The term “digital transformation” is found liberally scattered throughout articles about how businesses are adapting to the digital age. I often wonder, however, if business leaders fully comprehend what transformation means. Jim Tompkins (@jimtompkins), Chairman at Tompkins International, writes, “The definition of transformation is the act or process of being transformed. The definition of transformed is: 1) to change in composition or structure; 2) to change the outward form or appearance of; [or] 3) to change in character or condition. So I conclude that when folks use the word transformation, their intention is to covey an act or process of changing something.”[1] Tompkins believes simply changing a few things by digitizing them is inadequate. He explains:

“I think people are underestimating the magnitude of what is happening today. Transformation was a great process to move a company forward five years ago. But are you telling me that for us to deal with digitalization, digital commerce and the pandemic all we need to do is change the way we do business? This is what I have read in many articles and blogs, but just changing what you have done in the past is woefully inadequate. As we try to put 2020 behind us, we need to grasp that it is a whole new game. You will not be successful going forward if what you do is transform your business, supply chain or logistics processes. Simply changing these processes is totally inadequate. You must throw out how things have been done in the past and reinvent your business, supply chain and logistics processes.”

I agree with Tompkins, which is why my preferred definition of transformation is: “A thorough or dramatic change in form or appearance.” Transformation is not, as people are fond of saying, “rearranging chairs on the deck of the Titanic.” Digitizing a few processes is not the same as become a digital enterprise. Tricia Wang (@triciawang), a self-described Tech Ethnographer & Sociologist, explains, “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! Whereas [some 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.”[2]

Digital transformation starts with the right questions

“Few leaders would dispute the fact that business today is driven by data and smart algorithms,” writes Mike Walsh (@mikewalsh), CEO of Tomorrow. “Yet, rather than real digital transformation, many instead pursue digital incrementalism, using automation to cut costs or, worse — cut jobs. Doing so might buy you some time from impatient shareholders, but it will be short-lived unless you can face the challenge: How do you reimagine what you do for a new era of AI-powered competition?”[3] Reimagining what you do begins with the right questions. Harit Talwar, global head of Goldman Sachs’ Consumer Business, told Walsh, “If you want to be a successful disruptor, whether starting a new business or whether as a decades-old organization, the first lesson is to ask: What is it that you’re trying to do, and for whom? What is the customer problem? Or what is the business problem you’re trying to solve? That is real innovation.”

The late Harvard Business School professor Clayton Christensen called this approach the Theory of Jobs to Be Done. Christensen and his colleagues wrote:

“If a company doesn’t understand why I might choose to ‘hire’ its product in certain circumstances — and why I might choose something else in others — its data about me or people like me is unlikely to it create any new innovations for me. It’s seductive to believe that we can see important patterns and cross-references in our data sets, but that doesn’t mean one thing actually caused the other. … Of course, it’s no surprise that correlation isn’t the same as causality. But although most organizations know that, I don’t think they act as if there is difference. They’re comfortable with correlation. It allows managers to sleep at night. But correlation does not reveal the one thing that matters most in innovation — the causality behind why I might purchase a particular solution. Yet few innovators frame their primary challenge around the discovery of a cause. Instead, they focus on how they can make their products better, more profitable, or differentiated from the competition.”

Although it may sound like Christensen and his colleagues were skeptical about the value of big data analytics, I don’t believe that’s their message. What I think they were saying is that companies have been asking their analytics to answer the wrong questions. Although Christensen did say, when he died, one of his first questions to St. Peter would be: “Why did you only make data available about the past?”[4]

Operating on the cutting edge of change

Most business leaders would love to have data about the future. Unfortunately, that’s not possible. The best they can hope for is gatherings, storing, and analyzing the most current data possible. Analysts from Qlik note, “In a dynamic and increasingly complex business environment in perpetual motion, decisions are often ineffective because companies lack data and analytics systems that can reflect the ‘business moment.’ We define business moment as a transient opportunity for people, data, and businesses to work together in unique, situationally adaptive ways in order to create increased value. Optimizing the potential of a ‘business moment’ calls for an emphasis on Active Intelligence, or a frictionless state of continuous intelligence where technology and processes trigger immediate actions from real-time, analytics-ready data. This in turn enables the business to feed off continuous, high-frequency, intuitive insights derived from all data.”[5]

For many organizations, near-real-time data about customers is absolutely essential. The pandemic has only increased this requirement. Anil Kaul (@anil_kaul), co-founder and CEO of Absolutdata, suggests organizations need to answer two questions: “What will consumer behavior and profiles look like in the new normal? What will the demand pattern look like going forward?”[6] He adds, “To put it another way, you need to know what people will buy, where they will buy it, how they’ll buy, what quantities they’ll buy and how often they’ll buy. Prior to the pandemic, historical data provided some guidance. Now, all that manufacturing, logistics, pricing, customer engagement and general commerce data is obsolete.” At Enterra Solutions® we found ourselves supporting clients faced with just such a dilemma. As a result, we found new ways to combine and analyze data in the Enterra Global Insights and Optimization System™ to help find answers to the questions Kaul poses. The point is, organizations need to be on the cutting edge of what happening in the business landscape if they are going to survive.

Concluding thoughts

Tompkins concludes, “To address the magnitude of VUCA (volatility, uncertainty, ambiguity and complexity) in 2020, you must start with a clean slate and reinvent all that you do. Failure to do so and only transforming your business will beget failure.” Walsh agrees this is no time to be timorous. He writes, “We are just at the beginning of a new era of AI-powered competition, and the playbooks for organizations and leaders are far from clear. One thing is sure: the successful firms of the future will be those that can leverage data, algorithms, and human talent to both sidestep industry boundaries and creatively meet customer needs. For leaders of more established firms, this is no time for timid moves. Expect a widening gap between customer-centric organizations with a deep commitment to evolving their technology platform and those whose blind pursuit of operating efficiency leaves them defenseless against a more uncertain future.”

Footnotes
[1] Jim Tompkins, “Transformation is Inadequate: Why Reinvention is the Only Option for Business Success,” Tompkins Blog, 15 September 2020.
[2] Trevor Miles, “Let’s be clear: Digitization is not the same as Digital Transformation,” Kinaxis Blog, 8 December 2017.
[3] Mike Walsh, “AI Should Change What You Do — Not Just How You Do It,” Harvard Business Review, 21 September 2020.
[4] Staff, “Clayton Christensen’s insights will outlive him,” The Economist, 30 January 2020.
[5] Qlik, “Digital Transformation Requires an Active Intelligence System,” CIO, 2 October 2020.
[6] Anil Kaul, “Using AI as a Shortcut to the New Normal,” Path to Purchase IQ, 30 June 2020.