How To Tell When Your Digital Transformation Isn't Transformational

Process improvement is not digital transformation. The real thing is messy, complicated, time consuming, disruptive, expensive - and prone to failure. But the alternative is becoming a cog in someone else's machine. JL


Barry Libert and Megan Beck report in Forbes:

While executive teams love to tout their plans for digital transformation, what they don’t love is fundamentally changing the way their company invests capital, operates, and creates value. Change is uncomfortable, and digital is decidedly outside the wheelhouse for most senior executives and board members. Leadership teams see new technology as a way to keep doing the same thing, but a little bit better. But new digital technologies are completely reshaping the way consumers interact with companies and each other.
If you work for a company that’s more than 10 years old, changes are good that you are in the middle of a “digital transformation”. We put it in quotes for exactly the reasons you would expect: few companies actually know what a digital transformation looks like, and those that do often still can’t implement them.
The world of digital transformations is fraught with smoke and mirrors, missed targets, and aborted plans. There’s no end to the research that companies fail at digital transformation, just ask Wipro, IBM, or Forrester.
While executive teams love to tout their plans for digital transformations in announcements and press releases, what they don’t love is fundamentally changing the way their company invests capital, operates, and creates value. Change is uncomfortable, and digital is decidedly outside the wheelhouse for most senior executives and board members.
Here’s what feels more comfortable: process improvement. It is very easy to think of digital technology as merely the latest thing to help companies operate more efficiently — essentially the great grandchild of the steam engine. And, admittedly, digital technology can help companies make great operational improvements — doing what they are already doing faster, more cheaply, and with fewer errors. But this is not transformation; it is incremental improvement.
While established firms are methodically improving operations with ERP systems and offering the same old products on the web, disruptors are jumping in to turn the industry upside-down. For example, while hotel chains were shifting to online booking, a whole crop of peer-to-peer lodgings providers like VRBO and Airbnb jumped in and stole market share. While cabs were deciding whether or not to accept credit cards, Uber completely changed the way people provide and use transportation.
The problem is that established firms have blinders on. Their leadership teams see new technology as a way to keep doing the same thing, but a little bit better. But new digital technologies — cloud, social, mobile, big data — are more transformative than a better engine. They are completely reshaping the way consumers interact with companies and each other. The disrupting companies, blinder-free, look at new technology and see ways to fulfill old needs with entirely new business models. And with these new business models, they are gobbling up market share.
Established firms are in a precarious position. The old business models are still making money, but it’s clear that their time is limited. It’s time for leaders of legacy firms to put together their digital transformation plan, and make sure that it’s actually transformational. Having worked with many leaders navigating this course, there are three clear warning signs that a digital transformation won’t transform a thing.
1. It doesn’t touch the customer. First and foremost, if your transformation doesn’t affect your customer and significantly change their experience interacting with the firm, then it is not a transformation. This is not customer-centricity, but instead inviting the customer to interact and
collaborate with your company in an entirely new way. This doesn't mean improving the customer experience by offering the same old thing faster, cheaper, or through a different channel.  These improvements may be beneficial changes for your firm, but they are digital improvements, not digital transformation. A digital transformation will change the way a customer relates to your firm—often using a two-sided platform business model that allows customers to contribute, data, insights, and even products and services.
2. Your existing (IT) team is implementing it. Even the best IT departments at the best firms are not up to speed on cutting edge technology. It just isn’t their job. IT departments exist to keep systems running effectively and make safe improvements that support the existing business function. They don’t have the right skillsets to lead transformations, and their usual infrastructure and approval processes are a hindrance.Firms that are serious about transformation are also serious about talent — getting the right people on board, whether through partnerships or new hires. For example, when Ford wanted to shift from an “automobile manufacturer” to a “transportation provider” it partnered with Lyft, a startup with significantly more experience and talent in the high-tech, autonomous driving space.
3. Your budget isn’t changing. A digital transformation will need its own line item on the budget. Transformation, of any type, takes dollars. Let’s call it “table stakes.” To sit at the digital table, you need to be willing to reallocate capital to new talent, new assets, and new initiatives. This may seem obvious, but that doesn’t change the fact that companies are terrible at capital reallocation. The average correlation between last year’s budget and this year’s budget is .92 according to research by McKinsey — meaning that a paltry amount of capital is reallocated given the remarkable new technologies and business models that have emerged in the past fifteen years.
If you find, to your surprise, that you are leading not a transformation, but a continuous improvement project, you aren’t alone, and you can adapt. Companies must always be improving to maintain a competitive edge, but when a transformational technology arrives, they must also transform themselves and how they create value. Spend the time to explore how your industry is changing and how you can make use of new business models, and then shift your money to invest in the right people and assets to make it happen. In a world of digital transformation wannabes, be the real deal.