deloitte Insights, 2020. See figure

2. 2 ‘Scaling Fourth Industrial Revolution Technologies in Production’, World Economic Forum and McKinsey, 201

3 The statistics vary, but roughly 25% to 70% of all change management programs either fail or are only moderately successful: https://change.walkme.com/change-management-research

 

 

Written By:

Gavin Olivier

Senior Partner and Managing Executive

DigitalCampus

 In partnership with Dave Gorin 

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