A few years ago, Elon Musk allegedly said that the difference between an electric Tesla car and a traditional vehicle with a petrol engine is that the value of the Tesla car increases after you take it out of the showroom, while that of traditional combustion engine cars falls, since the services a Tesla offers, and thereby the benefits gained, will grow as time passes owing to the new software releases that are installed every 40 to 60 days.
Whether you agree or disagree with this statement, it has its merits
Data is the oil of tomorrow
As data is becoming the oil of tomorrow, the companies that decide to undergo a digital transformation will be able to unlock more value for their customers and for themselves compared to those that do not embrace digital transformation. Just think about Netflix, which became what it is today after changing its business model from a DVD rental business, and compare its share price with that of the (traditional) cable TV channels!
What this comparison highlight is that it is high time, if not almost the last minute to change your business model and to embrace the use of software for generating and analyzing data. Digital transformation allows companies to dig deeper into understanding their customers’ changing consumer behaviors and habits. In the past, segmentation was based mainly on demographics, while in our connected contemporary world, companies can dig deeper into segmentation, do profiling, make predictions of future expenditure or behavior of their customers and personalize accordingly.
But, what is digital transformation?
Digital transformation is not just about installing software or developing an app. Installing sensors or start using artificial intelligence or machine learning is closer to what we mean by digital transformation. However, all this still relates to the technological aspects.
Digital transformation or digital-technology-enabled transformation is something more!
Digital transformation is more about organizational change, in which leaders must understand the merits of the digital, the significance and importance of data, and all that it may offer.
Digital transformation is more about empowerment, involvement, and changing the culture of an organization. It is more a business philosophy, a business model, and a change of mindset.
Digital Transformation, according to Alvin Ng, Associate Adjunct Professor at Nayang Business School in Singapore, “requires a shift from digital, as a point solution to digital as an enabler to unlock performance across organizations”. This preempts that there is an overlap between digital and agile organizations. The intersection between a digital and agile way of operating is an ideal overlay area; therefore, to get there, as Professor Ng puts it, building a digital-enabled organization must address the following four areas
- Culture is mainly concerned with the ability of the workforce to embrace agile operations.
- Leadership, whereby the leadership understands the strategic priority of digital across the organizational units.
- The ecosystem approach, which requires both the internal organizational units and the ecosystem partners (suppliers, supplementary service providers, technology partners, etc.) to work together to build new operational capabilities and thereby change the way the corporate body operates.
- Platforms – standardization, scalability, and technology that enable platform partners to transact independently, yet in a structured manner under appropriate governance. It is a new way not only of distributing goods and services but of setting up different interactions between ecosystem partners.
Why is it so important?
Because it requires that the old focus of management is replaced by a new focus, one in which cooperation is assigned higher priority over trying to outpace the competition in the analog age. This will be the only way to remain resilient and to be able to deliver constant and consistent value in the digital world.
Can you do it overnight?
Certainly not. Especially since it involves an interesting, non-digital element: people. As digital includes people, certain organizational skills and capabilities need to radically change.
Companies about to embrace the digital (and agile) need to adopt a lean startup culture, where experimentation is valued, and a high degree of customer-centered service becomes part of the new digital DNA of organizations. Furthermore, the change in organizational culture needs to address the inherent conflicts between domain experts (who might be able to push back experimentation and new ideas) and digital natives, those digital generalists who understand the importance of the digital world and are able to accelerate the way they (and their departments) operate and how they are able to make shifts and pivot quickly, based on data analytics.
Leaders need to acknowledge that there is no single “big-bang” project to both turn the company around and change the value proposition, but they need to launch multiple small projects (internal or external) and push them to gain traction, but be bold enough to abandon them if results are not achieved.
Leaders need to realize that 3-year plans no longer work – a new form of planning has emerged: continuous planning using continuous feedback loops.
What is the takeaway from all the above?
Digital is more than just a technology. Digital is the new mindset. Thus, digital transformation is in fact a digital journey. If you do not embark on this journey, you will be disrupted and might end up out of business. However, leaders should remember that digital transformation does not happen on technology boards, but between the ears…