It seems that in an effort to improve their customer experience, the majority of organizations have jumped on the bandwagon known as digital transformation. They seek to use digital technology to better engage customers and use digital data to create a customer-centric experience.
At its core, digital transformation is nothing more than the use of new and changing technology to solve customer problems. In other words, digital transformation is the effective wielding of a tool, known as technology, however it does not necessarily lead to innovation.
Digital transformation “failures” often result because confusion exists among business leaders. The terms innovation and transformation are frequently misused or used interchangeably.
Innovation and transformation are not synonyms.
Rather, one leads to another.
Corporate Innovation vs Digital Transformation
As we look closer at the differences between corporate innovation and digital transformation, we see that innovation is the cause and transformation is the effect.
For instance, a sudden spark of creativity can redefine a company’s thinking and redefine their goals. That is innovation.
Business transformation occurs, over time, as new strategies are implemented to achieve the newly defined goals.
Digital transformation is just a single tool wielded in the business transformation process.
Why doesn’t digital transformation lead to corporate innovation?
The reason that digital transformation does not lead to corporate innovation is the same reason that nailing together two boards does not build a house. Corporate innovation must, by necessity, involve a creative process and the willingness to change established patterns of thought.’
If we take homebuilding analogy further, we see that without an architect directing the creative process, and a builder implementing his vision, having someone swing a hammer becomes pointless. Likewise, bringing in new technology won’t accomplish the desired goals without an innovative thinker spearheading the project and leaders who share the vision directing the processes.
Why do digital transformations fail?
Until key players realize that digital transformation cannot accomplish true business transformation without a creative strategy for success, they will continue to see their efforts fail. With technology changing daily, it’s not enough to incorporate the “newest” and most “cutting-edge” tools. Those digital tools will only keep you from falling behind, but they will never push you ahead.
In fact, studies show that 70% of digital transformations don’t achieve their stated goals. (1) Their most common reasons for failure are not involving all levels of the company and not communicating the innovative strategy behind the transformative processes.
So, what is the role of technology and how do you prevent digital transformation failure?
The Role of Technology in Digital Transformation
Technology makes everything faster and more accessible, thus creating valuable efficiencies. Adopting the latest technology is crucial to keeping up with the competition. When new technology is adopted and wielded with intention, then digital transformation occurs. Companies undergoing digital transformation have the potential to lengthen the life of a company’s core business, but employees often don’t know how the company’s digital efforts fits into the overall business strategy.
“We built a website. Where is the increase in traffic”?
“Our Ad budget was increased, why aren’t conversions up”?
“We integrated a new CRM but nobody is using it.”
Before digital transformation can be a success, these questions must be answered.
- Why are we implementing these changes?
- Who will benefit?
- What is the desired outcome?
- How can we leverage these new tools for a competitive advantage?
- Will this transformation lead to innovative disruption in our markets?
Remember, technology is the tool that drives the process of digital transformation, but without innovatively disruptive thinking and superior execution, that transformation will only keep you “even” with the competition. The real goal is to redesign the playing field to your advantage.
What does true business transformation mean for established businesses today?
True Business Transformation is what we will refer to as an innovative application of digital technology to materially impact the valuation of a company with sustainable growth. Successful true business transformation will mean the move of companies into wholly new enterprise directions that give it the runway to lead in an emerging future marketplace and not only improved efficiencies, a better customer experience, and the launch of new business models leveraging digital to stay competitive todayl.
Let’s look at two examples of digital transformations and where they succeeded and where they did not given this success framework for true business transformation.
Ford Motor Company
In 2014, Ford Motor Company, made what appeared to be an innovative move to take control of emerging markets such as autonomous and smart vehicles.
“Ford Smart Mobility and expanding into mobility services are significant growth opportunities. Our plan is to quickly become part of the growing transportation services market, which already accounts for $5.4 trillion in annual revenue.” Mark Fields, president and CEO, Ford Motor Company.
The company invested large amounts in their new venture, but failed to integrate this new segment with existing ones. Concerns arose over quality and Ford’s stock prices fell. In the end, Ford’s adoption of new technology did not result in an actual transformation because there was no cohesion among the business units.
For true business transformation to take place, all parties must change their attitude and thoughts regarding the digital transformations and look in the direction of wholly new enterprise direction opportunities that can deliver meaningful enterprise wide revenue growth and surplus margin. .
This year, German automaker, Volkswagen (VW), announced their intention to introduce new mobility solutions to consumers such as parking with integrated billing and real-time recommendations based on location by 2020. This is an example of potential wholly new enterprise directions in in a long line of digital initiatives since the company sought to reinvent itself after its diesel-emissions scandal in 2015.
After their CEO was jailed for allowing software to be installed that misrepresented diesel emissions, funds were earmarked for the establishment of electric vehicle charging stations across the U.S. which we would categorize as a “digital transformation”. Volkswagen found itself getting an early start in the EV market.
Although Digital initiatives and ventures became the norm for the company and took place in every segment of the business, true Business Transformation has yet to take hold to as the share price of the company today at around $19 still sits below its 2015 peak of around $26.In an industry that is collectively chasing what will be a crowded future EV market, the returns on Volkswagen’s investments and digital momentum are not paying off yet as it relates to changing the game to significantly impact shareholder value.
Non-technology Businesses and Digital Transformation
Regardless of the industry, digital transformation cannot succeed without corporate innovation and a disruption of current thinking needs to happen if we are to achieve true transformation. This is one of the greatest problems facing established businesses today. For example, a manufacturing company that does not adopt modern machinery or updated internal systems will find that they cannot compete in an ever-shrinking global market. Technology is a tool that must be kept up-to-date. However, this only levels the playing field. Alone, new technology through digital transformation or corporate innovation does not set it on the path to true transformation.
On the other hand, all auto companies developing capabilties for the EV market does not position them for leadership or empower them to change the playing field in their future.
What is the future of established companies going digital in the future ?
True transformation will make companies more customer-centric and allow them to deliver services and products faster in both the real and virtual worlds leveraging technology. Established companies that can leverage the latest technologies effectively may stay competitive at best – in the near term. However, digital transformation is extremely hard for established companies to accomplish successfully. According to Forbes Magazine, as many as 84% of Fortune 500 companies fail at digital transformation.
However, it can be done. Established companies who create pathways for wholly new enterprise revenue leading with the customer and reinvent the way they do business can achieve a true transformation that sets them up to lead in the longer term.