Where are Companies on Their Digital Transformation Journey?

Stephen DeAngelis

November 07, 2019

Most analysts seem to agree companies organized around Industrial Age principles need to transform into digital enterprises if they want to survive, let alone thrive, in the Digital Age. Thomas M. Siebel (@TomSiebel), founder of C3.ai and Siebel Systems, provides support for analysts’ assertions. He writes, “The evidence suggests that we are in the midst of an evolutionary punctuation: We are witnessing a mass extinction in the corporate world in the early decades of the 21st century. Since 2000, 52 percent of the Fortune 500 companies have either been acquired, merged, or have declared bankruptcy. It is estimated that 70 percent of the companies in existence today will shutter their operations in the next 10 years. In the wake of these extinctions, we are seeing a mass speciation of innovative corporate entities with entirely new DNA like Lyft, Google, Zelle, Square, Airbnb, Amazon, Twilio, Shopify, Zappos, and Axios.”[1] Former IBM executive Irving Wladawsky-Berger traces the origins of the Digital Age to the release of the Netscape browser in December 1994.[2] He writes, “The browser made it much, much easier for the average person to access information over the internet, sparking the explosive growth of users, websites and online applications. This was a truly historic point, marking the transition from the industrial economy of the past couple of centuries to a new kind of digital economy.” A quarter of a century into the Digital Age, it’s fair to ask: How far along are surviving companies in their digital transformation journey?

The digital transformation journey

Siebel asserts, “Organizations need to reinvent the way they interact with the changing world. They must recognize when an existing model has run its course, and evolve. They must create new, innovative processes that take advantage of the most abundant and available resources. They must prepare for future upheavals by developing systems with interchangeable parts: produce faster, scale faster, work faster. They must build something that will establish a clear existential advantage in order to survive into the new stasis and prosper.” Some analysts call the type of organization Siebel describes an agile enterprise. They might also be called adaptive enterprises. The lesson Charles Darwin taught about evolution was that the most adaptable species, not that the strongest, are the ones that survive. The same is true with organizations.

Siebel notes, “Mass extinction and subsequent speciation don’t just happen without reason. In the business world, I believe the causal factor is ‘digital transformation’.” Although it sounds like Siebel is promoting change for change’s sake, I don’t think that’s what he has in mind. There must be a business purpose motivating change. Bob Violino (@BobViolino) reports a new study from Infosys Knowledge Institute concludes, “Although nearly all large enterprises are pursuing improvement initiatives, digitizing the business is less about disruption and more about meeting focused objectives.”[3] Among the most frequently pursued business objectives are, “Better understanding of customers and markets (cited 46 percent of respondents), customer experience (45 percent), increasing productivity (40 percent), and employee experience (35 percent).”

Stephanie Overby (@stephanieoverby) reports one of the most contentious issues surrounding digital transformation is: Who should lead the digital transformation effort? If you look at the focused objectives mentioned above, cases could be made for Chief Marketing Officers or Chief Operations Officers to lead the transformation. Most companies likely consider Chief Information Officers good candidates for a leadership role. Overby asserts, “There is no one right answer to the question of who should lead a digital initiative.”[4] Brian Caplan, a director at Pace Harmon, told Overby, “It’s important to highlight that digital transformation can take multiple forms with varying degrees of transparency to the customer or end user.” To help decide who should lead transformation efforts, Overby suggests asking the following questions:

1. How well does the person understand the current business strategy?
2. Will this person be trusted?
3. Does the person know the customer?
4. What is the person’s appetite for risk?
5. Has the person ever launched a disruptive initiative in the company?
6. Does the person have clarity of vision?
7. Can this person work in an agile manner?
8. Does the person play well with others?

Although digital transformation is rapidly becoming an imperative for most businesses, Samantha Ann Schwartz (@SamanthaSchann) asserts business leaders need to be aware of risks associated with digital transformation as well as benefits.[5] She references a talk given by John Wheeler, senior director analyst at Gartner, who told his audience companies must be able to distinguish “the difference between digital business risk and cyber risk.” According to Wheeler, “From a technology perspective, taking certain cyber risks help businesses set out for new markets and new regions. Digital business risk, however, is focused on processes, products and services, and what will prompt growth.” According to Siebel, “The core of digital transformation is the confluence of four profoundly disruptive technologies — cloud computing, big data, the internet of things (IoT), and artificial intelligence (AI).” Businesses leaders need to understand the benefits and risks associated with each of these technologies.

Although each of the above mentioned technologies is essential in the Digital Age, KPMG analysts predict, “AI will play a major role in determining ‘winners and losers’ in industry.”[6] Cliff Justice, a principal at KPMG, states, “[While] it’s the very early days, people understand the coming impact.” He suggests there are three main uses for AI. They are:

  • Delivering insight, adding to what data and analytics can do, but in a more probabilistic way.
  • Augmenting human capabilities, as seen with virtual assistants.
  • Pursuing full automation, which will have the most “consequential impact economically.”

Alan Glickenhouse (@ARGlick), an IBM Digital Transformation Business Strategist, suggests there are three obstacles every organization must overcome on their digital transformation journey.[7] They are:

Obstacle 1 – Perspective. “Historically businesses focused on the offerings they brought to market — my products, my services. In some cases, this alone is what a client wants, but maybe it is only a part of the desired customer solution. … Switching perspectives from ‘provider-focused’ to ‘consumer-focused’ is this first major obstacle.”

Obstacle 2 – Ecosystem. “[Companies] may need to create an ecosystem to provide complete consumer-oriented solutions. Ecosystem creation is about creating a ‘win-win-win’ scenario for the customer, your business, and your ecosystem partners. Consumers win through acquisition of a complete and simple to consume offering. Your business and the additional ecosystem businesses win through increasing revenue opportunities and improving customer satisfaction. This is about finding the right business models to enable this ‘win-win-win’ situation.”

Obstacle 3 – Integration. “Gartner states, ‘Integration has become an obstacle to success because traditional, centralized and systematic integration approaches cannot cope with the volume and pace of business innovation.’ IDC also recognized ‘Connectivity’ as the number one issue in their FutureScape Worldwide CIO agenda stating, ‘By 2021, driven by LoB needs, 70% of CIOs will deliver “agile connectivity” via APIs and architectures that interconnect digital solutions from cloud vendors, system developers, startups, and others.’ Overcoming this obstacle, as the prior obstacles, requires a change in behavior.”

Concluding thoughts

From the short discussion above, it should be clear that digital transformation is difficult. After all, the definition of transformation is “a thorough or dramatic change in form or appearance.” If that sounds painful, it is. Nevertheless, it’s essential. Glickenhouse concludes, “Digital transformation is not easy, but the benefits are tremendous.” Siebel concludes, “While digitally transformed companies drive their industries to rise above the ocean, the rest are caught in the race to either learn to breathe again or go extinct.” Every company’s digital transformation journey is unique and only they can judge how far along they are in the journey. What they want to ensure is that they are not among the 70 percent of companies Siebel predicts will shutter their operations over the next decade.

Footnotes
[1] Thomas M. Siebel, “Keys to surviving and thriving in the age of digital transformation,” Information Management, 16 September 2019.
[2] Irving Wladawsky-Berger, “Looking Ahead After a Quarter Century Into the Digital Age,” The Wall Street Journal, 16 August 2019.
[3] Bob Violino, “Digital transformation efforts should be tied closely to business goals,” Information Management, 1 October 2019.
[4] Stephanie Overby, “Digital transformation: Who should lead? 8 questions to ask,” The Enterprisers Project, 30 September 2019.
[5] Samantha Ann Schwartz, “Shift to digital business is booming, but are CEOs ignoring associated risk?CIO Dive, 27 September 2019.
[6] Naomi Eide, “It’s early days, but AI will define industry ‘winners and losers,’ KPMG says,” CIO Dive, 10 September 2019.
[7] Alan Glickenhouse, “Overcoming the 3 Largest Obstacles to Digital Transformation,” RT Insights, 22 August 2019.