In his last post, guest author David A. Smith (CEO and Founder of Global Futures and Foresight) outlined how organisations can embrace change and prepare for a successful transformation. In this, his second post of a trilogy that precedes his keynote speech at DigitalCONNECT 2016, David explains why every company is digital.
The state of digital transformation
The Economist Intelligence Unit notes that whilst ‘…digital initiatives are best when strategic in nature,’ 29 percent are led by single business units†. The lack of strategic alignment is also seen in the fact that at present, only 6 percent of organisations have created the position of Chief Digital Officer (CDO) or an equivalent†. Whilst creating such a position does not suffice in digital transformation efforts, it does provide a focal point around which efforts can coalesce. It is noted, for example, that those ahead of the digital transformation curve are more likely than those behind the curve to have established a unit with responsibility for digital business.
Despite growing digital aspirations ‘…only 18 percent of organisations today have fully integrated customer facing processes with their back office systems and only 10 percent report their businesses are fully digital†.’ This gap will in all likelihood close in the coming years, but it does suggest clear competitive benefits to those able to match their aspirations with concrete action.
It is also likely that such steps are transitional in nature; they do not represent an end-point and should be considered as a platform from which to undertake organisation-wide (and on-going) digital transformation.
Competitive pressures are a key driver of digital transformation, with many industries marked by the emergence of start-ups digitally based business models. ‘Many disruptors – Amazon, Salesforce, Uber – employ platforms, yet most prove threatening to the incumbent through a different source of value creation. It wasn’t the platform per se that was disruptive so much as the usage-based pricing for Salesforce or the unlocking of private assets for Uber. For Amazon, on the other hand, it was the extended market reach of its aggregation platform that gave it its disruptive power†.’ In other words, it is not necessarily what the disruptor does, but how they do it and what their digitally driven business models enables. This is why 73 percent of millennials would be more excited by a financial services offering from PayPal, Apple, Google, and Amazon than from their own bank†.
Established organisations changing
In response to the challenge posed by digitally enabled upstarts, established companies are adopting Gartner’s advice that ‘…every company is a technology company†.’ Spanish bank BBVA is one of many who now self-identify as a software company rather than by their original industry. It would belie the challenges inherent in digital transformation however to assume a new label, position or title alone confers change.
Indeed, a Henley Business School study shows that when traditional companies go all in on digitisation, complexity rises (the number of point-to-point connections among systems rises almost 50 percent), the quality of business-process documentation deteriorates, and services get reused less often†. Without a clear road map that accounts for future IT needs, rising complexity and concurrent lower efficiency is all too likely an outcome.
Despite this, and the obvious use of platforms of new entrants to make rapid inroads across a range of industries, incumbents regard established competitors’ digital offerings as the most significant source of competitive pressure – at 57 percent. Less than half see start-ups as providing greater digital pressures†.
Reasons for failure and barriers to successful digital transformation
It is the piecemeal nature of digital transformation that chiefly blocks or facilitates the failure of many attempts at change. Many established organisations, notes Harvard Business Review hope that they can stay competitive making only minor tweaks, yet these changes often produce only localised results that fail to ripple across the organisation†. SAP suggests that this half-hearted attempt at change may in fact be worse than trying nothing at all, with a clear majority of businesses solely substituting technology for their old analogue processes. Whilst very localised benefits might be realised, digitising old processes without adapting those same processes to make optimal use of a given new technology bypasses any opportunity for deeper innovation. Worse, it risks establishing an anti-technology mindset amongst both managers and workers as a result of lower than forecast ROI and friction from ill-fitting technology.
Digital transformation entails the development of ‘…digital capabilities in which a company’s activities, people, culture, and structure are in sync and aligned toward a set of organisational goals†.’ Against this ideal lies the reality – traditional organisational models often silo data, talent and resources whilst boardrooms often lack a strategic understanding of technology. Whilst the C-suite may possess greater levels of tech savvy and know-how, technology can often be delegated down the chain of command. Parcelling digital transformation as an IT topic is both short-sighted and risky, especially if the envisaged shift is for the organisation to adapt an ‘as-a-service,’ model since all C-level executives will be involved in change, and have the responsibility for driving it†.
In addition, many organisations are faced by resource constraints, a lack of appropriate talent and organisation models that discourage wide-ranging change. The rise of complexity in the operating environment since the global financial crisis may well necessitate change but this can be hard to see for those in the middle of daily operational grinds. A common result is often a localised effect, with executives managing digital initiatives that are either limited by division, function or channel. Given the size of these barriers, it is perhaps unsurprising that 40 percent of executives and managers cite a lack of urgency in the company as the biggest barrier to digital transformation†.
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Sources in order of appearance:
† Source: Economist Intelligence Unit, 2016, † Source: CMO, 2015, † Source: Economist Intellgence Unit, via PRNews, 2015, † Source: Deloitte University Press, 2015, † Source: Huffington Post, 2016, † Source: Gartner, 2013, † Source: McKinsey, 2016, † Source: Digitalist Mag, 2015, † Source: Harvard Business Review, 2016, † Source: Deloitte University Press, 2016, † Source: SAP, 2014, † Source: SAP, 2014