It's hard to believe there once was a more innocent time when if somebody used the phrase "digital transformation" you might think they were being pretentious about making the switch from renting films on DVD delivered in the post to Amazon Prime downloads. But there's still a lot of confusion around the term – even more so when people start to ask organisations that have started down that path whether it has worked.
There have also been conflicting reports about its success. Last year Wipro Digital released a report that found only half of senior execs felt their company had executed on their digital transformation strategies. And a survey by NoSQL database vendor Couchbase warned there was a danger that most investments would deliver "only incremental improvements rather than any revolutionary transformation that justifies their expense"*.
On the other side of the coin, IDC has claimed digital transformation is "gathering pace" as "competitive pressures from early adopters are starting to force others to begin transformational efforts" – forecasting worldwide spending on digital transformation technologies will reach $1.3 trillion this year with a compound annual growth rate of 17.9 per cent from 2016-2021.
But some argue businesses still don't know what it means. Claranet UK managing director Michel Robert cautioned in January, when the company launched its Beyond Digital Transformation: Reality check for European IT and Digital leaders report, that many businesses have bought into the concept of digital transformation but it is "a misnomer" that often "conjures up images of overnight metamorphosis". He claimed this misconception could widen the gap between IT and the rest of the business with "the latter expecting overnight change and the former contending with increasing infrastructure complexity, skills shortages and cost-cutting pressures".
In the UK, one of the self-proclaimed leaders in digital transformation is Lloyds Banking Group, which announced its third strategic update last month. Chief executive Antonio Horta-Osorio revealed it planned to invest £3bn in strategic initiatives, such as further digitising the group, simplifying and modernising its IT architecture and "deeper end-to-end transformation targeting over 70 per cent of cost base".
He added it would "focus on how we will deliver our bold transformation agenda itself. As part of this, we will adopt Agile methodologies for more than half of our change projects, significantly improving productivity and responsiveness."
To this end, the group brought together all the components it believed were required to implement the transformation under a single umbrella via an organisational change in July last year which, COO Juan Colombás claimed, would result in "a greater focus on our digital and transformation agenda". He added it had co-located teams from across the business to deliver the transformation. "These teams are adopting an Agile approach and focusing on 'outcomes to be achieved', rather than 'initiatives to be delivered'. This helps to ensure faster and more efficient delivery of change for our customers."
While it's hard to fault the ambition of Lloyds, the latest bullish comments about transformation sit uncomfortably alongside high-profile problems with the bank's online banking activities in September and November last year.
Perhaps it's just a difference of interpretation. Nigel Fenwick, vice president and principal analyst at Forrester, agrees there is confusion over what people mean by digital transformation. "Many people talk of digital transformation when they are really referring to digital bolt-on; adding new digital capabilities to the existing business model.
"These 'transformations' focus on the low-hanging fruit on the digital tree. Very often, these are tactical digital projects to improve poor customer experiences or create a degree of operational efficiency. Many of these bolt-on projects show tangible and easily measured benefits."
The more cynical might view that as effectively giving carte blanche to those involved with delivering digital transformation. Especially as, because it's continuous, it's harder to calculate the return on investment...
You can appreciate why people might be more enthused by the term digital transformation than "digital bolt-on", which doesn't quite carry the same resonance. Similarly, for those Lloyds customers affected by the outages last year, suggesting the bank was hoping to dramatically improve matters in the next three years with a "digital bolt-on" plan probably wouldn't provide much comfort compared to the far more ambitious connotations of a "digital transformation".
Another difficulty that arises when it comes to trying to evaluate digital transformation is that, unlike IT projects and digital bolt-ons, it has no fixed end point. As Fenwick puts it: "There is no 'successful completion' of a transformation; it's a continuous evolution."
The more cynical might view that as effectively giving carte blanche to those involved with delivering digital transformation. Especially as, because it's continuous, it's harder to calculate the return on investment (ROI) of digital transformation.
Fenwick notes that for many companies: "The investments made will be simply maintaining the status quo in terms of market share, revenue or customer satisfaction. Advantages gained through digital investments will often be fleeting simply because they are often replicated quickly by competitors."
So, in addition to fairly widespread confusion over what digital transformation entails, it seems it's also much harder to define what it delivers in terms of ROI. According to Fenwick, the measure for success or failure of digital transformation – which he describes as a "multi-year journey" – "is found in the longer-term success or failure of the business as a whole". Which brings us back to Robert's point that the term can be misleading because it imprints a meaning in people's minds that can be at odds with the reality.
If it's so hard to define the success of the transformation process, is it any easier to gauge when it has failed or is struggling? Not necessarily. Take GE Digital as an example.
Fenwick isn't absolutely certain whether it's a success or failure yet. He accepts that some might consider the transformation "a failure in its ability to deliver a positive shift in the company's share price" but adds: "Whether long-term success will result, or failure accelerate, remains to be seen." And while GE is still in the middle of a continuous transformation, it has "already done more than most".
He's right on that score. GE spent billions of dollars trying to transform itself into a "digital industrial" company but suffered a number of problems with its Predix software platform. Former GE CEO Jeffrey Immelt, who had spent six years trying to effect the transformation, was replaced by John Flannery in August last year.
Uncertainty over the success or failure of GE Digital was partly assuaged by Flannery's recommitment to the company's "digital industrial transformation" in a LinkedIn post in September. And in a letter to shareholders last month, Flannery stated that "digital is critical to our future" but admitted the company was "tightening the scope of where and how much we're going to invest".
It planned to focus more on Predix-based sales to the core installed base market and "leverage our partners to pursue digital opportunities beyond our core industries. There is absolutely no change in our belief in the digital future – only some adjustments in our approach".
Which suggests that, at least for now, GE believes the digital transformation process is worth continuing with, even if it turns out to be less transformational than it may have first intended. But at what point does the level of transformation (or not) mean the process should be reclassified as a "digital bolt-on" instead? As Fenwick observes: "Most digital transformation is in reality a bolt-on to the current business model. Very few organisations are seeking to transform/change their revenue/business model around new digital capabilities."
So what factors do organisations need to address before embarking on the digital transformation process? According to Fenwick, they should:
- Begin with a clear understanding of the level of transformation required (bolt-on vs disruptive)
- Ensure the CEO has bought into and helped shape the vision of the company as a digital business
- Establish cross-functional leadership of the digital transformation agenda under a digital champion empowered by the CEO
- Identify strategic business partners/vendors to help the company along on its transformation, bring them into the confidence of the executive team and share the business objectives
- Digitise the business strategy, don't create a separate digital strategy
- Establish a digital-first culture that supports rapid experimentation and innovation
These points might appear eminently sensible, but that doesn't mean companies have absorbed them prior to launching their DT plans.
And if the experiences of GE and Lloyds prove anything, apart from that the meaning is subjective, it's that while digital transformation can mean many are not actually "transforming", they may be adorning themselves with digital bolt-ons.
Without that fundamental come-to-Jesus moment on meaning and intention, we have a very long way to go in digital transformation and in measuring the outcomes of any strategies. ®
* It found that "90 per cent of digital decision-makers agree that the revolutionary potential of digital projects is often talked about, yet most of the time they are used to only deliver incremental improvements."
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