Digital Transformation Begins at the Top

Stephen DeAngelis

December 15, 2020

Few, if any, pundits would argue the fact we live in a Digital Age in which data is a highly valued resource. The World Economic Forum has declared data an asset on the same level as gold and oil. Yossi Sheffi (@YossiSheffi), the Elisha Gray II Professor of Engineering Systems at MIT, writes, “The well-worn adage that a company’s most valuable asset is its people needs an update. Today, it’s not people but data that tops the asset value list for companies.”[1] Because data has become so valuable, many analysts insist companies need to transform into digital enterprises in order to leverage their data. For example, Deloitte’s Andy Main, Debbie McCormack, and Bob Lamm, write, “To survive in today’s business world, the question for most companies is no longer whether to undertake a digital transformation. Rather, a more appropriate question may be how to do so, with a focus on finding ways to work differently to meet the demands of an ever-evolving marketplace.”[2] They go on to describe four levels of organizational digital maturity: exploring; doing; becoming; and being.

 

At the exploring stage of digital maturity, organizations leverage “traditional technologies to automate existing capabilities.” At this early stage, they write, organizations are “dabbling with digital” with “no real change to the organization.” At the doing stage of maturity, Main and his colleagues write, “[Organizations] leverage digital technologies to extend capabilities, but [are] still largely focused around [the] same business, operating, and customer models.” Tricia Wang (@triciawang), a self-described Tech Ethnographer & Sociologist, calls this level of maturity “digitization at its worst.” She states, “A lot of companies treat digital as if they are ‘doing digital’ — this is ‘digitization’ at its worst — as if it’s some checklist of things to do. It’s very transactional, and people are so busy doing digital they don’t even know WHY they are doing it in the first place!”[3]

 

At the becoming stage of digital maturity, the Deloitte analysts write, “[Organizations] leverage digital technologies — becoming more synchronized and less siloed — with more advanced changes to current business, operating, and customer models.” At the being stage of digital maturity, they write, “Business operating and customer models are optimized by digital capabilities and [are] profoundly different from prior business, operating, and customer models.” At this stage of maturity, Wang argues, “[Companies] embrace ‘being digital’ — this is ‘digital transformation’ at its best — it’s a total paradigm shift in the culture and operations — it’s not just about buying the latest digital tool, but about creating a new system, new cadence, new mindset.”

 

Digital transformation starts at the top

 

“At a high level,” writes tech journalist Clint Boulton (@ClintBoulton), “digital transformation represents a radical rethinking of how an enterprise uses technology to radically change performance.”[4] He cites George Westerman, principal research scientist with the MIT Sloan Initiative on the Digital Economy and Digital transformation, who insists, digital transformation “must start with the CEO [and] requires cross-departmental collaboration in pairing business-focused philosophies with rapid application development models. ” Westerman goes on to note, “Such sweeping changes typically include the pursuit of new business models and, by extension, new revenue streams, often driven by changes in customer expectations around products and services.” If that sounds disruptive, it is; however, Boulton calls it a “necessary disruption.” Westerman is not alone in his assertion that digital transformation begins at the top. Media consultant Gren Manuel (@grenm), reporting on a panel discussion about digital transformation, concludes, “What’s not in debate … is that the starting point for digital disruption is top-level leadership. After that, the real hard work begins.”[5]

 

Peter Weill, a Senior Research Scientist and Chair of the Center for Information Systems Research (CISR) at the MIT Sloan School of Management, and his colleague Stephanie Woerner, agree that leadership is the key to successful digital transformation. They explain, “Digital transformation is not about technology — it’s about change. And it is not a matter of if, but a question of when and how. The role of the chief executive is fundamental to transformation and the rewards are high. The 23% of firms that have successfully digitally transformed in our MIT Center for Information Research survey of 413 companies globally, achieved 16 percentage points higher margin than the industry average.”[6] Weill and Woerner assert that successful digital transformation begins with correctly answering six questions. Those questions are:

 

1. How strong is the digital THREAT or opportunity to your business model?
2. Which business MODEL is best for your enterprise’s future?
3. What is your key competitive ADVANTAGE?
4. How will you use mobile technologies and the Internet of Things (IoT) to CONNECT and learn?
5. Do you have the crucial CAPABILITIES to reinvent the enterprise?
6. Do you have the LEADERSHIP at all levels to make transformation happen?

 

Weill and Woerner conclude, “Digital transformation mandates a strong vision, with the CEO and senior leaders’ hard decisions guided by company purpose. Digital transformation requires a single team with a single plan and enterprise leaders have to find the right balance between pragmatism and a visionary approach.”

 

Technologies driving digital transformation

 

Several years ago, journalists at CIO Review identified technologies they believed would drive digital transformation in the years ahead. In the long run, they predicted two technologies still in early stages of development, quantum computing and blockchain technology, would “have the most transformative and dramatic changes in the way businesses function.”[7] Other technologies they identified included the internet of things (IoT), edge computing, and artificial intelligence (AI). Concerning AI, they wrote, “Artificial intelligence technologies are likely to be the most disruptive trend in the next ten years due to far-reaching computation power, access to [an] enormous amount of data, and advances in deep neural networks. These new technology trends are likely to enable businesses with AI to control data, adapt to new situations and solve problems.”

KN Kasibhatla, Managing Director of Marketing Technology Services at Harte Hanks, agrees that AI will have a profound impact on businesses because it will an essential capability going forward. He explains, “We have generated data in tremendous amounts, and it’s becoming impossible to make sense of it all. If you gathered all of the data created in just one day and burned it onto DVDs, you could stack those disks on top of each other and reach the moon — twice. Data needs to be distilled into something coherent and relevant for it to be useful. That’s why incorporating AI is a must, not a need. It allows us to distill massive amounts of data into digestible information. The insights gained can differentiate a successful company from the competition.”[8] Of course, insights only lead to success if they are acted upon.

 

Improved corporate decision-making is one the most significant benefits of utilizing cognitive technologies. Bain analysts, Michael C. Mankins and Lori Sherer (), assert, “The best way to understand any company’s operations is to view them as a series of decisions.”[9] They add, “We know from extensive research that decisions matter — a lot. Companies that make better decisions, make them faster and execute them more effectively than rivals nearly always turn in better financial performance. Not surprisingly, companies that employ advanced analytics to improve decision making and execution have the results to show for it.”

 

Concluding thoughts

 

Digital transformation can be gut-wrenching for companies that found success using Industrial Age organizational principles. In many such organizations, the prevailing philosophy is “if it ain’t broke, don’t fix it.” Many of these organizations are finding that the business landscape they are used to operating in is being altered by tectonic shifts in technology and the rise of digital competitors. Answering the six questions posed by Weill and Woerner will help determine if your company needs to transform before it becomes a historical footnote.

 

Footnotes
[1] Yossi Sheffi, “What is a Company’s Most Valuable Asset? Not People,” Supply Chain @ MIT, 20 December 2018.
[2] Andy Main, Debbie McCormack, and Bob Lamm, “From ‘Doing’ to ‘Being’ Digital,” The Wall Street Journal, 29 October 2018.
[3] Trevor Miles, “Let’s be clear: Digitization is not the same as Digital Transformation,” Kinaxis Blog, 8 December 2017.
[4] Clint Boulton, “Digital transformation: a necessary disruption,” TeCentral.ie, 1 August 2018.
[5] Gren Manuel, “Embracing the reality of digital transformation,” Raconteur, 2 July 2018.
[6] Peter Weill and Stephanie Woerner, “Digital Transformation Is Not About Technology—It’s About Change,” Chief Executive, 27 June 2018.
[7] Staff, “Digital Transformation Trends that Will Dictate the Enterprise Roadmap for the Next 10 Years,” CIO Review, 7 March 2018.
[8] KN Kasibhatla, “Information To Insights: Why Business Needs Artificial Intelligence,” Forbes, 31 January 2018.
[9] Michael C. Mankins and Lori Sherer, “Creating value through advanced analytics,” Bain Brief, 11 February 2015.