How can you be sure that what you are being sold is ‘digital transformation’ or just an incremental technology implementation that has been packaged as such? Deepu Prakash finds out
Companies may thrive or barely survive, profits may rise or fall, but the endless supply of business jargon from the tech industry never ceases. Over the years, this copious supply has covered a wide linguistic span. From the mundane (cloud, agile, the web) to the fantastical ( unicorns, blogosphere) to the weird ( master/slave). Then there is the evergreen category of remixing old jargon to create new ones. Digital transformation is a case in point. ‘Digital’ has been in fashion for many years now, and in a fast-paced world facing black swan events at regular intervals ( sarcasm and irony intended), ‘business transformation’ is back in vogue. Put both together, and you have a highly seductive, and yet widely misunderstood buzzword – Digital transformation.
On one hand, almost every custom software development vendor, technology platform provider, and management consultant offers expertise on digital transformation – usually sold to businesses as a do or die imperative.
On the other, almost every other CEO, CTO, or CIO appears to be either running a digital transformation initiative or wheeling one in. Any ERP system, a mobile app, or an online store – any technology change or upgrade is now a digital transformation initiative.
Except, it isn’t. Much of what is touted to be digital transformation these days is just old wine in a new bottle. What then, does digital transformation mean?
Digital transformation is about transforming business by applying new digital technologies. Such technologies may include big data, machine learning, artificial intelligence, internet of things, virtual/augmented/mixed reality, and blockchain.
Consider Netflix
Today, we all know Netflix as the media behemoth that serves more than 192 million paying subscribers. More than the population of Germany, the UK, and Australia combined. However, way back in early 2007 Netflix was a very different company. It was successful in its core business – DVD-by-mail-order and had just delivered its billionth DVD. A month later Netflix was downgraded by JP Morgan citing high competition in its core business area.
From then to today, Netflix has undergone an extraordinary transformation. It used digital technologies – data, analytics, and the cloud ( Amazon Web Services) to transform its core offering. It leveraged developments in data connectivity, mobile, and hardware, to deliver new customer experiences. Today, we know Netflix as a leader in premium online content. It is a production company that uses its strength in big data and analytics to create shows that are very likely to be successful. House of Cards, anyone?
This is a digital transformation. A DVD-by-mail-order company that used to compete with Blockbuster, transformed into an entertainment giant that competes with Disney and HBO.
The transformation at Netflix was far more than the change that most CEOs and CTOs hope to bring about by launching a new app or an online store. During our conversations with CEOs and CTOs, they inevitably bring up digital transformation. But when they describe the transformation, they are usually talking about using digital technologies to achieve one or more of cutting costs, improving productivity, or improving customer experience. All of these are good, commendable goals for any business. However, when done independently of changing the business model, these do not lead to a digital transformation.
Consider an automobile interior accessories manufacturer, who deploys an online document management system to replace its paper-based workflows. This is digitisation, where a predominantly analog system, has been replaced by a digital equivalent. If executed well, the new system can help cut costs, improve employee experience, and improve productivity – all of which are necessary and important to running a business effectively.
However, such digitisation is not digital transformation, since the company’s business model has not changed.
In 2015, Faurecia, one of the largest suppliers of automotive interiors, found itself in debt and desperate need for change. Going all-in on digital, today, they have reinvented themselves to be the leading provider of hyper-personalised connected car cockpits.
This required a relentless focus on internal R&D to create a technology platform, building an ecosystem through careful acquisitions and strategic partnerships. They used new digital technologies to transform their core business – from manufacturing car seats and vehicle interiors to designing intelligent car cockpits. They are creating a new future for themselves, drastically transforming customer experience, while reinventing their core business. This is what digital transformation looks like.
Consider a manufacturer of exercise bikes, who decides to go digital by setting up an online store to reach out to a larger audience. If implemented well, with a good automated presentation, recommendations, order management, and more, the store may provide a new lucrative source of revenue for the business. This is a good and laudable initiative. Such use of new digital technologies, to do more of what you are currently doing is a good example of digitalisation. But it is not a digital transformation. Not even if it adds a chatbot to automate online customer service. The addition of a new channel and the use of digital technologies has not changed its core business.
But what if they were able to provide a radically different customer experience as Peloton does?
Peloton offers an immersive cardio experience, bringing the camaraderie and energy of a group gym session, to the user’s home, on-demand. A large 22″ touch screen attached to its front allows workout content to be streamed directly to the bike. To replicate studio-grade experience through a screen, Peloton applies user data tracking, engagement, and experience- all that can appeal to a large customer base. Peloton’s revenue is not just from the one time sale of the bike, but also from monthly subscriptions to the service. The insights it gleans from the extraordinary amount of data it collects every day is itself a product for a secondary market. Peloton started digital-first, but any exercise equipment manufacturer or gym could have been the first to provide this service.
So how can you cut through the bovine manure to know whether what you are being sold is digital transformation or an incremental technology implementation that has been packaged as one? Here are three points to consider:
1The customer experience: True digital transformation often reimagines and redefines the customer experience. It is more than just increasing customer touch points or taking the shopping window online. Evaluate whether the customer experience is incremental or whether it has been overhauled completely.
2Competency and capability: digital transformation usually requires an organisation to develop or acquire new skills, especially advanced skills in new digital technologies, that it may not have had previously. Think big data, machine learning, artificial intelligence, internet of things, virtual/augmented/mixed reality, and blockchain.
3Strategy and business model: evaluate whether the initiatives will lead to a fundamental change in the core business model. Evaluate whether these initiatives focus on changing the past, or building a radically new future. Initiatives that focus on creating the same products faster or cheaper are not digital transformation.
George Westerman, from MIT, painted the spirit of digital transformation best when he said: ‘When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong all you have is a fast caterpillar.’
Deepu Prakash is SVP – Technology and Process Innovation at Fingent, a global IT company providing strategic IT business solutions and services for complex business problems. He has led technology delivery, process development and change management initiatives at Sony, Samsung and Wipro. In his role at Fingent he works with both the ‘Telos’ and ‘Techne’ of software development, organisational structure and culture. Follow him on Twitter.
