Ultimate Guide to Digital Transformation
History and Fundamentals

Digital transformation – what is it, anyway?

By 2018, “Digital Transformation” or more accurately “Digital Business Transformation” has probably become one of the most overused and misused terms. Suppliers, Governments, consultants, managers all seem to be into it.

No doubt, our world is becoming more “digital”. If you walk through life with your eyes wide open you will see that pretty much everything nowadays prefixes with the magic “D” word.

Going through the hype cycle

So, lets take a step back and put things into perspective. Hindsight sometimes can be a good thing. That is why, at unleash.digital, we were not really surprised to see digital transformation going through the typical hype cycle. After all, this is what happens with all new things.

“Digital Transformation” now has truly passed the peak of inflated expectations. Ailing businesses saw this new concept of becoming faster, more cost efficient and fiercely customer-centric as a get-out-of-jail card.

But that is no longer the case. As a result, you will not find many organisations that promise a magic transformation of your businesses. Unless they want to sell you their software, that is. But don’t be fooled. There is no quick way to become the next Google.

We have also passed the “Trough of Disillusionment”.  The world has seen that low point maybe when General Electric came crushing down with their ill-fated digital transformation. This was almost like an admission of defeat. They put up their digital arm for sale shortly thereafter.

Where we stand now

Instead, we are heading towards a more realistic view of what digital transformation can do. As an active observer we see that discussions and activities around digital business transformation just lately have become more reasonable. More realistic.

With that background in mind, our post sheds some light on what digital transformation may mean for your business. Similarly, we explain some of the wider ramifications of a proper digital transformation. The why, the what and the how.

Digital transformation definition

But then, what is Digital Transformation?

You are looking for a straight answer, right?

Unfortunately there is no authoritative definition of what digital transformation actually is. Rather, different players trade different definitions. These typically fit their own context and point of view, which ultimately has lead to big confusion.

Want to see what definitions are on offer?

Wikipedia

MIT Center for Digital Business on Digital Transformation and CapGemini

Altimeter

These definitions all put a focus on “technology”. But they ignore a number of equally important aspects of digital transformation. After all, transformation is not just about technology.

But lets see what else people think digital transformation is.

If you have been sniffing around academia you will find a different tack from business schools and institutes such as MIT Sloane, Columbia etc. Their emphasis is on transforming customer experience, operation processes and business models. No mentioning of (digital) technologies whatsoever.

Again, a very single-sided view

One of the better descriptions of digital transformation that we have come across was published by Agile Elephant, a UK based boutique management consulting firm:

Agile Elephant

Let this sink in for a moment. It’s quite a mouthful. And we like it.

In our experience, this definition comes closest to the reality.

The Agile Elephant spiel doesn’t skew digital transformation towards a software supplier view. Nor towards a business school view. Nor towards an organisational change consultant’s view.

Instead, you find the recognition that digital transformation impacts many more areas such as organisation, processes, business models, management and cultural issues, to name a few.

Digital transformation is happening everywhere

Whether you like it or not: digital business transformation is happening here and now. It may not always be visible to somebody looking at an organisation from the outside. But it is real. It is here to stay.

Quite rightly you will say that businesses always have gone through change. The programmes were often massive. Major restructuring occurred. Hundreds of jobs were on the line as a results. Fundamental alignments of the strategic directions were dispensed.

Insofar, one could argue that digital business transformation is not too dissimilar from the past. After all, we often introduced new (digital) technologies before. We optimised working and business processes digitally. Sometimes even business models.

However, with “digital business transformation” a significant difference emerging. And the difference lies in the wider definition of the word “digital”. Let me explain.

From traditional player to digital native

Most companies would not regard “digital” as their core competency. They produce traditional products and services. Digital assets such as software may help them to become more efficient. But for many of them “digital” has just been a means to an end.

So, what is new? Most noteworthy in this context, digital business transformation is driving a behavioural changes. It shapes how companies will seek to tackle change in the future. Digital is increasingly becoming core to their business. This holds true even if the traditional core business was far removed from “digital”.

Turning organizations upside down

On the other hand, business change is seen more holistically. “Digital” permeates throughout the entire organization and touches on every function. For example, in the olden times you might have been able to run a process improvement programme solely in your operations department.

However, the new digital world will force you to run these programmes in a far more integrated way. Most noteworthy, you have to look across your entire company and partner networks. Just get some inspiration from the approach Barclays, one the UK’s biggest banks, have taken.

Barclays quite literally overhauled their entire delivery organization. Traditional hierarchical structures evaporated. This was like taking a big tanker apart and moulding a large flotilla. Hence, their organization became more agile, like a fleet of semi-autonomous canon boats.

Insourcing digital talent

Probably one of the first things you will notice happening as a consequence of digital transformation is talent sourcing. At corporate level more businesses will start attracting and retaining digital natives.

A very unlike example of insourcing digital talent is a dentistry chains in the US. You imagine they are after doctors. Far from it. Their job listings actually look for social media managers. They advertise for software experts in imaging analytics and system integration. A healthcare provider going digital.

None of these roles would have been previously seen as core to their business. Yet the trend towards insourcing this expertise is very clear. There is a recognition that “digital” is pivotal for their business.

Digital for the benefit of the customer

As a customer, you can see further tell tales of digital transformation. New product generations that businesses are launching stand witness. Likewise, you can see this in the speed by which product updates are being churned out.

Take the Barclays example again. This time their card business.

Their entire product offering is decomposed into small, autonomous pieces (shown here as the “loading icons” on their home page). In contrast, software projects in the past were mostly delivered as monolithic solutions.

However, the digitally transformed Barclays has grouped their specialists into small teams to tackle small requirements. Small pieces collectively build up into the bigger picture. Also, they can move quickly to incorporate new features more selectively.

That’s Barclay’s flotilla of software developer teams. Individual teams can improve their respective parts of Barclay’s product without impacting other parts of the service. We will see later how this new approach is putting in the foundations. Similarly, we will see the profound impacts on future organizations, work processes and inter-departmental behaviours, the trialling of innovative ideas and many more.

Digitalization trends

The digitalization of businesses have not started only recently. It has been in the making for at least the past decade. Several aspects and enablers had to come together to give digital transformation a sound basis.

But the basis isn’t static. Rather, the constituent parts of that basis are in constant flux. In some areas less, in others more. We call these ever moving influences and impacts digitalization trends.

One of the difficulties that digital transformation programmes often have are that they operate in an environment that is possibly moving very swiftly. Which brings us to our list of digitalization trends:

Flexibility and Agility

The digital age has brought back some evolution principles to the business world. We often see that not the biggest company or business can gain a competitive advantage, but the business that is fittest and can adapt fastest.

A couple of years back Facebook was a minnow. It had numerous competitors doing largely the same thing. However, they outgrew these competitors.

Facebook’s growth is underpinned by their agility. They make shifts to their business model rapidly. Whilst Facebook originally operated as a repository for user content, by 2018 they had become one of the biggest advertiser platforms in the course of about 3 years.

Facebook can do this because it churns out around a dozen new software releases for their flagship product every day. These are often rapid changes that respond to user or legal requirements.

Compare this to the communication service provider or mobile operator space. They operate in similar technology surrounding to Facebook’s. They enjoy an almost insurmountable barrier to entry for competitors. Yet, their industry has been stagnant for the past decade.

Release cycles for new products are often measured in months and years, as their rather comfortable situation has made them lazy.

Customer-centricity

Every business worth its metal will claim to be customer-centric. And in fairness, it may well be. “Digital” did not suddenly invent customer-centricity. “Digital” is merely reinventing it.

When you listen in to a discussion about digital transformation I bet that before soon you will hear the terms “Design Thinking” and “Lean Start-up”.

The first describes an approach by which you put yourself into the shoes of a customer, design your products and services around this customer’s needs and problems, iterate your design in short cycles and refine.

On the other hand, “Lean Start-up” teaches you how to develop a minimal viable product, or MVP, that you can put out into the market, get feedback from real customers and incrementally enhance it.

These are not new concepts. They were devised decades ago. Many businesses have used them in their product development. Businesses have been running their new product ideas through market research, signed up guinea pigs.

What “digital” has brought to the table is a rapid and cost-efficient way of applying these concepts. It has dusted off these concepts. How did that happen?

Firstly, software packages are readily available that allow for visualisation of new product ideas in a matter of days. This can be done, for example, with Virtual Reality.

Also, integrated development environments let you come up with apps or software solutions that can be tested with real customers sometimes in the space of hours.

And lastly, customer feedback can be accurately measured and interpreted in real-time. This helps product owners to quickly adjust aspects of their digital products that do not work.

In the end of the day, what we are looking at here is a set of tools that finally support customer-centric behaviour in a proper way.

New digital business models

Another digitalization trend comes with opening up a whole world of new and adapted business models. According to Wikipedia:

Simplistically speaking, in the old times we created value by manufacturing a certain product or developing a service. We delivered the value through selling the product in a shop. And, charging customers money for the product lead to capturing the value.

Business models in the digital age are often far more complex and fluent.

Back in 2014, the University of St Gallen developed a catalogue and map of (digital) business models. Download this pdf document here ➥

Whilst they do no maintain the document anymore, the Business Model Navigator ➥ still is a great resource to understand what works in the digital age.

Digital channels to market

Tightly coupled with the business model discussion in the context of digital transformation is the digitalization trend of ecosystems and extended channels to market.

First of all, your customers have become more dispersed. They rarely use the high street shop as their single destination of engagement and purchase. They hang out in different places. You will find them on Facebook. LinkedIn. Instagram. YouTube. Amazon.

Yet, many companies do not understand how to best serve their customers throughout the new purchase life cycle and beyond. You should not be surprised about this. Remember: “digital” has rarely been a core  activity for these businesses. It’s a zoo of non-traditional channels that is suddenly emerging.

Digital ecosystems

The other digitalization trend is ecosystems. Unless you are a very big player, you cannot do everything yourself in-house anymore. And even then. But what are these ecosystems?

The first business model in St Gallen’s list is actually a good example of ecosystems. It mentions Ryanair, Europe’s biggest low cost airline. Ryanair’s core business is obviously air traffic. Flight tickets to get people from A to B.

But does the company make money with this? After all, ticket prices are often rock bottom. The short answer is Ryanair frequently only breaks even if you solely consider air fares.

For them there is more money to be made from the Add-Ons. Want to transport luggage? No problem. We have made a deal with the airport operator to bring the luggage from check-in to the plane (for favourable conditions for Ryanair, of course).

Need a hotel, a travel insurance, a rental car, a bus ticket to town, a porter at your destination? No problem. We have ecosystem partners that will provide these services to you. And not only that. We have also integrated these ecosystem partners into our overall booking and fulfilment process and web site.

You will get convenience. We take a juicy cut of the additional revenues.

Technology accessibility

All of the above would not have been possible without access to powerful technology at minimal incremental cost.

Web technologies, cloud, cheap sensors or the Internet of Things, software development environments and (wireless) connectivity have all become vastly more accessible over the years.

Nowadays, an average Joe can build his own website. Marketing staff without any technology knowhow can assemble their own product prototypes. The plug-and-play in the mobile device world sees 10-year old school kids coming up with their own apps.

These are all building blocks that have lead to a substantial acceleration of the product trialling and development process. Furthermore, a wider proliferation of these building blocks comes at an extremely low cost point not seen in past.

Likewise, the digitalization trend of better accessibility is also encroaching on previously higher end technologies. Artificial Intelligence is combined into consumer electronics such as home hubs. Similarly, 3D printing has made its way into probably the most unlikely of targets for a digital transformation: bakeries.

Merging traditional and digital businesses

Another point in case is the driverless car industry. First of all, historically it took deep pockets to develop a car, let alone a driverless car. However, you will also need expertise in a wide range of technologies. Image recognition, AI, real-time processing, short-range communication, IoT and sensors, to name but a few.

Yet, you can find numerous start-up companies jockeying for position in this space.

A recent ranking by Business Insider ➥ revealed that 7 out of 18 companies most likely to get a driverless car on the road were outsiders. Companies that had never before built a car. So, go figure.

Most noteworthy, my favourite example is a manufacturer of bamboo electric motorcycles. The bike is packed with digital technologies. “Digital” is used to enhance a very traditional product. However, the company is small. Very small.

Interestingly, they  produce the motorcycle in a country that is not particularly known as being at the forefront in e-bikes: the Philippines.

Lean, digitally mature organization

Finally, we keep the best for last. And yes, you can see that the trend for digitalization will impact your organization. Your staff, the management, suppliers and partners.

In short, your organization will need to become digitally mature. Top to bottom.

Because you will need to become more innovative, more customer-centric and faster in executing new digital product launches. But this has to go hand-in-hand with improvements of your internal structure and working processes.

By the way, if you want to understand how digitally mature your own organisation is we encourage you to download our FREE Quickscan Digital Maturity Tool ➥

Almost all companies that have undergone a successful digital transformation have flat hierarchies as a result. Furthermore, a lot of the decision making is delegated to task teams rather than being passed on top down.

Consequently, these peer-level task teams form the backbone of any digital organization. After all, team members are usually the go-to experts who know the optimal or best solutions for problems.

So, you say that this only works for a certain sized company? It is not doable in your environment? Well, think twice.

Take Spotify, a provider of streaming service and competitor to Apple. Because they manage their 4,000+ employees across only 3 hierarchy layers, their business is super responsive. Certainly lean and almost entirely self-organising.

Dispelling digital transformation myths

Digital transformation is often traded as an activity that will magically mitigate all problems a business may have. But that couldn’t be further from the truth.

Time to cut through the hype and myths that have been surrounding digital transformation. Perceptions that we regularly see when talking to our clients. Views that set the tone and expectation in a potentially wrong direction.

Let’s start dispelling with the unrealistic views, in no particular order…

#1 – Digital transformation is a grassroots thing

Executives and managers quite often believe that they just need to kick off a couple of “digital” projects. As a consequence, their organization will then automatically transform  across their business. Because some sort of transformation always happened in previous project. After all,  this is the way we always work.

Mistake! Digital Transformation only works where it is actively endorsed and driven from the top. In contrast, grassroot projects, even if they are “digital”, do not have the authority to implement wide-ranging changes. But wide-ranging changes are what you are after. They are necessary to make digital transformation work.

More importantly, management will need to shape the vision for a transformed company. They will need to empower their employees. Additionally, their steer is required when restructuring functions in support of the new paradigms.

And, last but not least, management will need to become digital ambassadors.  Transformation without leaders by example rarely come to fruition.

#2 – Digital transformation is all about customer-centricity

If only we do what our customers want, in the way they want our products and services, we will be fine. We will be digitally transformed.

Mistake! Customers often do not know what they want or why they want it. Did customers know they needed Alexa? Did it occur to them they were missing cloud computing?

Now, don’t misunderstand me. It is always a good idea to commercialise products that a customer actually want. However, this on its own doesn’t make you a digitally transformed company.

Nor should you ignore all the other aspects that complement customer-centricity. Start with mindset change, agility, streamlined technology.

#3 – It will be easy for us to deal with people issues

Having gone through numerous reorganisations in the past years it will be easy for us to deal with people issues. Hence, digital transformation programmes cannot be that different.

Mistake: You may have gone through several reorgs but here is the big BUT: digital transformation will be something that permeates across your entire organisation and functions. It will ask your employees to pick up new digital skills and maintain the learning cycles.

It will threaten your employees with redundancies. Almost certainly, you may need to introduce new working styles. Your people will bear potentially wider responsibilities. They will need to get used to the speed of change of digital. Above all, does that still sound easy?

#4 – Technology and IT will be sorting out itself

We know all the technologies and capabilities we need for our new digital products and services. After all, they are out in the public already. There is no point for us to get overly involved with technology. It is just there.

Mistake: You are likely to use technology and IT assets and capabilities as part of your future digital products and services. So, you need to have a good and sometimes detailed understanding of what these assets can do for you.

Even more importantly, you need to identify those people in your organization who know about potentially new and upcoming technology and IT. Let them closely cooperate with your wider business.

Technology and IT can give a tremendous advantage across many functions of your business. The impacts are felt in operational efficiency, innovation, unit cost reductions and many more. Ignore this at your own peril.

#5 – We just need to fine-tune our organization and processes

Our organization and working processes are optimised already. Therefore, we just need to fine-tune a bit to become truly digitally transformed.

Mistake! Having your processes and organization fine-tuned does not make you a digitally transformed business. Almost certainly, you have optimised those in response to a specific challenge. They were singular.

On the other hand, digital transformation for many companies will mean changes of your organization’s mindset. Furthermore, your approach of delivering projects will differ. You will instil the willingness in your employees to relentlessly enhance your digital products and services.

#6 – We can outsource our digital transformation

We realise that digital transformation is a long and complex programme. We have decided to outsource this.

Mistake: Once and for all, your Management has to own your digital transformation. You have to deliver it from within your organization. Period.

At unleash.digital we strongly advocate organizations in-house digital transformation. Get your hands dirty. Thereby, you will find your own way whilst learning from others through occasional external support.

#7 – Digital disruption does not matter in our industry

We are not pressed for time in digital transformation. Our industry is very traditional. Changes take forever. And, it’s all a cosy little family.

Mistake: Ask the taxi drivers how their protected turf melted in the advent of Uber. Ask your retail shop how they feel about Amazon. They were on the high street. Prime locations. So, many thought they couldn’t be disrupted.

Disruption will happen unexpectedly. Similarly, disruption will happen from unlikely angles and players. Prepare yourself in time.

#8 – We have a very clear digital roadmap for the next 5 years

Our business has a clear digital roadmap in place that gives us steer for the next 5 years. We have got things sorted.

Mistake! Sounds like a communist regimen to me. But why is this treacherous? Because long-term roadmaps rarely work. 5 years in the digital age translate into millenniums in real life.

First of all, there is nothing to be said against plans. After all, a plan shows that you have reached a common understanding of your digital agenda.

Secondly, there is nothing to be said against a long term plan. It shows that you have spent time thinking about the future of your business.

My point here is simple: don’t fall back into an old-school programme planning exercise. Rather, a digitally transformed business lives from its ability to swiftly change tack.

As you see, there are numerous misperceptions about what is relevant for a proper digital transformation. And, this list is not even remotely exhaustive.

Equally, many more businesses are getting clued up on things they will need to do. Get in touch with unleash.digital ➥ if you are looking for a sounding board to bounce off your most burning questions.

Socio-economic impacts of digital transformation

“Digital Transformation” has always been a term discussed controversially in public around the globe. It triggers different reactions from different stakeholders.

You will find advocates who see digital transformation and the digital economy as a vehicle for a better world. To alleviate gaps and differences. To spread prosperity and make working lives less miserable.

On the other hand, you will see sceptics of digital transformation who argue that digitalization leads to rationalization of work and mass unemployment.

All of these discussions happen whilst the digitalisation trends are in full swing. The business world does not wait.

Public policies are late

As always, policy makers wake up to the inevitable trend rather late. In fact, global policy initiatives are still only at a very earlier state. Did you see the alleged “grilling” of Mark Zuckerberg in front of Congress and the EU in Brussels? He emerged literally unscathed. But more noteworthy, these hearings are testimony of many politicians being unable to grasp “digital”.

Also, policies tend to concentrate on aspects of connectivity, digital economy business models, workforce digitalization and financial inclusion. They can often appear somewhat removed from the realities on the ground.

Have a look at the 2017 G20 Roadmap for Digitalisation ➥.

Assessing socio-economic impacts are like gazing into a crystal ball

In all fairness, it is rather difficult to predict the socio-economic impact of that digital transformation has. Let alone assessing this at a wider scale. There are simply too many unknowns for quantitative analyses. Know unknowns as well as unknown unknowns.

Whatever model you will come up with: it will be flawed. You will see parts that are not considered. Aspects that are allotted to digital transformation where they should not be. Questionable assumptions.

And then, you have to check the author of the socio-economic study. What was there motivation? Who has paid for the report?

Impact of Digital Transformation in AsiaPac

One rather interesting data point we are aware of at unleash.digital can be found in the world of Microsoft and IDC. They just recently issued a study presenting an analysis of the impact of digital transformation in the Asia Pacific region.

The study unearths some interesting quantitative data that is generally hard to find elsewhere. Taking 2016 as a baseline, digital transformation will contribute a further annual 0.8 percentage point to GDP.

Now, this may not sound massive. But you have to put this in perspective with the forecast CAGR. In that view, the GDP uplift comes in at around 15-20% higher then without digital transformation.

On the other hand, job prospects look a bit more bleak. Ignore their bullish headline for now. The 89% jobs that are being (digitally) transformed in the next 3 years include a whopping 24% points of outsourced, automated and redundant spaces.

So, when assessing the socio-economic impact that digital transformation and the digital economy as a whole has, always be mindful of the strong people element that comes with it.

We will elaborate on people issues in subsequent posts. More importantly, we will discuss ways to mitigate negative impacts. Stay tuned.

Learn more about the WHY of digital transformation ➥