Blogs

I recently got back from two conferences: the Gartner 2018 Symposium in Florida and a CFO Connect conference in Chicago. I was surprised to realize that the same four themes dominated discussions, whether on-stage or with other business executives. Namely: Artificial Intelligence, the Internet of things, digital twins, and digital transformation.

I began thinking about the fears and promises that made these such buzzwords. How will these four trends actually impact today’s businesses? I decided to address each topic in turn over the next four weeks.

Let’s start with digital transformation.

I’ll begin with some statistics. IoT investment grew 80% between 2016 and 2018. AI investment grew 150% between 2016 and 2018. 3D printing grew 70% between 2016 and 2018. Smart robotics investment grew 33% between 2016 and 2018. Conversational interfaces grew 600% between 2016 and 2018.

In other words, the business world isn’t just changing. It’s changing faster than ever before.

Yet the pace of technological change has been accelerating for the past several decades. The basic premise of digitization—information in an electronic form—has existed nearly as long. So why does digital transformation remain so troublesome?

I would argue that digital transformation has foundered on a series of misconceptions and myths.

In theory, digital business transformation is reasonably straightforward. In practice, the pathway is littered with unanticipated turns, potholes, and roadblocks.

Myth 1: Digital transformation is optional

Organizations that achieve success operate with clear vision. They have a roadmap that allows them to navigate both present and future.

For decades, corporations have maintained this dual vision by optimizing brick-and-mortar operations and legacy business models. Safeguarded by economies of scale, industry leaders have strengthened their competitive advantage through process refinement.

The digital era threatens all of that. Technological adoption has accelerated alongside technological development. Increasingly advanced digital technologies form an increasingly important part of our businesses, markets, and societies.

In this new world, digitization is an equal opportunity disrupter. Organizations of every size must reevaluate their businesses in light of new digital technologies. They must rethink their operating models and question established processes. This is the essence of digital transformation: businesses implementing digital technologies in order to establish or reinforce competitive advantages.

In all likelihood, your organization will faced a revised industry vision by 2020. There are two options. You can shape that vision, or you can adapt to it when it arrives.

Myth 2: Digital transformation is a strategy

Digital transformation cannot, and ought not, serve as a strategy. It should enable your existing strategy.

It should realign your organization for maximum impact in the digital age. But it should never take the place of your vision, mission, or strategy.

This brings us to another important fact: transformation means different things for different organizations. There is no set standard or rule. No two businesses are exactly alike, and no two paths of digital transformation should be alike either.

For example, digital transformation can involve the following:

• enabling worker productivity through tools such as mobile, accessible and AI-assisted processes,
• better managing business performance through data availability and visibility,
• meeting customer experience expectations,
• understanding customer needs through data collection and analysis,
• providing optimized anywhere/anytime access to insight,
• automating business processes,
• securing against digital threats and attacks,
• developing new revenue streams,
• raising top-line growth through digital product/service enhancements, or
• digital globalization – the flow of data and information worldwide which enables the most efficient movement of goods, services, finance, and people.

Myth 3: Digital transformation is only really important in customer-facing areas

Digital transformation frequently begins in customer-facing areas of the business. This is understandable. Organizations want to know their customers better. They want to improve service levels and optimize the customer’s experience.

Yet full digital transformation demands that the process extend beyond customer interaction. Other areas of business, from internal divisions like HR to back office functions like accounting, can drive benefits equal to or greater than higher customer satisfaction.

Myth 4: Digitization is a matter for IT

Successful digitization requires the same stakeholder involvement as any other business decision. In many of the most successful cases of digital transformation, the organization chose a handpicked team to lead the initiative. These teams include both IT and non-IT personnel. In fact, the best-performing teams included representation from executives, IT, sales, marketing, HR, supply chain, finance, operations, and R&D.

Myth 5: Every organizational culture is ready for digital transformation

Despite great gains in the past few years, the pace of digital transformation has remained relatively slow. Bricks in the wall include: culture (46% of organizations), resourcing (23%), digital dexterity (13%), commitment of executive leadership (5%), commitment of board (3%), IT inertia (2%), and other/none of the above (8%).

While culture does not change by fiat, you as an executive can provoke cultural transformation by shifting key levers. You can change the speed and process of decision-making. You can promote greater collaboration across your organization, whether between departments or with outside partners. You can tweak key metrics and the way they’re measured. You can influence how your company perceives value.

Many organizations fail to completely digitize for want of a single cultural factor: digital dexterity. According to a 2018 CEB study, high digital dexterity correlates to a four-fold acceleration in digital transformation.

By dexterity I mean the ability to understand and implement new technologies in a brief span of time. This requires agility in related areas: decision-makers quick to see and respond to new business conditions; an organization-wide commitment to iterate for improved outcomes; a workforce that views technological acumen as critical to career advancement.

Myth 6: Every employee is ready for digital transformation

Digital dexterity among employees has proved particularly problematic. Leaders surveyed by Gartner agree: in ten years, the skills and knowledge in our organizations will bear little resemblance to those we have today. But what isn’t changing at the same rate is the ability of our employees to fully exploit new tools. Gartner conclude in their digital dexterity index (DDI) that only 15% of employees have high digital dexterity.

Organizations can use multiple tools to raise their workforce’s average digital dexterity. HR executives can refine their approach to talent management. One unique way they can achieve this is through personality testing.

Several personality theories hold that all employees fall into one of five user personas. The Maverick is technologically proficient but likely to use shadow IT. The Engineer is technologically confident and likely to follow corporate IT strategy. The Pilot is technologically confident but likely to mix authorized and unauthorized technologies. The Caretaker is technologically disinclined and comparatively unproductive. The Navigator is technologically proficient in the office but unproductive outside it.

Other opportunities to enhance digital dexterity appear at every stage of the HR process. Digital dexterity should inform hiring, onboarding, engagement, HR marketing, certifications, professional development, performance, metrics, career paths, workforce planning, and partnerships. HR can heighten dexterity through innovation programs, academic partnerships, job rotations, wellness efforts, peer advocacy, and reverse mentoring.

I cannot overstate the importance of digital dexterity to digital transformation. Employers stand responsible for cultivating a workforce and work environment in which digital dexterity can thrive.

Myth 7: Digital hype = digital disruption = digital transformation

True digital disruption creates opportunities for digital transformation. Organizations that work with the flow of digital disruption will consistently outperform those that attempt to work upstream.

But it is all too easy to make a series of logical leaps when the hype about a particular technology—say, artificial intelligence—reaches fever pitch. Executives assume that a sufficient level of hype reliably indicates disruption. This is, as Gartner analyst Jill Beadle argues, a grave mistake. She contends that even AI, blockchain, and virtual reality, for all their hype, are “not mature enough to be considered true disruptions.” Hype declines over time, while disruption makes lasting changes.

Beadle posits that technological advancements only reach the level of disruption when they impact four dimensions: business, technology, industry, and society.

Even changes that qualify as disruptions may not impact all industries equally. Organizations should conduct close monitoring and analysis before transforming in response to any change.

As Beadle notes, many executives suffer from other misapprehensions about the relationship between disruption and transformation:

• Myth: Disruption is always a bad thing. Truth: Disruption is neither good nor bad. It will benefit some and harm others. The best approach is to treat disruption as an opportunity rather than a threat.
• Myth: Disruption is only driven by the big boys. Truth: Giants may be the first entrants, but the bulk of disruption is introduced by thousands of small- and medium-sized businesses. You can be a disruptor. Disrupt with intentionality.
• Myth: Disruption can’t touch my industry. Truth: Every industry is vulnerable to disruption. The stationery market remained untouched for hundreds of years before the first computers arrived on the scene.
• Myth: Disruption is a reactive process. Truth: The most successful organizations anticipate disruption and transform proactively.