The term “digital transformation” is now ubiquitous. Nearly every company’s leaders and board of directors see the potential of digital transformation to create new value and improve their competitive positioning. They are investing in building out capabilities to transform their business. Unfortunately, some companies build digital capabilities but don’t generate value that changes their competitive position. So, are businesses really making progress in these investments? Where are we in efforts to succeed at digital transformation? Here’s my view and what I believe must happen next.
Digital Transformation’s Current Status
For the last 18 months, the focus of digital transformation was understanding the capabilities that companies needed to develop or implement for their digital journeys. In addition, consulting and advisory firms responded to this effort by coming up with frameworks and the Target Operating Model (TOM) companies needed for building those capabilities. This led to a problem.
The problem is the digital world is moving fast and we don’t have 10-20 ears of experience to know what works and doesn’t work. Disruptive technologies force new operating models or new capabilities, but companies can only hypothesize as to what those capabilities should be. Frameworks are untested. Thus, TOMs and frameworks are built in a vacuum. They don’t reflect reality; they only reflect the best thinking at the time as to what a model or framework should be. This is part of the reason for the abysmal number of transformation failures.
That is where the digital transformation market is now – companies need to move the discussion from building/implementing capabilities to how to measure the value a company extracts from that effort. But they struggle to do this. Here’s the issue: Only a paucity of metrics exists to measure progress in digital transformation and understand if companies are getting any juice from the squeeze.
Companies need to be more realistic in the capabilities they are building. They need a new framework to look at what works rather than what is theoretically meant to work.
The Last Step Is The Hardest
In understanding where we are today with digital transformation, we have two important examples of how business transformation evolved in the past.
The first is the internet bubble. It was clear in the late 1990s that the internet was a hugely disruptive technology and capability and that it would reshape business and companies. There was an enormous rush to build websites and buy technologies – much of which, if not most of it, was wasted. And every consultancy and research house expended enormous resources and time to build a framework for the capabilities needed to succeed in the internet age. Consultancies touted massive projections as to how much market share would be captured or lost.
Then the burst came. Although the internet was an extremely powerful and disruptive technology, the capabilities that companies rushed to implement were not well understood. So, the frameworks and the effort to create the capabilities didn’t yield much value.
Here we sit, almost 20 years later. We understand much more clearly how to utilize the internet, and we’ve built on top of it. Amazon and other firms leveraged the internet to create tremendous value. But most companies spent a lot of money on websites that were just sophisticated brochures. In the last 10 years, those sophisticated brochures matured and began enabling e-commerce to get much more value out of them. But that’s almost 20 years after we started the internet journey. It’s kind of shocking how long it took for those technologies to consistently take market share.
We’re moving into the same trap again today. We now have a raft of new, disruptive technologies ranging from Artificial Information (AI) to chat box to analytics to Robotic Process Automation (RPA), all of which collectively promise a massive breakthrough in performance. But we’re going down the same path as we did with the internet – we’re building capabilities against unproven maturity models and frameworks. If history repeats itself, which seems highly likely, much of this digital investment will be wasted.
Another example is the distributed computing revolution. The same story played out there. It was clear that distributed computing and PCs were far cheaper and far more powerful than mainframe computers. Companies rushed to take advantage of this and spent huge fortunes to equip their employees with PCs. Think about what we believed in the mid- to late 1980s around distributing computing and the capabilities needed for that. There is a world of difference compared to what we now know 30 years later about how to get the wanted productivity from PCs.
The path for the internet and PCS is a very natural path for the way technologies evolve. It’s inevitable to start with the technology and vision, then think about capabilities and then to evolve to hold organizations accountable to extract value. That last step is the hardest, and that’s where we are today in digital transformation. Hopefully, we can shorten the time from the initial vision to consistent value capture compared to how long it took us to do that with distributed computing and the internet. We built capabilities against unproven models and then had to go back and rework those.
In the case of digital, we went from three or four years ago to realizing that these technologies will inevitably create tremendous market value and we need to adopt them or be left behind. So, we went from vision to capability building. Now companies need to figure out how to extract value; otherwise, they will waste a lot of investment. The only way to succeed is to build metrics that measure progress toward extracting value from investments. That’s what needs to happen now.
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