Most analysts agree businesses face an imperative to transform into a digital enterprise or lose ground to competitors that do. Industrial age organizations are simply not up to the challenges of the information age. Defining terms like “digitization,” “digitalization,” and “digital enterprise” is not easy. David Woods (@DatumWoods), a principal partner at Datum Strategy, believes it’s easier to define what a digital enterprise is NOT before defining what it is.[1] He claims a digital enterprise is NOT:

• An ecommerce company – Of course the enterprise likely has an ecommerce component, but the term ‘digital’ is not synonymous with ‘online’ in this sense.
• A marketing term – If you Google ‘digital strategy’ you will likely get a lot of results that relate to a company’s online marketing strategy. We are talking about a much bigger picture.
• An IT endeavor – The second you say ‘digitalization’ many people start thinking computers and technology, which leads them to believe that this is purely an IT concern. While IT needs to be involved, it is certainly not an IT-owned strategy.

He’s right on all counts. Christopher Paquette (@paquettecm), a partner at McKinsey & Company, loosely defines digitization by the results it can achieve. Digitization, he says, is how you ensure better connectivity with your customers, improve collaboration internally, use data to make better decisions, and how you innovate and advance the thinking within a company.[2] At the 2014 MIT Sloan CIO Symposium, a panel discussion on digital transformation resulted in a few definitions of what digital transformation means. For example, George Westerman (@gwesterman), Research Scientist at the MIT Center for Digital Business, defined digital transformation as “using technology to radically improve the performance and reach of an organization.”[3] But as Woods noted, focusing on technology limits the vision of what digital transformation is all about. The panel was aware of this and stressed “transformation needs to fundamentally change how the business operates, and do so across all aspects of the organization.” Westerman did point out enterprises that “become digital masters are 26% more profitable, and that digital transformation is driven by the leaders at the top of the organization.” So even if the definition of digital transformation is a bit murky, the imperative is crystal clear.

Paquette agrees that digital transformation affects all aspects of an organization. When asked where companies should begin their transformation, Paquette admitted it was a difficult question but believed common sense would provide a good starting point. “It takes a clear business case,” he says. “The economics have to be there. You have to have clear line of sight to the value that you’re going to create for the institution, the shareholders and your customers. Two, it requires an executive who can actually bring together the cross-functional set of folks that are required to really do digitization. And so I get back to this definition of what [enterprise digitization] means. Well, it means it’s not just technology, it’s the business, it’s operations, it’s the front-line employees, it’s regulatory, it’s compliance, it’s legal. And you need a leader who can really marshal and, frankly, inspire that set of folks to come together.”

One of the best places to start, I believe is with the supply chain. Lora Cecere (@lcecere), founder of Supply Chain Insights, bluntly states, “The supply chain IS Business, not a department within a business.”[4] As a result, making the business case for a digital supply chain is generally easier than trying to make a case for digital transformation in other areas. Empirical evidence seems to support that proposition. Kaitlyn McAvoy (@KMcAvoySM) reports, “The majority of supply chain organizations are increasingly focused on digitizing their supply chains — and know doing so will give them a competitive advantage, according to a recent report by JDA Software Group.”[5] That’s the good news. The bad news is “most organizations are without a comprehensive digitization strategy.” The reason Paquette stresses the importance of bringing together a cross-functional set of folks is because only a diverse group that represents the entire organization can help draft a comprehensive digitization strategy. McAvoy adds, “Despite the high levels of interest in applying digital technologies to the supply chain, the report showed only 10% of organizations surveyed have a ‘holistic digitization strategy’ in place.”

A group of Boston Consulting Group (BCG) analysts note, “For years, companies have used digital supply chain technologies to improve service levels and reduce costs. But the inability to connect disparate systems, provide end-to-end visibility into the supply chain, and crunch massive amounts of data, among other issues, has prevented many companies from achieving the full potential of their supply chains. Now, thanks to the wide availability and adoption of much more powerful digital technologies, including advanced analytics and cloud-based solutions, companies are generating dramatically better returns on their investments.”[6] The technology I believe will have the greatest impact digital enterprise transformation is cognitive computing. I define cognitive computing as the combination of artificial intelligence, advanced mathematics, and natural language processing. The last capability is important because it makes the advantages of digitization available to more people (i.e., non-technical people are going to be able to communicate with these systems without the need for a technical middleman). Or as Patrick Nelson (@Patnet) put it, “Digitization is ‘flattening’ privilege.”[7] IDC forecasts, “By 2020, 40% of all business analytics software will incorporate prescriptive analytics built on cognitive computing functionality.”[8]

Cognitive computing capabilities can provide the foundation upon which a comprehensive digitization strategy can be built. Every corner of an organization will find cognitive capabilities useful. Because cognitive computing systems can integrate structured and unstructured data, they provide a single version of “the truth” that can be used for collaboration and alignment. Cognitive computing systems help break down silos that characterize industrial age organizations and provide actionable insights that can benefit decision makers in every area. The BCG analysts conclude, “Companies cannot afford to wait. The competition is already making moves, and the leaders in digital supply chain management are building a financial advantage that will be more difficult to overcome with each passing year.” In other words, digital enterprise transformation is an imperative.

Footnotes
[1] David Woods, “What is a Digital Enterprise? (Part 1),” Datum, 10 March 2016.
[2] Staff, “Enterprise digitization: How to scale, where to start,” SearchCIO.com, 27 May 2016.
[3] “The digital business transformation imperative,” Innovation@work Blog, 2014.
[4] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.
[5] Kaitlyn McAvoy, “The Shift to Digitizing Supply Chain Operations,” Spend Matters, 31 May 2016.
[6] Amit Ganeriwalla, Gideon Walter, Libor Kotlik, Robert Roesgen, and Stefan Gstettner, “Three Paths to Advantage with Digital Supply Chains,” bcg.perspectives,
[7] Patrick Nelson, “How the ‘digitization of everything’ will become a reality,” Network World Disruptor, 12 January 2016.
[8] Peter Dinham, “Billions in benefits for business from being ‘data-driven’,” IT Wire, 21 January 2016.