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There are multiple dimensions through which we can view the challenges of Digital Transformation. Although the concept and its implications have been discussed for quite a few years now, there is still confusion on a very basic level.
Which issues are genuinely transformational, and which are just ordinary adaptations leveraging technological advancements (which are mainly digital these days)? Is Digital Transformation just plain old change dressed up in new and fancy terminology? Or do organizations face a genuinely new quality of change which requires radical new approaches?
Is it just another management fad like Total Quality, Six Sigma, Process Re-engineering, Organizational Learning, and countless more which created short-lived mantras to feed the ever-hungry armies of consultants? Or is it a fundamental challenge that will stay with us for the foreseeable future?
Is Digital Transformation just plain old change dressed up in new and fancy terminology? Or do organizations face a genuinely new quality of change which requires radical new approaches?
The answer is yes, and no. The consulting industry and management scholars embrace the topic as the new El Dorado of service offerings and scholarly brand-building. Virtually every change or OD consultant is now an expert on digital transformation, and much of the advice is old wine in a new bottle. On the other hand, there are some features that make the digital transformation challenge unique and suggest it won’t go away any time soon:
- It’s universal. It is virtually impossible to escape the digital context that shapes the business realities of the early 21st century. Companies must deal with it or they will perish. Strategic innovation is not a matter of choice any more. It has become a sine qua non and does not automatically guarantee competitive advantage or even just survival.
- It’s really big. In its significance and scale, the ubiquitous digitization is comparable to the most disruptive innovations in the history of mankind, such as the discovery of fire, the invention of the wheel, the invention of mechanical tools, the steam engine, the telegraph, or electricity.
- It’s fast and gets faster. The development of digital technology is inherently exponential, convincingly illustrated by Moore’s law or the principle of Machine Learning. Organizations – especially if they are large and complex – face an almost impossible task of keeping pace with opening opportunity spaces that are exploited in lightning speed by new entrants that don’t have to carry legacy baggage.
- It’s rewriting the laws of competition. Digital technologies enable novel business models and ways of value creation that defy traditional competitive dynamics. The logic of platforms, marketplaces, or agents – to name a few – favours a winner-takes-it-all paradigm which rewards few and resists conventional regulation. This creates a widening gap between the few owners of the digital space and the many who must give in to less powerful business models. A great example is the automotive industry where car manufacturers may soon be forced into the role of mere hardware providers, while the owners of digital networks, platforms and data houses may capture the bulk of the value.
- It’s reshaping society. The nature of technologies such as blockchain, social media, AI, cloud computing, big data analytics, etc. require a new kind of institutional infrastructure that can deal with the – often unintended and not fully understood – consequences of digitization. The discussion about privacy, cybersecurity, the future of humanity or the future of work are an indication of the kind of societal challenges we need to address. It will take time to create an institutional framework for the digital economy, and it is likely to uproot our political and economic system which, after all, is a heritage of the industrial age.
Combined, these features of digital transformation challenge organizations and their leaders to the core. Its ubiquitous character and its exponential dynamic make it virtually impossible to define its scope, to clearly identify threats and opportunities, to create traditional strategic responses – in short: to get a solid grasp on the phenomenon.
It will take time to create an institutional framework for the digital economy, and it is likely to uproot our political and economic system
Many companies respond to this challenge by a whirlwind of – often not well coordinated – innovation and change initiatives. Design thinking workshops, hackathons, shark-tank formats (where entrepreneurial ideas are pitched to an in-house panel of potential sponsors), executive think tanks, innovation awards, start-up lunches, learning expeditions, tech hubs, incubators and accelerators, alliances with external company-builders, traditional VC work – the list goes on and on.
The impact of many of these initiatives is far-reaching in terms of the numbers of people that they touch, but the depth and sustainability of their impact is more difficult to assess. The various interventions produce different outcomes – some are designed to foster broad and generic changes to people’s mindset and/or organizational agility which remains an awkward metric to measure; others are more targeted on streamlining processes, revenue growth, (digital) company-building and driving innovative projects across businesses, which are more tangible and whose effectiveness is easier to measure and to account for.
What these initiatives have in common is that they reveal the significant challenges large organizations face when they embark on a digital transformation journey – challenges which we are going to explore in more detail in the upcoming segments of this series.
This article is the second segment in a 10-part LinkedIn series about Digital Transformation Challenges in Large and Complex Organizations. It is based on a qualitative study conducted by the Center for the Future of Organization at the Drucker School of Management at Claremont Graduate University.
If you don’t want to wait for the discussion of each challenge, you may download the full report at no cost here. In return, we’d love to learn about your perspective – feel free to comment and/or share your experience with the subject. Thank you!
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