Although digital transformation remains an emergent field, a new model is materialisingthat can provide the blueprint for how enterprise leaders can maintain digital leadership inIndustry 4.0
Despite the hype and multiple definitions around digital transformation, it remains a relatively emergent field. Although there is common understanding of the difference between digitisation, digitalisation and digital transformation, as well as a deep expertise as to the range of technology enabled solutions on the market (many AI driven), there remains surprisingly little scientific understanding as to the factors that link technology to strategy.
In other words, how can a CEO know for certain that her company’s technologies are truly driving her strategy and enabling strategic objectives? More pertinently, if she is considering a major capital investment into new, advanced digital technologies (ADTs), such as AI, how can she be sure her organisational structure, particularly legacy systems and processes, will successfully integrate this technology?
Finding the answer to these questions is perhaps the biggest ‘digital transformation’ challenge in order to remain competitive in Industry 4.0. This challenge can best be understood in the context of how digital transformation has evolved since its inception.
More money, more (tech-led) problems
For CEOs without a technology background who think that throwing money at this problem will solve it, the bad news is: it won’t. Simply investing in technology, beefing up organisational practices, or hiring a CTO or a CDO will not fix the problem. In fact, it could make it worse. According to research from Forrester, a remarkable 80-90% of digital transformation projects fail, because they are led by technology, rather than by strategy.
Companies operating in the ‘Blockbuster and Kodak’ era were lucky: digital disruption had not yet developed into the tsunami it is today. With the advent of Industry 4.0, not transforming is not an option. The ‘problem’ is that technology today is becoming increasinglyubiquitous. Google, for instance, gives away most of its advanced AI, such as TensorFlow, for free. The value to these companies is the data. For this reason, many ADTs no longer represent a point of differentiation.
Instead, the value of a new technology to a business is notabout adopting the technology, it’s about howtechnology transforms the business and how technology can enable the company’s true point of differentiation: its strategy.
To understand how successful ‘agile transformation’ can come about, let’s first establish how it can’t: by purchasing the most advanced digital technologies, in the hope that some of them will stick.
Technology as a competitive advantage
According to research by Henrik von Scheel, ADTs cease to be a source of competitive, or even comparative advantage, at the moment where they switch from early to mass adoption. At this ‘hypercompetition’ (i.e. mass-market) inflection point, these technologies serve mainly to grease the wheels of the operating model, or to cut costs. At this point, technology adoption is mainstream and driven entirely by technology, not strategy.
To utilise technology as a source of comparative advantage could mean a CAGR for your firm of more than 10% (vs 5% in the mainstream phase). However, to utilise technology as a source of competitive advantage could produce CAGR of more than 20%. This is because it’s at this point of early adoption where ADTs serve to innovate new value, revenue and service models, rather than to cut costs.
The Three Phases of Digital Transformation
In Digital Transformation 1.0 (DX1.0),beginning around 2000 until approximately 2010and marked bymass adoption of the World Wide Web and enterprise IT, was ultimately about applying the latest and most advanced digital technologies. Companies that simply purchased and applied these technologies for their business were able to derive a competitive advantage.
DX2.0, starting after2010, introduced the concept of ‘strategy-first’, or strategy-led, digital transformation. The idea behind this phase has been that the true USP of a firm is its strategy, not technology, and therefore, any applied technology had to be led by strategic imperatives.The concept of strategy-led digital transformation, introduced in this white paper by Deloitte, is importantbecause, as explained above,it signals the beginning of an era when advanced technologies are becoming ubiquitous and cheap to the extent where their application alone can no longer provide an advantage.
Building on this, we have now entered intoa new era, that of digital transformation 3.0.Rather than simply leading with strategy, there needs to be a clear link between technology and strategy. DX3.0 completes the ‘feedback loop’, of driving technology and digital transformation through strategy, but then clearly looping back to provide a leadership teams with a quantifiable idea as to the extent technologiesin their organisations are actually enabling their strategic objectives. Closely linked to this is having a clear sense of exactly howthe organisational structure, particularly people skills, processes and legacy systems, can absorb new technologies. For example, a recent survey to CIOs by Logicalis Group found that 44% believed legacy technology to be the largest barrier to digital transformation. This being the case, if new technology can’t integrate into the organisation, digital transformation won’t work.
To be sure, DX3.0 differs from DX2.0 in its holistic nature. If 2.0 was about leading with strategy, then 3.0 is about analysingall ofstrategy, organisationandtechnologyto understand critical interdependencies between them.
The Transformation Value Chain
A blended model is beginning to emerge for how this can be done,combining human-led intelligence with machine learning and advanced analyticsalong the ‘Transformation Value Chain’. For example, at Spire Strategy, we have developed an approach that involves a personalised client journey along the TVC to support leadership teams in their quest to create highly bespoke ‘tech-enabled’ strategies based on greater agility in their processes –critical for digital transformation, creating verifiable linkages between strategy andthe application of ADTs, as well as enabling more seamless integrationof new technologies intoexisting organisational structures.
A holistic approach: the key to successful transformation
Digital Transformation is much more about the ‘transformation’ than it is about the ‘digital’. Amazon practices digital transformation every six months by ensuring its organisational structure, particularly its processes and business model, have the necessary agility to change when required to by new technologies.
For leadership teams, enabling analysis through this blended model can provide them with the critical insights to understand
- strengths and weaknesses across strategy and technology
- where in their organisational structures the obstacles lie to prevent costly errors in. technology investments that fail to integrate.
- the interdependencies of their firm’s key functions in relation to ADTs.
In DX 1.0, the technologist won. In DX 2.0, the strategist won. Today, in DX 3.0, that strategist needs to think and act much more holistically about how technology can add value to the business whilst at the same time seamlessly integrate into the organisation.
Written by Matthew Hoffer: