As part of their immediate response to the pandemic restrictions, companies rushed to adopt new tools and business practices for remote working, online collaboration, and more widespread e-commerce. Is this a real acceleration of digital transformation or a mirage?
It would be grossly unfair to downplay the digital leaps of leaders, employees, and IT departments over the past few months. However, the same successes hide the trap of complacency. For some, these adaptations are temporary and they long to return to some notion of an “earlier normal,” potentially jettisoning hard-earned innovations and skills. Others might think that they have reached their digital destination and no additional effort or expense will be needed for a while. Both risk wasting the great opportunity for genuine digital transformation arising from the Covid-19 crisis.
The pandemic nudged every company closer to the 21st century competitive landscape, which is characterized by unprecedented economies of scale, scope, and learning. For example, Ant Group, a member of Alibaba Group, needs one employee per 133,000 customers, while in Bank of America each employee corresponds to only 330 customers. By leveraging big data and machine learning, Amazon can dominate any product category with its own private labels while also entering disparate industries from television to banking. The ability of Netflix to learn and adapt to the changing preferences of its subscribers earns it such customer loyalty (subscription renewals) that it leaves its competitors in the dust1.
This level of productivity is only attainable when algorithms run the core enterprise operations autonomously, with people in a supporting role (e.g. developers, data scientists, domain experts)2. To paraphrase Marshal McLuhan, we might say that, from now on, the algorithm is the business.
This is the real challenge of digital transformation. It involves unfamiliar technologies, a scarcity of advanced skills, and unpalatable organizational change3. It requires that we re-imagine the business models, organizational forms, products, and services that are going to become possible in the new digital landscape.
The magnitude of the challenge cannot really be appreciated unless a company engages decisively with digital transformation in order to start climbing that learning curve. In every successful case study, digital transformation is led by the CEO, whose agenda includes five main priorities. First, a clear and measurable vision for the entire organization, understood by everyone. Second, an ambitious yet coherent strategy for the continuous evolution of core operations, customer experience, and business models. Third, the upgrade of IT infrastructures and skills. Fourth, a new leadership model based on self-directed cross-functional and multidisciplinary teams. Finally, the pursuit of innovation with a governance structure promoting experimentation and risk taking at scale.
As the rush of urgency that overtook every company last spring subsides, so does the energy to experiment, learn, and change. The most expensive data analytics tools will not improve the bottom line as long as decision making remains hierarchical, fragmented into silos, and politicized. The real threat is that some other competitor has taken the Covid-19 crisis seriously and sustains their commitment to pursuing digital supremacy.
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1. https://secondmeasure.com/datapoints/netflix-disney-plus-apple-customer-retention/
2. Iansiti, M., & Lakhani, K. R. (2020). Competing in the age of AI: Strategy and leadership when algorithms and networks run the world. Harvard Business Press.
3. Wade, M., & Shan, J. (2020). Covid-19 Has Accelerated Digital Transformation, but May Have Made it Harder Not Easier. MIS Quarterly Executive, 19(3), 7.
