Digital Transformation vs. Strategy
The rules of the game have changed. We are witnessing a massive shift from pipeline business to a platform world which has changed every aspect of business we can think of.
The fast change in business logic from supply-side economies of scale to network effects is disrupting industry after another. This change has been brought about in form of new, digital technology that has enabled fast emergence of new platform based business and the whole concept of the internet economy. Traditional pipeline businesses will need to try and respond to these new business requirements which is the reason we see so much talk about digital transformation and digital strategy all around.
It is good to make a distinction between digital strategy and digital transformation as concepts. Although strategy and strategic goals are being pursued by change programs with clearly defined goals and objectives, transformation refers to something more profound. Transformation is what business needs if it has failed to grow within the current or changing market situation and is always driven by external factors such as changes in competition, technology or customer demand. Usually, when discussing digital transformation, we tend to focus on the changes in technology – that somehow technological advances are what are driving digitalization of the markets.
Technology, such as cloud computing, IoT, big data analytics, smart embedded devices and social applications are what we should call, technical enablers for digitalization. What may have been triggered by technological innovation, is now being driven by competition raised by customer demand, without a question. People are demanding to have more new innovations, faster, every day and everywhere and businesses are struggling to fulfill the needs of digitally savvy consumers and keep up with the increasing number of competitors.
Digital transformation is also moving in different speed within different industries. The whole thing got started with telecom, media and travel companies looking for new ways to attract customers and impact customer experience. With growing speed, the transformation has taken place also on financial services and retail, both of which saw already a decade ago the emergence of the first wave of digitalization, eCommerce which disrupted both their sectors like a tidal wave. Some of the first wave retail players have quite successfully been able to leverage the eCommerce platforms but are now struggling to adapt to the second wave of social media, mobile and cloud computing technologies.
Investing on transformation management is the key for these companies to take their digital transformation on the next level. Some industries such as manufacturing have been lagging behind in digital development as the B2B nature of the business, majority of the companies in this sector haven’t really seen need for digital customer engagement. The second wave of digitalization with social, mobile and cloud technologies is disrupting this sector with ever growing speed.
Companies which have started on the digital era, are naturally driving the change and leaving disrupted markets in their wake. More traditional companies with lot of legacy on technology or ways to operate, are following suit and trying to transform their businesses to better match their new competition or respond to increasing customer demands in the new digital landscape.
There should be no misbeliefs here either – it is strategy, not technology that drives digital transformation. Digital transformation programs focus around re-envisioning customer experience, operational processes and changing existing business models or introducing altogether new ways of doing business. This brings us back to the strategy and strategic choice making.
How does the new digital fit into your business value proposition? Are you still driving for higher sales and lower average costs or are you driving for higher average value per transaction? You might be in the process of creating omnichannel digital store for your consumers to reach larger number of potential customers, implementing advanced ERP and supply chain management systems to reduce operating costs or designing an application or online platform combined with sophisticated analytics tools to provide the ultimate customer experience but at the heart of any digital transformation process is renewal of the company core and a need to change how the company operates which ultimately makes it a leadership and management question first and technology question only second.
There should be no misbeliefs here either – it is strategy, not technology that drives digital transformation.
So, safe to say, as digital has become the new normal and there is no going back, businesses regardless of the industry will face the same problem; adapt or die. But here is the tricky part: What got you here, will not get you there. So how to get started? As there is a vast array of digital opportunities out there, where should you look?
But here is the tricky part: What got you here, will not get you there.
In this blog series I will be discussing digital transformation both from strategy and change perspective and looking into the elements of both digital transformation and digital maturity. I will dig into digital capabilities with an emphasis on digital leadership and changing company culture towards more agile and innovation fostering while hopefully being able to give you some ideas how to steer your transformation program or take it successfully to the next level.
This blog post was originally published in LinkedIn August 11, 2016.