I’ll start by acknowledging the digital technologies that are both fuel and fire to the digital transformation phenomenon. We’re all familiar – at least to some extent – with tech like social media, mobile, big data, analytics, cloud computing, and internet of things. Collectively, these technologies offer the combination of 1) abundant information, 2) pervasive and persistent connectivity, and 3) super-scalable computing power. That combination has the potential to fundamentally transform products, services, business processes, and strategies in any industry.
Now to “digital transformation,” which means many different things to different people. Wikipedia defines it simply as the use of these new, fast and frequently changing digital technology to solve problems. For many companies those “problems” fall into three areas: they use digital technologies to 1) revitalize or re-invent their customer experiences, 2) improve internal operations or 3) build new businesses.
But digital transformation can have different emphases in different companies:
Some older or long-established companies may focus primarily on the need to strengthen and consolidate their technical platforms to support digital products and business models.
Consumer-facing companies may focus on transforming their marketing practices to meet the expectations of their customers -- who are accustomed to the immediacy and intimacy of social and mobile interactions.
Manufacturing organizations may feel pressured to improve their data and communications capabilities to interact more seamlessly with their supply-chain partners.
Research-intensive organizations may emphasize accessing, securing and effectively using vast sources of digital information now available from both internal and third-party sources.
So, the common risks that I want to focus on are related:
1) First is -- Defining Digital Transformation too narrowly
Despite the conversation in many tech circles, the most important word in “digital transformation” is not “digital”, but “transformation.” Launching technology projects is just the starting point. Success in a digital economy involves much more than just altering a company’s business processes and business models, or engaging digitally skilled workers – although these are important parts of the story.
2) Second, Ignoring the organization
Digital transformation discussions often focus on technology investments, new business strategies, and changing business processes. Typically, much less attention falls on the organization that must fulfill the chosen digital strategies. We shouldn’t overlook the organizational change needed to deliver technology-based solutions but also how powerful digital tools and ubiquitous data can help with this change. To truly maximize the benefits of their digital tools and capabilities, organizational leaders should be considering new digital options for how to organize, as well as how to operate or what to produce and sell.
3) Third, focusing on projects vs building capabilities
Specific digital initiatives can trigger multiple organizational changes -- reorganizing departments, assigning new responsibilities, acquiring new skills and expertise -- that take time and effort. But also, because technologies continue to advance, leaders may find themselves repeatedly trying to play organizational catch up after adopting new technologies. If digital transformation is framed in terms of projects vs an ongoing transition, the reality may seem to drag on and be seen as inconclusive or even a failure – leaving participants and observers demoralized or disengaged.
So, let’s shift to some lessons:
Instead of thinking about digital transformation as technology-centered projects, I encourage you to frame digital transformation as growing or intentionally cultivating organizations that can respond effectively to ongoing digital opportunities. Think about this as a journey towards “becoming digital.” Research (by myself and others) suggests that optimal transformation involves reshaping the enterprise itself into what we call a “digital organization.”
Digital organizations don’t just adopt digital innovations, but also:
They also use digital data more intensively to make decisions, guide action, and learn for the future.
They collaborate more extensively to bring diverse expertise to bear quickly on novel situations.
They establish partnerships, identify talent, and find experts more readily than other organizations that have not adapted to take full advantage of digital connectivity.
They self-organize at different scales to act rapidly under a variety of conditions. For example, they can respond quickly to customers’ individual needs and preferences at scale, or balance evolving localized and company-wide standards.
In sum, digital organizations demonstrate an elevated organizational capability to use their tools and data to fluidly deploy and reconfigure both human and capital resources -- and they do this at the speed of rapidly changing technology and market conditions. We call this capability “digital dexterity”.
Digital dexterity comes not just from using technology for the business, but from people using digital technologies to think, act, and organize themselves in new and productive ways.
I want to point out some “markers” of digital organizations, organizations with the dexterity required for the digital age. Building this kind of capability involves change on three fronts: mindsets, practices, and resources.
1. Mindsets: At the heart of the transition from “industrial organization” to “digital organization” are new attitudes, beliefs, and values towards digital tools, information, organization, management, workers and even the work itself. Digital organizations often consider their “workforces” broadly, engaging not just employees but also partners, customers, and contingent workers as resources to achieve their enterprise goals.
A positive and proactive attitude toward digital possibilities is particularly important. In digital organizations, an instinctive “digital” mindset is evident in how people throughout the firm tend to explore digital solutions before manual ones, use digital tools to seek out expertise, seek opportunities to use technology for advantage, and approach data systematically. They understand the opportunities and risks of engaging with these solutions, and so proceed confidently.
And the effect of this mindset?
When employees and managers instinctively turn to their digital tools and data to improve processes or create new products, they reap the benefits of speed, accuracy, and connectedness more often. As they experience and publicize success with these solutions, favorable attitudes start to cascade through the larger organization. New mindsets inform subsequent decisions and practices.
Leaders with more of a digital mindset may invest more in data quality or in collecting data. They may seek to build stronger analytical capabilities or expand their workforce with specialized or complementary skillsets.
2. Practices: It is not enough to just ‘talk the (digital) talk’ – organizations must also ‘walk the (digital) walk.’ As enterprises digitize their operations, new behavioral norms and routines need to become widespread and consistent. Some practices are key:
First, organizations should use their digitized operations data to practice data-driven decision-making. To get the most out of digitization, organizations must use their accumulating data in systematic analyses to make important strategic decisions.
But they should also use that data to monitor, experiment systematically and refine internal and customer-facing processes.
Another important practice is collaborative learning — sharing information readily across locations, disciplines, and status boundaries to solve problems – self-organizing to make effective decisions in domains where data is still lacking.
Together, these complementary practices support rapid but effective decision-making and responsive action in different domains.
Collaborative learning particularly can help more traditional companies cultivate favorable attitudes and beliefs about digital transformation throughout their organizations. Once in place, these shared mindsets, along with shared norms of using data and dispersing knowledge, facilitate more flexible and fluid ways of working—unhindered by differences in expertise, role, status or affiliation.
3. Resources: Organizational capability also depends on structural and concrete elements such as digital and physical tools, skills, formal structures and infrastructures. The following resources are especially useful for making the transition to a digital organization:
One is a digital-ready workforce – meaning technically competent, but also engaged and self-directed. As routine and well-defined tasks become automated, the remaining roles for workers will be more creative, open-ended, and non-routine. So you need people ready to take on the challenges automation cannot (yet) address.
The combination of collaborative learning norms and an entrepreneurial, engaged workforce is crucial for developing digital dexterity. Collaborative learning can support all workers in building skills, competence, and the perspective to guide entrepreneurial effort. Strategically, organizational leaders can help by setting clear goals, encouraging boundary-spanning collaboration, providing liberal access to relevant information, and then trusting their workers to bring the best expertise to bear for each challenge.
When skills, competence and engagement are established, the easy availability of data and communication tools complement performance-related outcomes. So leaders should work to provide:
Broad-based access to digital communication, collaboration and coordination tools -- by all employees -- to enable collaborative learning and exchange across internal and external boundaries.
Integrated operations data to enable employees to actively monitor, measure, and improve operations.
Real-time customer data to help workers customize services while also supporting them in sensing subtle but important external shifts.
As workers realize the benefits of data-driven outcomes, they’ll use data-driven approaches more consistently, creating a virtuous cycle.
Collectively, these digital resources support intense information processing and broad social connections, a combination that enables timely sensing and powerful responses involving both humans and machines.
From a strategic perspective…
It can be helpful to think of this transformation effort as a journey during which traditional mindsets, practices and resources give way to digital mindsets, practices, and resources. These changes often unfold at different speeds, and might occur incrementally or in bursts of effort. But they are interdependent and iterative, so changes in one domain become the impetus for further change elsewhere. Although this journey may be uncomfortable at times, when your organizations develop digital dexterity –think of reaching a threshold of digital dexterity– they’ll be positioned to incorporate successive waves of future innovation over and over.
To support and optimize your digital investments, aim to embed these elements in your own organizations. But also recognize that you can’t mandate the development of values and norms such as collaboration, self-organization, and entrepreneurial engagement. Instead, work on creating the conditions that encourage new mindsets and practices -- such as:
Foster a digital mindset through leading by example.
Build consensus about responsibilities without regard to traditional boundaries and roles.
Model and encourage collaborative interaction and continuous learning.
Visibly practice and require data-driven decision-making.
Bringing in and/or raising up people with suitable attitudes and skills.
Providing key digital resources and then publicly acknowledging their effective use.
In sum, my recommendation is to approach digital transformation as a capability-building effort and exercise top-down leadership with a subtle hand.