Digital Transformation: Unlocking the Future -- Opening Statement
CUTTER IT JOURNAL VOL. 28, NO. 11/12
The combination of new digital technologies such as social, mobile, analytics (big data), cloud, and the Internet of Things has given rise to digital disrupters such as Uber, Airbnb, and PayPal. However, an unrealized potential to transform existing businesses and industries persists. Many observers have identified a significant gap between incumbents' recognition of the importance of new digital technologies currently at their disposal and their understanding of how to optimally exploit them. This signals that many questions surrounding digital transformation are left unanswered and even unidentified. The articles in this special issue help us deepen our understanding of what digital transformation means and provide us with practical advice on how to transform organizations to address the digital world.
SAP thought leaders Axel Uhl and Lars Gollenia define digital transformation as:
... a specialized type of business transformation where IT plays a dominant role. In the digital age, new business opportunities arise and enterprises transform their strategy, structure, culture, and processes using the potential and power of digital media and the Internet."1
This definition remains rather generic, largely because we have barely started to scratch the surface when it comes to understanding the nature of digital transformation. One thing it does highlight is the enterprise-wide challenge that comes with digital business opportunities.
In a 2014 McKinsey global survey article, Josh Gottlieb and Paul Willmott report that "many respondents say their companies must address key organizational issues before digital [technologies] can have a truly transformative impact on their business."2 They argue that organizations must address three key challenges. First, companies will need to learn to understand what creating digital value means. Offering a truly digital customer experience is profoundly different from digitizing an existing product or service. Second, companies should structure themselves in such a way that they can take full advantage of new digital opportunities and must develop the organizational and technological capabilities required to thrive in a digital world. Third, to increase their adaptive potential, companies will have to attract and retain people with the right skills.3
For a long time, the discussion surrounding digital disruption has focused on "big-bang disruptors," a phenomenon described by coauthors Larry Downes and Paul Nunes in their 2013 Harvard Business Review article "Big-Bang Disruption."4 According to this view, these digital startups could pop up out of nowhere and in no time wipe out entire businesses. Disruption could be coming from everywhere, far beyond your own industry or business model. Unfortunately, incumbents would no longer have the time, nor the capabilities, to rethink themselves. Established recipes for disciplined strategizing, careful product marketing, and innovation would be utterly useless. The advice for incumbents from big-bang champions Downes and Nunes is straight: "Get closer to the exits, and be ready for a fast escape."5
Meanwhile, newer research on digital transformation has put these claims into perspective. In a recent Harvard Business Review blog post, Didier Bonnet and George Westerman, coauthors of Leading Digital: Turning Technology into Business Transformation, argue that there are "many opportunities to do something perhaps less revolutionary, yet still highly valuable -- evolving your business models using digital technology."6 Instead of only being interested in radical industry reinvention, or getting to the exit as fast as possible, Bonnet and Westerman suggest it is often worthwhile to start by thinking a bit smaller in order to prepare for big results. Among other strategies, they emphasize unbundling products and reusing digital assets companies already have in order to reimagine their digital future.
That said, this doesn't mean there's no need for building new capabilities or transforming old ones. The digital economy compels digital leaders to cultivate a profoundly new mindset and invest in new technology-driven capabilities for winning. In a recent Cutter Executive Update entitled "Driving Digital: Welcome to the ExConomy," we describe how digital leaders adapt to the digital world by exploiting four fundamental digital-age realities:7
Customer Experience is value. Leaders embrace digital technologies as a way to rethink value propositions and relationships with customers, in order to offer truly relevant and appealing customer benefits.
Experimentation is necessary. Leaders deploy information technologies broadly to continuously monitor markets, sense customer needs and track behavior, systematically experiment with value propositions, and respond by swiftly scaling propositions that work.
Collaboration reshapes strategy and business models. Leaders reconceive their businesses through the function of ecosystems of digitally connected partners that co-create and share value.
Digital eCosystem platforms rule. Leaders understand that the most valuable digital partnerships are built around digital ecosystem platforms, carefully managed architectures of reusable and integratable digital resources.
Our ExConomy framework describes a changing world and a need for mastering new capabilities, but it does not address how to get from A to B. With this issue of Cutter IT Journal, we aim to bring more perspective to the question of how to transform. All the contributing authors agree that digital transformation will be profoundly complex, but this complexity does not prevent them from bringing useful perspectives to the table and suggesting approaches for how to frame and launch transformation. This issue does not glorify startups, big-bang disruption, or Silicon Valley; it does, however, investigate what lessons incumbents can take from digital natives. It also broadens the scope to include historical framing of the challenge, as well as the authors' rich experience and expertise in working with incumbent organizations.
IN THIS ISSUE
In our first article, Cutter Senior Consultant Paul Clermont emphasizes the importance of engaging in mindful and holistic business model transformation, as opposed to making unfocused, ad hoc innovation attempts. Some of Clermont's most important recommendations focus on getting the customer experience right as a basis for creating a winning business model. He suggests using a customer-centric, needs-based questioning logic: "What is your customer really buying? What do customers find frustrating about your current product or service?" Clermont also advises looking at IT beyond its traditional role of driving internal efficiency. Integrating IT into the fabric of your business model not only allows you to aim higher, but to also aim broader.
In the digital world, all does not have to be thrown away. That is one of the main premises of our second article by Chris Burns and Thad Scheer, who warn against neglecting the possibility of conquering adjacent markets with assets you already own. They argue in favor of a leveraging strategy for monetizing digital assets by creating a powerful digital platform that enables reuse and extensibility, a possible core competitive advantage over new entrants. However, Burns and Scheer also caution incumbents not to think that asset ownership can prevent new entrants from gaining ground. New digital ventures have already proven the success of "sharing economy" business models in which asset ownership is no longer necessary.
Next, Cutter Fellow Steve Andriole seeks to help companies looking to transform internal processes, not disrupt industries. He advocates a revitalization of business process management (BPM) at the level of the enterprise. His five-step process for identifying digital transformation initiatives is inspired by a profound understanding of organizational transformations that used to be labeled "business process reengineering." His approach is disciplined, iterative, and, in his own words, "slow." After all, transformation is complex and takes time. Not only does the approach have the advantage of being deliberate, it also clearly situates where in the process new digital technology considerations come into play.
As in the private sector, questions have arisen in the public sector about the "what" and "how" of digital transformation. In the issue's fourth article, we document how VDAB, the public employment service for the Flemish region in Belgium, used an Action Design Research (ADR) approach to come up with an "opportunity strategy" to help it make sense of what digital-age government entails. The research we present in the article was driven by the need VDAB felt to better understand how it must act differently in view of the changing environment. This questioning led to the creation of a lab to find an answer. The article describes the ADR process as well as its result for VDAB: a digital opportunity strategy consisting of six simple rules.
In our fifth article, authors Rob Gleasure and Jeremy Hayes start by pointing out how interwoven the digital and physical worlds have become: "First of all, there is a migration of analog activities to online contexts.... More recently, the influx of wearable technologies and smart devices has set in motion a migration of digital activities into the analog space." We are reminded not to underestimate the cumulative and generative power of this relationship. Gleasure and Hayes identify three waves of wearables, with capabilities ranging from the incremental to the radically new and with different levels of market penetration. They urge companies to strategize for all three waves and ask themselves how each might create competitive advantage.
Next up, Peter Korsten, Saul Berman, and Linda Ban of the IBM Institute on Business Value bring us insights from their latest Global C-suite study, representing top executives in a wide range of public and private enterprises. The study investigated how organizations are responding to new competitive disruptions. Most importantly, the interviewed CxOs believe technological advances are driving the shift in the competitive environment. But there is a clear difference between "market followers" and "torchbearers." Torchbearers stand out from the crowd. They actively explore new business models, look forward and outward, listen to their partners, and are capable of ecosystem collaboration. In other words, they have embraced the ExConomy. The article outlines three key steps organizations can take to follow the torchbearers' lead and successfully compete with "digital invaders."
Our next authors, Greg Smith and Carl Bate, observe that "the situation we face as technologists has indeed changed fundamentally," a change they characterize as a shift from the "complicated" to the "complex." While IT best practices may have been adequate for dealing with the elaborate yet closed systems of enterprise IT, the challenges of digital IT, marked by "open system interactions, where we need to constantly sense, adapt, and respond to emerging needs" requires next practices. Smith and Bate offer next practice guiding principles in four dimensions "to inform and assist decision making within this ‘fractal' context."
As important as new ways of thinking are, Munish Gupta concludes the issue by reminding us of the central role technology plays in digital transformation. He explores how new technologies are impacting the enterprise value chain and outlines four technology "levers" -- connectedness, data, automation, and user centricity -- that make technology "the key enabler that is helping [enterprises] create new business models and processes." Gupta also examines what businesses require in order to build digital capabilities and how they can leverage existing technology investments in their digital transformation journey.
We hope you will enjoy the articles we have compiled for you in this issue. They cover a broad range of discussion topics that will help you put the hype and hysteria around digital transformation in perspective and see the forest for the trees again.
1 Uhl, Axel, and Lars Gollenia. Digital Enterprise Transformation: A Business-Driven Approach to Leveraging Innovative IT. Ashgate Publishing, 2014.
2 Gottlieb, Josh, and Paul Willmott. "The Digital Tipping Point: McKinsey Global Survey Results." McKinsey & Company, June 2014.
3 Gottlieb and Willmott (see 2).
4 Downes, Larry, and Paul Nunes. "Big-Bang Disruption." Harvard Business Review, March 2013.
5 Downes and Nunes (see 4).
6 Bonnet, Didier, and George Westerman. "The Best Digital Business Models Put Evolution Before Revolution." Harvard Business Review (blog), 20 January 2015.
7 Viaene, Stijn, and Lieselot Danneels. "Driving Digital: Welcome to the ExConomy." Cutter Consortium Business Technology & Digital Transformation Strategies Executive Update, Vol. 18, No. 16, 2015.