Whatever business journal or newspaper you read nowadays, chances are high that you will encounter a story or case study about digital transformation. But what does digital transformation mean, and is this truly something new? Let’s find out.
Are We Talking Transformation or Just Digitalization?
In recent years, many companies have embraced digital technologies. For instance, Starbucks recently launched its Mobile Order and Pay app to enhance customer experiences and gain valuable customer insights. This app allows clients to enjoy a tailored experience, skip waiting lines, and make in-app payments. Audi also aimed to enhance its customer experience by introducing Audi City, an innovative showroom concept that enables visitors to explore the entire car catalogue on large interactive screens in city center stores, where large showrooms are typically not a possibility.
However, despite often being labeled as great examples of digital transformation, these initiatives are not genuine transformations. Why? Simply because Starbucks and Audi only digitalized their existing processes and operations to eliminate suboptimal customer experiences resulting from historical cost-cutting decisions. Under Armour, on the other hand, is one of the few companies that recently used digital technologies to offer entirely new business models and services, embarking on a genuine digital transformation.
Indeed, when the Baltimore-based athletic apparel company introduced connected fitness in 2016, they didn’t merely add a trendy gadget to their product line to boost clothing sales or create another channel for gathering consumer insights. Instead, they launched a brand-new offering, allowing customers to track, analyze, and share their personal health data. This shift positioned Under Armour to transform from a sports fashion company into a health advisory that sells apparel as a business enabler. This is what digital transformation is truly about: not just becoming a better caterpillar, but turning into a real butterfly.
Stuck in Digitalization or Lost in Translation?
So, why do so many companies talk about digital transformation when they are primarily digitalizing—or at least attempting to do so—their current processes and operations? Three main reasons explain this:
- Stuck in Old Habits and Thinking: Many companies have followed the same business practices for years, fostering a mindset that hinders them from thinking innovatively. They view digital as a way to automate or enhance existing user experiences or business processes rather than an opportunity to redefine the customer journey, the business’s purpose, or even the company’s vision. For example, while John Lewis Stores lets you try on multiple dresses without changing, TopShop empowers you to design and instantly print your own clothes in-store.
- Lacking the Necessary Skills and Capabilities: While it’s not surprising that digital transformation requires new skills and capabilities, many companies rely on the same scientists, engineers, marketers, and salespeople to drive the change. This approach falls short, particularly when the transformed company is expected to do entirely different things. For instance, imagine a vehicle engineer suddenly tasked with creating a vehicle manufacturer’s new car-sharing platform—a challenging feat.
- Paralyzed by the Fear of Failing and Company Politics: The outcome of a digital transformation is uncertain, which often leads to fear that prevents companies from pursuing ambitious visions. As a result, they tend to stick to business as usual, constantly tweaking existing operations. Company politics also play a role, as executive egos may overshadow the company’s best interests, hindering organizational change. Many executives prioritize enhancing the existing organization over building a new, more resilient one.
Building the Foundation for Transformation and Change.
So, what does it take for a company to truly undergo digital transformation? In fact, not much. Three prerequisites must be met:
- Transformation is About Change: When a company embarks on a digital transformation journey, it’s preparing for profound changes. As with any other change program, creating awareness and understanding of the ‘why’ and the ‘what’ throughout the organization is crucial. Consensus on the burning platform, the sense of urgency, and the ultimate goal is essential. This ensures people have a sense of direction and realize how they can fit into the new organization, actively contributing to its lasting success.
- Tech-Savvy Business Generalists to Lead the Way: Instead of relying solely on existing leaders and experts, enlist digital-savvy business generalists. They will ensure an unbiased, market-driven transformation that leverages the latest technologies. These individuals will also facilitate effective use of in-house knowledge and experts by bringing the right people, insights, discussions, and complementary skills to the table, avoiding egos getting in the way.
- Organizational Readiness Sets the Pace: A digital transformation should proceed one step at a time. It’s a marathon, not a sprint. Therefore, once the ultimate goal and vision are established, the company’s readiness should dictate the pace of the transformation. This approach minimizes the risk of failure and allows the entire workforce to contribute bottom-up rather than complying top-down. In cases where urgency is high and the company faces significant challenges, a high-speed transformation might be necessary. In such situations, it’s advisable to drive the change in a separate spin-off to limit the impact on the P&L and avoid paralyzing company politics.
When these three prerequisites are met, your company will be ready for a genuine digital transformation. However, it’s important to note that not all companies need to embark on such a journey. The need for transformation typically arises when an industry is rapidly commoditizing, competition is intensifying, or growth ambitions can no longer be satisfied within the current context. In all other cases, digitalization should suffice to achieve the necessary efficiency and effectiveness improvements, enhancing customer satisfaction and bottom-line results.