Here is a genuine question: Is digital transformation any different this time? Or is it just new words, new terminology, describing the decades-old phenomenon of organizational change induced by information technologies?
Recent research has shown that there are extensive similarities between IT-enabled organizational transformation and digital transformation. This is a relief because it means we can apply many of the hard-learned lessons of the past. Jeanne Ross from the MIT Center for Information Systems Research summarized a common aphorism about digital transformation as follows: “All the digitization in the world won’t, on its own, make a business a digital company.”1 Even though this is widely accepted, most of the attention is still directed on technologies and systems. Perhaps this is because technology is more exciting, more tangible, possibly better defined, or simply because technology is something that can be bought and sold. In any case, this phrase is as true about digital transformation today as it has always been true about all investments in information technology over the past 30 to 40 years.
The same can be said about repeated studies showing that less than 30% of digital transformation initiatives meet their stated objectives. The diagnosis of digital transformation failures reveals nothing surprising. Companies often nurture unrealistic beliefs that advanced digital technologies will, on their own, solve problems of organization or strategy. Sometimes, peer pressure or hype drives investments without clarity of objectives. Less obvious are problems related to the governance of digital transformation which prevents key people from taking ownership. Too often we discover that the adoption of innovation contradicts deeply held beliefs and routines that are rooted in our organizational culture. Again, these are all issues that have been well documented and understood over decades of organizational transformation enabled by information technology.
However, this time, there is one critical difference. Whereas IT-enabled organizational transformation supports the pre-existing value proposition and organizational identity, digital transformation pushes companies to redefine who they are and what they offer their customers. For example, a telecoms operator may become a content and entertainment provider, an electricity utility may become an IoT ecosystem orchestrator, or a retailer may become a supply chain orchestrator. In practice, such digital transformations translate into new revenue streams (different value proposition) and a new set of core capabilities (different identity).
Based on the above, we can understand digital transformation as the process by which 20th century companies change, in order to survive and compete in the face of 21st century digital disruption. Faced with this challenge, some companies invest in digital in order to protect their legacy operating model, i.e. their older ways in which they create and capture value, rather than disrupting their own business to develop new sources of revenue. This is not surprising; most of us, when facing a threat, are psychologically inclined to prioritize loss avoidance over the pursuit of risky opportunities. One of the leadership challenges in this environment is to manage this paradox: to sustain current capabilities and past successes while at the same time disrupting them — self-cannibalizing them — through digital innovation.
1 https://sloanreview.mit.edu/article/dont-confuse-digital-with-digitization/
A longer version of this article previously appeared on ekathimerini.com in July 2021 as “The seven battlefields of digital transformation.”
