We are in the early stages of a major paradigm shift, which for now is called Digital Transformation. What is Digital Transformation or DT? If you have no familiarity, take heart. First, this DT is not delirium tremens, a medical condition of uncontrollable shaking. Although there is considerable uncontrollable shaking occurring in the business world as it broaches this topic — and with good cause. Second, you can find a great primer here by Estaban Kolsky, with help from Sameer Patel and Paul Greenberg. Ray Wang also writes about this regularly. All very smart guys. I draw from them heavily, albeit on an informal basis.
This is a major change in the way we live and work. So it has been slow to receive a common definition.
The basic realities underpinning this shift are clear to everyone. Business is moving at a much faster pace today than it ever has. That pace is increasing. A recent study by CapGemini found that >70% of executives recognize pressure to digitally transform, coming from customers, competition and employees. The same report cites a general self-assessment that enterprise the culture of innovation is inadequate; we’re too slow even though we’re moving as fast as we can. We know that customers are more informed and empowered than ever before, so we are seeing the changes in sales and marketing first. Customers shift allegiances quickly, based on their own understanding of the company. Beyond this, however, we see the somewhat more muted pressures from employees and partners. All of them demand to work with the same fluidity in which they live their digital lives. That’s not an incremental change, that’s a transformation.
So with great respect to the more learned colleagues mentioned above, I offer a layman’s definition. Digital Transformation is society’s evolution, enabled by technology, to relationships defined around the individual rather than the organization.
Let me break it down.
“Society ” instead of “business” because this move is already well underway in our day-to-day lives and it covers much more than our business relationships. If the majority of what you are doing – socially, commercially, even physically – is not captured digitally today, it soon will be. This is not limited to a demographic group; it crosses age, race, economic and geographic boundaries. Forget the “Gen Y” distinction. It distorts the issue. See Constellation’s classifications of Digital. We are all digital to some extent now, becoming much greater with time. The fact that our lives are becoming seamlessly digital gives you the first strong inkling of why this is an imperative for the enterprise and why it is much bigger than a technology shift. And the change doesn’t stop with us humans. Every THING around us is participating. Sensors, cameras, drones and an unending new array of devices are capturing the physical world in digital form. Once it’s digital, it becomes part of the rushing river of data that drives new business models never before conceived, which are delighting customers. Does that sound like your business?
“enabled by technology ” because it is the maturity and general availability of networks, sensors, mobile devices, data stores, analytics tools and delivery via Cloud that makes it all possible. The individual has always wanted the world on our terms. Advances in the technology have made it possible to get it. Has technology driven behavior change or simply caught up with our lifestyles? Either way, the change is massive because it is happening in all facets of life. This point should NOT be confused to mean a new technology is the answer to DT. The tough part is the cultural, organizational change.
“defined around the individual ” is the cornerstone of the paradigm shift. This change is fundamentally about the evolution from generalized, largely static interactions to a focus on the dynamic individual; whether customer, employee, partner, stakeholder or citizen. In many respects, this is a continuation — though a radical acceleration — of a much larger societal trend we have experienced over a longer period. For business purposes, we need to understand that models built around “B2B / B2C”, broad segmentations like “soccer mom”, Gen X, party affiliation, etc are quickly becoming outdated. It is possible to know the individual in extreme detail, even as they change day to day. How? Because the individual is basically screaming their identity to the world daily. Yes, social media is part of that. But only a part. A browser session leaves a trail of thousands of cookies and tags. All our endless gadgets and services exist to define our digital identity, that’s how they get funded. Driving a car, watching TV, all of that contributes. This is — and always has been — the premise of the Internet. I tell you about me, you give me services that are useful to me. (When government steps in and takes information we didn’t intend them to have, that’s a problem.) “Who I am” is a highly fluid situation. I am changing constantly so you better be able to move fast and stay very agile. If your view of agility is an upgrade every 3-5 years, get ready to lose. In this era, adaptation to the individual must be constant. That is extreme agility. (The primary driver of Cloud.) Now consider your hundreds, thousands or millions of unique customers and prospects who are also constantly changing. So, if you’re not an infrastructure provider, you have no business scaling to meet that volume on your own. (Secondary driver for Cloud)
“rather than the organization ” is the reason DT is so tough. Get used to the notion that we are in a shared process to create value. The organization no longer dictates. Collaboration or engagement, a model rather than a tool, is central to this process. If you want engaged customers, you involve them in the creation of your offering. (You develop mutual trust, a very difficult and valuable thing to do. Go read Estaban Kolsky on this.) This leads to extreme customization. The organization creates the pallet of offerings based on their core differentiating value, individual defines their particular wants/needs, organization delivers result – usually by leveraging a broader ecosystem. Often the result is not a product but a service. So sale of an auto becomes shared ownership or micro-renting (Zipcar et al), hotel accommodations become completely variable and peer to peer (AirBnB model), new projects are developed, funded and executed via crowdsourcing (Kickstarter and a dozen others). Note that these may be new companies who have less baggage but they are disrupting well-established industries. Google jsut announced the Ara phone, which will be modular to suit the customer’s preferences. Of course, the heart of the smartphone – its applications — have had nearly infinite variability since their creation. That may be why we see smartphones as must-have devices at all economic levels with virtually 100% penetration through most markets. A company can’t develop value as a monolith. That’s too slow and resource intensive. Employees, partners and customers must be fully involved in the process. The traditional lines between customer, employee, partner and the enterprise are necessarily blurred. Those used to a Command and Control environment or clinging to a business model based on regulation and tradition will struggle. The benefit of established, large players is that they have extensive knowledge and experience… often locked in systems and individuals that are rapidly approaching retirement. Without a change in culture, driven from the top, the old guard is in serious risk as Digital Transformation plays out.
The crop of companies disrupting all markets now have two common features — they are extremely agile and they revolve around their customer. Agility can be designed but it demands a focus on core business and requires tough choices (What is core value vs what is ‘just the way we’ve always done it?) Of course, every company would like to believe they are customer-centric. Just as every government claims to serve its people. Nevertheless, there are despots in this world. And while the tyrants are obvious, even among the most advanced countries we see dysfunctional government (ahem). So it is with business. No organization has “bloated process designed for an outdated business model” in their mission statement. Still, that’s the hard reality of many companies today. So just as the tyrants are getting nervous, internally-focused businesses should too. The Individual Revolution has begun — and these people mean business.