Many organizations have been disappointed that their digital transformation projects did not provide the major impact they expected. Big promises were made when the projects were authorized, but the results are far short of the promise. In most cases, the reason for the miss is not the “digital” part of the project it is the “transformation.”
Most well-established businesses have operated under the principle of maximizing asset utilization. That was the key for success throughout most of the 20th century. Business improvement and upgrade projects focused on getting “more bang for the buck.” This meant improving productivity, increasing throughput, and growing sales without growing assets and infrastructure. Key improvement methodologies such as Lean or Six Sigma took this type of improvement and upgrades to new heights.
Then along came digital transformation. New startup businesses, known as digital natives, were growing into billion-dollar enterprises in a few short years. Many of these organizations did it with almost no capital assets. Digital giants were gobbling up markets. They leveraged their digital competencies to acquire and serve customers in ways that the established competitors hadn’t even considered as an option. The word was out, either embrace digital transformation or become a dinosaur. And the business landscape had plenty of dying dinosaurs that served as Exhibit A. So, organization and companies jumped on the bandwagon. Digitalization projects which automated processes and digitized information were implemented. They promised order of magnitude improvements but only delivered incremental improvements. What went wrong?
One of the reasons for the disappointing results is explained up in a quote from Albert Einstein, “Without changing our patterns of thought, we will not be able to solve the problems we created with our current patterns of thought.” In other words, digitalizing elements of a business built for capital asset optimization will result in a business that is really good at capital asset optimization. But if that is not what competitive advantage is based upon, you could be left out in the cold. Let me try a metaphor. Let’s say you are running a railroad. You have worked to improve your railroad. You have upgraded the tracks, procured faster and more efficient locomotives, digitized your freight tracking and scheduling. All of these have helped you become a very efficient railroad. But the trouble is the company is still tied to the rail system. If suddenly there is a hot spot of growth that needs freight and passengers, but does not have a rail spur, you are out of luck. You can’t serve that suddenly hot market. And by the time you can build a track and setup service, your digitally transformed competitor will already be the dominant force in that market.
So how does an organization break the mold of the existing operations and truly embrace transformation that is enabled with digital technologies. You must step back from the detailed day-to-day business activities and ask transformative questions. For instance, the railroad example we just examined needs to decide if they are in the railroad business, the freight management and delivery business, or the community growth and sustainability business? Each of those are a viable business option. Depending upon the answer, a different set of expectations should be established, and a different set of digital transformation projects should be initiated.
When you step back and reconsider the business you are in, it changes the patterns of thought about the business. Our 20th century business schools taught business managers to think linearly. The emphasis was on understanding the process of delivering products or services to the customers. Anything that impeded the flow was a problem to be solved. As managers, your role was to understand the cause and effect of a problem and then fix it.
When thinking of the business with a new pattern of thought, a systems view is needed. In fact, that is one of the concepts that has been foundational to digital transformation, the business ecosystem. An ecosystem includes multiple organizations, often including commercial and governmental or community groups. These organizations affect each other in multiple ways. Not only in actual buy-sell transactions but also in creating demand, setting standards, and removing obstacles that create friction in the market. A successful digitally transformed business understands the system and how to impact it for success for themselves, their customers, and the entire system.
Before starting another round of digital transformation projects, a business or organization would be wise to stop and ask the question, “In which ecosystems do we want to participate and in which do we want to dominate?” If those ecosystems exist and are relatively mature, you will need to prove your value to the other entities in the system. If that ecosystem does not yet exist or is still in its infancy, you have an opportunity to shape it and claim your spot within the ecosystem. These systems are normally connected with various types of digital technologies. And the products and services offered are often collaborative solutions between entities that integrate at the digital level. For a capital asset optimization business, this is a major paradigm shift. Or paraphrasing Einstein, you must change your pattern of thought to correct the problems that are created with the current pattern of thought.
Institute Fellow
Raymond Sheen, PMP® LSS BB, is president and founder of Product & Process Innovation, Inc. He is a veteran business leader with over 30 years of executive, engineering management, and project management experience deploying new technology and improving business performance. He has consulted and trained companies in various industries and business functions including marketing, engineering, manufacturing, service, IT, and Finance. Ray is author of the book, Guide to Building Your Business Case, published by Harvard Business Review Press. Ray received his B.S. in Mechanical Engineering from the United States Air Force Academy and his M.S. in Astronautical Engineering from the Massachusetts Institute of Technology and has a graduate certificate in Digital Leadership and Strategy from Boston University.
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