By Emeritus Professor Donald A. MarchandDonald A. Marchand and Professor Michael R. WadeMichael R. Wade
Digital business transformation (DBT) is happening on a scale and at a speed that managers find both threatening and promising. In a report entitled “The Internet of Everything,” CISCO Systems estimated that 10 billion devices were connected to the internet in 2013, and predicted that this number would rise to 50 billion by 2020. It further projected that $14 trillion in business and economic value would be at stake between 2013 and 2020 across nations, industries and companies through business innovation, higher productivity, increased efficiency in processes, and enhanced customer experiences.
The benefits of DBT are tremendous, but they are unevenly distributed. A 2011 IBM/MIT study concluded that there was a widening divide between companies in how they leveraged analytics and data for business value. In this article, we help define what DBT means for your company and provide a roadmap for creating and capturing value from digital tools and technologies. At its core, DBT is as much about organizational change as it is about technology, and we offer a framework to help navigate this change and realize DBT’s full potential.
Digital business transformation: Definition and key elements
The roots of DBT can be found in MIT Media Lab founder Nicholas Negroponte’s 1995 book Being Digital which explored the substitutability of bits and atoms. Negroponte suggested that any form of information that exists as atoms (like books and DVDs) can be represented by bits on a digital device. This fundamental insight formed the basis of the early growth of e-commerce, as well as the widespread deployment in more traditional industries of information systems, for example for shipment tracking by FedEx, inventory management by Walmart, and the daily tracking of purchases of millions of Frito-Lay snacks by its sales route drivers. The leaders of these companies understood that digital information about their products (and customers) was as important as the products themselves for boosting business performance against their less digitally aware competitors.
Since then,organizationshavewidelyimplemented digital technologies, modified processes to be digitally enabled, and generally become more digitally savvy, but often in an ad hoc manner, without an overarching structure or strategy. Here, we view DBT as a journey that must be approached and navigated mindfully. We define digital business transformation as organizational change through the use of digital technologies to materially improve performance.
AMPS: The newest digital technologies
Digital leaders are companies that manage to harness the power of digital information and technologies to improve business performance. It is important for managers to be aware of digital technologies that have the power to enable and transform their businesses. We refer to the current wave of these technologies as AMPS. Together, these four digital technologies are having a profound effect on how organizations and industries are transforming, as outlined below.
Analytical tools and applications
These tools and applications are designed to analyze and extract value from the vast amounts of data available to organizations today. The difference between this “big” data and traditional forms of data is related to the three Vs: volume,or the sheer amount of data; variety, or the many different types of structured and unstructured data; and velocity, or the speed at which new data is being created. Oil and gas companies, for example, use sophisticated geological and historical data to better understand where to drill multi-million dollar holes to extract more oil from existing reserves.
Mobile tools and applications
More people connect to the internet today through mobile devices such as smartphones and tablets than via fixed devices like PCs. As a consequence, many companies are pursuing a mobile-first strategy, whereby application development is targeted first at mobile devices and then later modified for computers and other fixed devices. For example, Streetline provides apps to monitor parking space availability in large cities to save delivery drivers and consumers fuel and time in locating parking spaces near their intended destinations.
Platforms to build shareable digital capabilities
Many traditional systems and processes are proprietary, meaning that the underlying data and insights cannot easily be shared. Digital platforms are non-proprietary systems that can facilitate the sharing of data, applications and insights across different parts of an organization. Digital libraries of content and applications are being developed to allow for the sharing and reuse of valuable business resources. For example, programmer improvements to the Linux operating system code and applications are freely available in digital libraries on the internet.
Social media
Social media applications like Facebook, LinkedIn and Twitter allow for a two-way flow of information and communication between an organization and its key internal and external stakeholders. They can also be used as learning tools to monitor industry trends, customer sentiment and competitor moves.
The organizational change imperative
Digital business transformation is not just about deploying AMPS in the workplace. Technology implementation without accompanying org- anizational change is likely to result in suboptimal outcomes. Indeed, the benefits of DBT can only be achieved with the right blend of people, skills and organizational structure.
The first challenge is for business leaders to create a sharing culture in which people are encouraged to express and use their internal and external knowledge for the company’s benefit. Command and control models of running organizations do not work in the digital age. Nor do organizational cultures that rely too much on individual performance, instead of team collaboration, to solve business problems.
The second challenge is to develop and promote a mindset of curiosity, fostering people’s appetite to better understand what they know and, more importantly, what they don’t know, and link this knowledge to decision-making and business benefits. For example, companies like Intel must invest in microchips well before their uses emerge in specific markets – a form of intelligently sensing where future markets will exist for its products.
The third challenge is to cascade an information- oriented culture throughout the company, and beyond, to customers and partners, to co-create value and innovation through smarter use of digital tools and real-time information. Do managers in your company use digital technologies to cultivate values and behaviors associated with the information integrity, transparency, trust and sharing that digitally based business processes and models require? Going digital is as much about transforming the knowledge- and information-based culture of a company as it is about using new digital technologies.
The fourth challenge is to selectively prioritize emerging business areas that leverage digital tools and technologies, while still seeking to optimize areas that are challenged by these changes. Finding the balance between new and established areas can be extremely tricky. For example, multi-line insurance companies have relied for decades on large networks of physical agents who live and work in their clients’ communities. Today, insurance is increasingly being researched and purchased online, with little or no interaction with physical agents. Thus, insurance companies need to develop digital capabilities to design, promote and sell policies through digital channels, while continuing to leverage the strength of their offline network.
Digital business transformation is about smarter performance
Combining digital technologies with the organizational and people changes required to build a digital information-oriented culture allows organizations to significantly improve business performance. Here, we believe that there are six specific areas of performance improvement:
Capturing and using real-time data about customer experiences for smarter sales interactions
Monitoring and tracking information about product, service and solutions support for continuous improvement
Sharing knowledge and information more effectively to act across functions and organization boundaries
Applying deeper and more targeted analytics that enable better decision-making
Deploying more efficient and agile processes and systems to react to rapid business change
Adopting more innovative and resilient business models to create disruptive change and innovation in a particular industry.
While most executives would like to measure digital business transformation in terms of increased revenue and decreasing costs, we believe these are lagging indicators in most companies. In our experience, improvements in these indicators will follow from developing leading indicators for the six areas of performance improvement noted above.
Digital business transformation: Where are you on the journey?
Many managers in companies with strong non- digital capabilities struggle with the challenges of “going digital.” Established firms complain that they are encumbered with legacy “non-digital” assets and capabilities, and look with envy at emerging competitors. But the opposite is also true: Emerging digital players covet the resources available to traditional firms, such as established brands, access to capital, deep product and industry knowledge, and strong networks of relationships with customers and other relevant stakeholders. All these advantages can be leveraged by traditional firms as they transition into new digital areas.
Figure 1 provides our framework for digital business transformation. The horizontal axis focuses on the deployment and usage of AMPS, while the vertical axis focuses on the degree of organizational change. Upward or outward movement on these axes is required to achieve the full benefits of DBT.
