We are hearing a lot about digitization, digitalization, the digital workforce, digital disruption, and digital business transformation these days. These terms are not just coming from Cisco; they’re coming from everywhere. While we find the words “digital business transformation” on our lips more and more, the term has probably crept up on a lot of us without our really knowing all that it means and encompasses.
That's why I’d like to focus in on how the Global Center for Digital Business Transformation, a joint initiative of Cisco and IMD (International Institute for Management Development), defines digital business transformation. Let's look at a paper on the subject issued by the center and written by IMD Professor of Innovation and Strategy Michael Wade. The paper is useful in that it strives in a concrete way (with some great real-life examples) to explain digital business transformation and provide a conceptual framework for it.
What Is It?
Citing Wikipedia, Wade admits that people can use the term digital business transformation to mean anything from going paperless to incorporating digital technology into all aspects of society. He defines it, however, as “organizational change through the use of digital technologies and business models to improve performance.”
Wade then goes on to explain each of the components of this definition more fully: 1) organizational change, 2) digital technologies and business models, and 3) improved performance.
Ingredient No. 1: Organizational Change
Wade uses the well-known example of Kodak’s failure to capitalize on its forays into digital camera technology to underscore how crucial organizational change is to the digital business transformation equation. Kodak had the technology but didn’t mobilize itself adequately and so let the revolution pass it by. It was a victim of digital disruption.
Not all organizational change needs to be as dramatic as the Kodak example. Says Wade, “the level of change can be incremental and cumulative, such as hiring new digitally-savvy employees and retraining existing staff, adding digital services to existing products, digitizing processes, and realigning incentives. Transformation does not have to mean radical change. Nevertheless, the lack of action—or a series of inappropriate actions—can dramatically increase a company’s vulnerability to digital disruption.”
Ingredient No. 2: Digital Technologies and Business Models
The Global Center for Digital Business Transformation paper distinguishes between digital technology as a transformation driver for a business, and other drivers such as political, social, cultural, or economic shifts. According to Wade, here are the top technological developments spurring digital business transformation today:
- Analytics tools and applications, including big data
- Mobile tools and applications
- Platforms upon which to build shareable digital capabilities, like cloud solutions and app marketplaces
- Social media tools and applications
- The Internet of Things, including connected devices and smart networks
Adds Wade, “Together these digital technologies, often cumulatively referred to as the Internet of Everything (IoE), are having a profound effect on how organizations and industries are transforming, often as a result of new technology-enabled business models.”
Ingredient No. 3: Improved Performance
In this age of increased fixation on digital technology, it is key for performance to be measured in quantifiable terms and in more than a single area, says the paper. Performance improvement can be assessed in the following areas:
- Increased revenues
- Improved efficiency and reduced costs
- Faster and more successful innovation
- More effective knowledge collection
- Sharing and use
- Enhanced customer engagement and customer service
- Sustained protection against digital disruption
And, because many of today’s technologies, such as connected devices, big data, and social media, are quantifiable by their very nature, the task of measuring performance can often be straightforward.
Your Company’s Transformation Journey: The Why, What & How of It
The paper likens digital transformation to a journey, one where you must seek to answer three basic questions en route to success:
Answering the why question is crucial because organizations must be crystal-clear about why they need to go through the process of transformation. The impetus to transform might come from one’s customers, one’s competitors, or from the emerging technologies themselves. According to the paper, the industries most highly driven currently by a need to change are as follows:
- Financial services
What to transform can be boiled down to seven basic categories:
- Business model (how you make money)
- Structure (how you are organized)
- IT capability (how you collect and manage information)
- Offerings (your products and services)
- Engagement model (how you engage with customers, suppliers, etc.)
Noteworthy here is how extensively the digital business transformation question penetrates the fabric of an organization.
The third question, how to transform, is the hardest one for an organization to answer, says the paper. It requires three capabilities:
- Hyperawareness: “In an environment characterized by accelerating rates of change, it is imperative for organizations to sense the factors that will affect them,” states Wade. One way to do this, he adds, is for employees to “leave the office” and witness how their products and services are being used in the outside world.
- Informed decision making: In other words, how do you translate that hyperawareness into a decision to move forward? Interestingly, it is digital transformation tools themselves that can help here: “knowledge management systems to organize insights, collaboration systems to facilitate remote conversations, dashboards to display relevant information, and analytics systems to provide evidence-based insights.”
- Fast execution: Moving forward efficiently with a course of action is the third capability of digital business transformation. It hinges on having a work culture that promotes innovation and risk taking and is not afraid of failure. “Most new initiatives fail,” asserts the report. “A fast execution capability acknowledges that failure will occur, and considers it acceptable as long as there is a strong effort to learn from the failure, adapt, and try again.”
The Ultimate Goal: Digital Agility
When you put hyperawareness, informed decision making, and fast execution into play, you manifest “digital agility.” It is not an easy mandate, and the paper admits that many executives are “unsure of the appropriate responses.” Lest you be overwhelmed by the prospect of achieving digital agility in your organization, take encouragement from the fact that the conceptual framework offered here is open-ended. “There is no one-size-fits-all roadmap for organizations across every sector,” says Wade.
The paper from the Global Center for Digital Business Transformation, while only 16 pages, provides useful amplification and illustration of the points above, so take the time to delve further into it. It can serve equally well as your primer on digital business transformation or as a focus for your organization if it is already on the journey.
Once you have a read, let us know in the Comments section below whether this paper gels with your ideas about digital business transformation. Are there any elements or points that you feel need to be included in discussion of the topic?
Gary Pfitzer is a content manager at Learning@Cisco, focused on bringing various aspects of today's IT journey to light through business papers, blogging, customer success stories, and other writing.