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Posted: 12 January, 2020

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What types of digital transformation are there?

When working with clients, I've found that the seed of digital transformation (DT) starts with usually one of three distinct types of change:

  1. The simplest is automating a manual process or workflow that spans multiple organizations. This might be a new travel system or a salesforce (CRM) automation, or an Office 365 onboarding. These tend to be good projects that a technology group – an IT team – can take on, as there is low business change to the organization’s customers, often many internal legacy integrations which IT was already managing, and very measurable through a project management cycle.

  2. The next more ambitious version is one which capitalizes on digital technology’s advancement to extend a product or service into an adjacent or enhancing an existing market. Some examples might include DriveNow from BMW – a rental service, energy sensors in a smart city provided by a power generator and managed by a consumer, peer-to-peer lending with blockchain in financial services, or Home Depot’s OneHD strategy to create a single customer experience from differing online and in-store experiences. These take some particular technology advances and combine with some incremental business model changes to create noticeable customer experience enhancements and improved market position.

  3. The final type of change we see is the wholesale new product or service in a wholly new business environment, possibly even a complete corporate transformation to avoid becoming the ice cart. Some examples here are Netflix – documented in multiple books – Peloton making exercise convenient and engaging, and even more stalwart models like BestBuy, (parts of) GE and Rockwell Automation. These are complex undertakings with multi-faceted teams and with the holy grail of significant new revenues at the end of each successful transformation. These are often business-led but have significant complexity to the technology component of the initiative.

DT initiatives vary quite a bit along aspects of how large or small the change is with respect to the business model and the technology involved – both have legacy elements we have to evaluate our starting idea against and see what from before is useful to go forward with. Certainly in the third type of transformation, we need to question almost everything: the market we think we perceive isn’t established and quantifiable, the technology may be new to everyone in the organization, the experience may not be recognizable to the customer we have today, the skills, experiences and business process we have as a starting state from NewCo version 1 may need to be augmented or even replaced for NewCo version 2. We may even need a guide, which means trusting someone from without whom we may never have met before. 

This is why I am writing this article: the CEO or leader of the transformation has seen the hype of digital transformation, understands the benefits, and recognizes the need for a different approach than what their experience may have prepared them for. The business world and the technology landscape are moving so quickly and the managerial instincts don’t help the leader bring this change into the organization without culture shock. This leader needs a way to cut through the marketing and find a credible guide to transformation.

What goes wrong with transformations?

Not all transformations end up successful and we probably expect this: when only 25% of small businesses survive to year 3 in the United States, leaders understand the risk involved in upsetting the status quo. Here are some of the regulars in the bar of “Missed Expectations:”

  • The idea of transformation was too vague; a specific differentiating element was not identified

  • The transformation addressed the wrong market or was a poor fit to the customer (CX/UX) – often this is when we leverage “gut feel” over real, quantitative customer feedback on value

  • We mis-estimated returns on investment – either the revenue was optimistic or the cost of technology was higher (gets you thinking, “How do I test this?”)

  • We executed too slowly or didn’t apply enough focus time; this is not just another project in the portfolio and the strategy needs to change if we aren’t the first mover

  • The development team focused too much on feature sets and ignored some of the “higher-order bits”  -- branding, customer experience, overall quality, being a service and not just a toolbox, and legal issues for platforms and ecosystems (like franchisee behavior) all matter more than the tech

  • The business operations were unwilling to change from current processes; significant business model changes may indicate we start with a clean sheet of paper and evaluate which current processes make the cut in going forward

  • The architect or integrator lacked skills on the new technology or assumed too many of the current systems would be required which made the technology selection too brittle and unsupportive of the business model

  • The development team selected an inappropriate lifecycle model for prototyping; literally heard of an ERP transformation that required 20 distinct, pre-production environments to be compliant with the development lifecycle, before it was even a quarter of the way into the schedule!

In looking through this list, most of these are from the messy space between business and technology – very few are technology problems alone. Also, remember that failure teaches us something and that the first one is “on the house.” Learn from your mistakes and change your approach for the next go around.

What is Digital Transformation, even?

So let’s get down to a workable definition of digital transformation. There are a lot of very fancy descriptions and some of these may make us feel a bit inadequate – is my company up to the challenge that I see a group like BMW taking on? The answer is yes.

The starting point is an idea – likely not the exact idea we’ll use by the end of our journey, but maybe the idea which will lead us to another and combined with some data will lead us to the transformation idea we’ll run with. This idea has three parts: a change in the customer’s experience, a new business offering (read: product or service with a business plan), and a high reliance on technology as a substrate to the experience and to the integration of the business model, specifically where it helps enable feedback loops and engagement with the customer.

That describes what the attributes are of the outcome, but not the journey of digital transformation. We know that not only will all of this not proceed in a long waterfall or traditional project, but also that we will have to iterate in each of these three core areas over the length of the transformation – the information for parts of the business plan and the technology and the experience will be found out over time and through experiments. As a journey, we have probably optimized for speed to delivery, with constrained resources ($ and people, which may be large but compared to the size of transformation usually in the lower quartile), and willing to be flexible on features. Quality of service is found often in a Blue Ocean sense, in the unique value proposition – in new markets – rather than optimizing existing ones. This is another way to say that DT is less about our first type above and #3 is our real target.

In part 2, I’ll discuss how to get started, a description of one DT process, and whether you need a consultant or not. Until then…

What's your digital transformation?


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