Almost all businesses born before the Internet age are working to digitize either portions of their value chain or, more boldly, their entire business in order to thrive in an increasingly digital economy. Those who do not will cease to exist. As companies begin their digital transformation journey, leaders may initially believe the transformation is primarily about successfully implementing new digital technologies—but it is not.
This post will explore how digital transformation is more about strategy and mindset than about technology.
Although new technologies and “bright, shiny objects," such as Artificial Intelligence, Big Data Analytics, Machine Learning, Robotics, etc., may get the bulk of headlines or industry conference keynote sessions, digital transformation is first and foremost about a mindset shift. Without this shift, no amount of digital technology can successfully transform a company; with this mindset shift, significant business transformation, new client value creation, and sustainable competitive advantage is possible.
Key elements of this needed mindset shift
Research results from the Genpact Research Institute confirm that ROI from digital investments is NOT optimized due to various human factors. A successful digital transformation journey is almost always NOT about the digital technology itself; rather it is about the company's culture, change management process, and other strategic elements.
David Rogers, in his book Digital Transformation Playbook: Rethink Your Business for the Digital Age, summarized five key areas for this needed mindset shift: customers, competition, data, innovation, and value. Clearly, leaders must first change their thinking before changing their companies.
Leaders must change their mindsets in terms of viewing customers as a mass market with one-way value flows to seeing customers as a dynamic network with reciprocal value flows. In the legacy world, competition stayed within defined industries, key assets were held within the firm, and a few dominant competitors existed per category; in a digital-first world, on the other hand, competition is fluid across industries, key assets reside in outside networks, and there tends to be a “winner-take-all" dynamic due to the network effects of digital technology platforms.
Data, indeed, is the new currency of digital businesses. Leaders must change their mindset from a legacy view of data being expensive to generate, store, and manage in current operational silos, toward one that sees data as continuously generated, as valuable when connecting it across silos, and as a key intangible asset for value creation in the digital era. In fact, several digital-native companies invest to create products, not for revenue purposes, but rather to generate data which offers greater insights and future value-creation opportunities.
Innovation within the legacy environment used to be about decisions made by intuition and seniority, where testing ideas was expensive, slow and difficult, and where failure was to be avoided at all costs while focusing on the development of a “finished" product. This mindset must change to view innovation in a digital-first world to be based on decisions made based on testing and validating—where testing ideas is cheap, fast, and easy, where failures are learned from early, and where the focus is on developing the minimum viable product (MVP) and iterating after launch.
Lastly, value in the legacy world was often defined by the industry, and firms executed on their current value proposition, optimized their business processes and model, and judged change by its impact on current business. Contrast this with how value should be viewed within the digital-first world as being defined by changing customer needs. Firms need to uncover the next opportunity for generating customer value. The idea is to evolve before you must—in order to stay ahead of the curve, and judge change by how it could create your future business.
Implications from this mindset shift
Mindset is at the foundation of strategy development, culture creation, and change management. The implications of this new digital-first mindset will enable leaders to lead by example and create cultures where speed (e.g., short “sprints" vs. long planning cycles), learning (e.g., fail-fast and data-based decision-making), and empowerment (e.g., trust in employees and ecosystem partners) are hallmarks.
Change management is a crucial element for successful digital transformations. Hiring, rewards, and incentives and culture will also need to change. Yes, the company will need to deploy new digital technologies, develop new offerings, and build new businesses, but it begins with a new mindset.
Digital transformation is, indeed, more about a new mindset than about technology. Yet it is difficult for successful companies to “unlearn" the reasons why they became successful… and to change and adapt before they are forced to. But this is exactly what is required to thrive in the digital-first world.
Just as it has been said: “Silicon Valley is a mindset, not a location," digital transformation—first and foremost—is about mindset. The digital technology is the relatively easy part.