Let me start by stating I dislike the overused word transformation. I like it even less when it is paired with the word digital. First, if we are not in a perpetual state of transformation in this era of uncertainty, volatility, and rapid pace, we are not likely to advance our organizations or society. Second, digital is foundational and should be part of the fabric of any business, not an optional transformation initiative. When stated as digital transformation, it feels like an event as opposed to standard operating procedure. Are you considering the use of emerging technology to create value? That’s an everyday activity given how many technological building blocks exist and how many are on the horizon. Considering a new business model? It is not the transformative event it once was, but something that happens with regularity. Extreme event rattled the status quo? Likely part of the standard operating environment going forward.
The point was captured well by Peter Hinssen when he called our current world the never normal. Each of these scenarios highlights the point that if we want to use the word transformation, let’s realize it as a perpetual state of being. Case in point, the pandemic could have completely wiped out Airbnb, but instead, they may totally change the travel industry. This specific example speaks to the importance of adaptability. As the world shifts, we must shift with it. Airbnb did just that. A recent article by leadership strategist Steve Denning looked at why digital transformation fails. He cites the underwhelming impact of transformation initiatives as measured by return on investment.
The ‘digital giants’ and the ‘digital upstarts’ are making more money and growing much faster than the average firm, despite their various efforts at ‘digital transformation.’Steve Denning – Why Digital Transformations Are Failing
One has to ask themselves why digital companies outperform their peers. Is it digital, or is there more to it? At the heart of it lies the difference between companies that still operate like industrial era companies and those that operate with models more attuned to a vastly different era. Mr. Denning states that incumbents are still the same slow-moving steep hierarchies of authority, with an internal efficiency-driven mindset and under-investment in innovation. Meanwhile these digital companies have a different modus operandi. They move more quickly, operate more efficiently and effectively, mobilize more resources, attract more talent, and win over customers more readily. The mindset is completely different. Mr. Denning gets to the crux of the issue when he states that during the last half century, most large firms have prioritized extracting value for themselves and their shareholders at the expense of longer-term innovation. No digital transformation program is going to fix a model focused on value extraction versus creation. These so-called digital giants and upstarts win by generating new forms of value and transforming many of our life experiences. If we want to use the word transformation, let’s focus it there.
What they have offered has already transformed how we work, how we communicate, how we entertain ourselves, how we read, how we listen to music, how we watch theater and movies, how we get about, how we shop, and how we play and watch games. While traditionalists may yearn for the old ways of doing things, most of us have shown by our actions that we see these changes as beneficial.Steve Denning – Why Digital Transformations Are Failing
To transform is to change in form, appearance, structure, condition, nature, or character. This definition captures why transformation fails. If the overall dynamic of the organization is rooted in industrial era thinking, then any initiative we label as transformation is at odds with that dynamic. If we don’t change the nature and character of the organization to better reflect the operating environment, then the operating environment will change us into obsolete entities.