Digital transformation is a necessary element in the success of any company today, but the cold, hard truth is that most organizations will fail in these efforts.
A good part of the reason is that digital transformation can mean different things to different companies and is basically hard to define. Conflicting terms like digitization and digitalization only serve to muddy the waters, while over-exuberance with innovation – which can drive digital transformation – adds more confusion to the mix.
Many businesses and IT leaders also think that digital enablement is something you can buy off-the-shelf and plug into your existing infrastructure, much like an after-market part. In reality, digital does not just involve technology, but is an ongoing process of altering the way an entire organization conducts business, as a March 2018 Harvard Business Review article detailing why so many enterprise transformations fail correctly points out.
So, how do you get there? Where do you begin? Are there any well-proven and documented strategies? These are complicated questions, and ones we have had to answer for ourselves and for the many companies we have supported through changing technologies and business models.
Today’s corporate leaders grew up in the industrial age and often fail to understand the significant differences between the mental models of a product and service company (and its primary drivers – better, faster, cheaper) and a platform and network company (and its primary drivers – to engage, enable, empower networks of buyers and sellers to do the work for you.). Boards and leaders expect to create platforms and networks using old approaches, like command and control management, that were tailored for products and services and fail miserably with more empowered stakeholders. Far too often, these early failures with new technologies and business models lead to a reluctance to invest in them at all, rather than an effort to update skills and competencies.
Establishing a game plan for digital transformation
To help clarify what a winning approach looks like, and what is needed to get there, we have developed a three-stage digital transformation maturity model:
1. Improve what you do
Digitization lets you can create digital versions of your products and services. The scope and scale of what organizations target for digitization will vary. This is a first step to transformation that helps build competency and familiarity. It’s advisable that organizations look for any pragmatic/practical opportunity to leverage digital advancements to convert physical artifacts to digital assets. For example, an electronic or scanned copy of a loan application.
2. Optimize how you work
Digitalization lets you to automate your business processes to create efficiencies and to promote collaboration and communication across the extended enterprise. Similar to the motivation for digitization, organizations should look for opportunities to leverage technology advancements to digitalize functions and processes to optimize business operations and derive efficiencies wherever practical, especially their core competencies. For example, automating the workflow processes for processing, approving and underwriting loans.
3. Transform who you are
Platformation allows you to re-imagine your business and digitally transform yourself by creating platforms and networks that engage consumers and suppliers to co-create new products, services and insights. With platformation, organizations become a central hub to connect and engage all sides of their networks, creating growth at near-zero marginal cost. For example, companies transforming through platformation, process all applications from all borrowers (and lenders) not just to sell more loans but also in pursuit of knowledge and intelligence that explains not just what was borrowed, but also, why it was the money was needed (sentiment and engagement) and who borrowed and loaned it (to understand connections).
Success in today’s digital world depends on leaders mastering all three stages of digital maturity along with the basic differences in the underlying mental models. To get this right, and transition from products and services to platforms and networks, boards and leaders must first fully embrace each stage of transformation because each stage builds on the fundamentals of the prior stage. Further, these three stages can and should be executed in parallel just as leaders should continue to pursue better, faster, cheaper products and services while they are also creating more engaged, enabled and empowered networks.
When organizations don’t understand the subtle differences between improving what you do, optimizing how you work and transforming who you are, they run the risk of missing essential steps in the transformation process. Instead, they just undertake an optimization exercise that may result in a remarkably untransformed organization with, perhaps, slightly more efficient processes. Though digital initiatives that optimize current products and operations do have benefits—shorter cycle time; higher quality; greater efficiency; higher reliability; tighter security; more scalability; etc.—they will not result in an exponential increase in valuation, growth, data, and insight.
All the recent advancements in technology—cloud, mobile, social, IoT, and AI— have certainly helped us deliver amazing improvements. Your improvement and optimization initiatives will certainly yield better, faster and cheaper results. But, without platformation you will be missing out on a once-in-a-lifetime opportunity to deliver exponential impacts/results/outcomes through deeper relationships; and faster growth.
Here are five steps you can take to get on the right path:
- Build your network and establish connections with the customer – specifically, the individual. Then, actively interact with and engage the individual to successfully create meaningful relationships from those connections.
- Derive insights, understanding and intelligence from the data that is captured from these customer interactions. Remember, just as in our personal lives, these relationships will be meaningful and productive only if we are able to truly understand the individual.
- Enable all participants in your network (including your organization) to act on these insights, understanding and intelligence. Here is where things get difficult and complicated. Whereas the first two steps could be powered by technology, this step will depend on the human sensitivities, sensibilities and a willingness to recognize the opportunity and then be adaptable and change. Remember, the organization’s interactions and engagements will only prove valuable and productive if the insights they’ve gained can be acted upon.
- Invest in AI and predictive analytics. While being able to react and respond to data is good, being able to predict, anticipate and prescribe is much better. To do this well you will need AI to interpret the data in real time and serve up some of that benefit and insight to the participants in your network. Make no mistake, AI will deliver an exponential increase in the ability and quality your platform and super-charge the velocity of value creation. It is the secret sauce.
- Be willing and able to adapt, evolve and transform with speed and agility. This will have an exponential impact. Remember, this can only happen if the organization has the right mindset, leadership, structure, people and technology.
Moving toward a network economy
True digital transformation will result in holistic changes across the entire spectrum of the organization: organizational structure, people, business focus, asset creation, leadership structure, financial priority, revenue sources, business processes, data/insights and technology profile/investment. Most, if not all these changes will require a deep commitment and an openness to new approaches by the leadership and governance in any organization.
It’s no longer sufficient to ask how we can make things more efficient? How we can automate processes? How we can save money? Optimization is a noble and responsible goal, but it leaves a great deal of value on the table. You must do more. Specifically, you must become obsessive about your network and about customer engagement.
You must also ask: Do we understand our customers? Do we appreciate what each customer needs? How should we engage with our customers and how do they want to engage with us? Simply put, your hunger for this type of predictive and prescriptive information should be driving a platform and AI strategy.
Digital transformations create network economies—allowing companies to engage, enable, empower, and leverage networks. You cannot create exponential growth by limiting yourselves to the thinking and actions of decades past. If you’ve made the commitment to drive for the fastest growing, most profitable, and most valuable business, it’s time to ride the waves of technology innovations and transform into a network and platform company.