Notes on Digital Transformations

Global spending on digital transformations will near USD $2 trillion in 2020, according to a recent IDC report. The report predicts some 30% of G2000 companies will assign 10% or more of their capital budgets to digital. Other reports tell a similar story about the size of digital transformation activity. The number of digital initiatives budgeted and in progress is staggering. Enthusiasm for digital has sprawled amid head-spinning trends of emerging technologies and growing fear of eminent disruption.

Unfortunately, outcomes so far haven’t been rewarding. Several recent surveys reveal that success rates of digital initiatives are as low as 30%. This mean more than 70% of initiatives fall short of meeting objectives. What’s more troubling is that success rates haven’t increased over the past decade.

Inflated expectations may have contributed to the performance gap of digital initiatives. Driven by zeal for joining the digital game or by fear of lagging in the "analog" world, leaders may have unrealistic objectives. The expectation gap caused by far-fetched objectives has resulted in frustration. Yet, as hype settles, frustration will reign in expectations. As organizations become adept as distinguishing myths from facts, realism sooner or later prevails.

Still, setting realistic goals does not guarantee success. Transformations are likely to stumble if designed with little attention to the realities of change in digital. At best, such programs would achieve some of their goals too late. Digital technologies have meshed boundaries among industries, competitors, and value chain activities. Moreover, they have reallocated power among them. Digital grants customers the power of choice with close to zero switching costs. It provides means for customers to sway collective choice. More than ever, digital empowers customer networks to scrutinize and shape value propositions. Thus, change in digital emanates from the continuous reconstruction of value. It sweeps from unexpected frontiers at inconvenient times. It erupts when and where few are expecting it. Yet, organizations cannot but welcome it.

The erratic nature of change in digital makes it hard for organizations to detect it in time. It makes it even harder to develop the skill sets and tools and to deploy the resources required to manage it. Such a dynamic demands a different approach to transformation management. An approach that fosters organizational responsiveness and adaptability. The boundary between transformations and operations must disintegrate. Delivering value to customers must become continuous and incremental.

Digital transformation programs that target some static future state will likely falter. In digital, the optimal future state shifts constantly and rapidly. Change brought by digital outpaces most such transformation programs. Gearing up traditional transformations to digital speed can only cause organizational dizziness.

Chasing a vision of a future years away is illusive. Leaders should instead tell a developing story about value delivery. One in which customers are both actors and directors. As the story unfolds over time, the understanding of customer value and how to deliver it evolves. A digital transformation is thus an evolution, not a revolution. To be sure, it is an evolution of the value proposition and the business model.

Organizations can do well by developing their ability to understand their customers' value curves. That is the trajectory of value as perceived by customers over time. Transformations then become sets of mindful experiments that aim to optimize value delivery. A matter of understanding what makes value and adapting the business model. But, for this seemingly simple act to work out, most organizations must reinvent their ways of work. To begin, leaders and senior managers should move towards acquiring a fresh mindset. They should embrace change as a continuous stream of value-focused, data-driven experiments. Such experiments enable keeping up with their customers' value curves.

Leaders should exercise their beliefs of what best serves competitiveness. They should accept that external actors, beyond their authority perimeter, decide success. Leaders must thus learn to let go of their own convictions and act as servants of their teams on the quest for value. But this takes courage.

Focusing on value mandates that firms be data-driven. Data rises as the ultimate asset. And strategic investments flow to developing tools for acquiring well-thought-out datasets. Datasets that represent key customer interactions along and beyond the value chain. Thus, getting hold of the right data is the first step. But, to be data-driven, organizations should develop deep data analysis capabilities. They should master the art and science of extracting meaning from data. Most important, they should cultivate keen judgment to put their insights into action.

Experimentation demands that organizations develop competencies for managing effective experiments. It requires an appetite for accepting failure and calls for boldness in re-allocating resources. Admitting a failed experiment, learning from failure, and moving on to other experiments differentiate winners from losers in the digital game.

Organizations on digital journeys need not feel urged to sprint-race against competition. Both the finish line and the competition are unknowns. Yet, both are discoverable. Organizations should instead learn to scurry. To take rapid small steps, guided by insights on customers’ scrutiny of value. Winning in digital is not about pure speed, but rather about nimbleness. It requires the ability to be quick, light, and alert in maneuvering the tortuous road to digital leadership.

A digital transformation thus embodies a mindset shift that starts at the top. The right mindset breeds "agile" ways of work. It encourages effective competencies and proliferates a digital-savvy culture. Only then will digital transformations have a fighting chance of success.