Wednesday, August 21, 2019

Digital transformation: Pandora's box or cornucopia?

Digital transformation.  Everyone from the CEO to the janitor understands that digital transformation is important.  Every competitor is talking about what digital transformation will do for their business - create new revenues, cut inefficiencies and costs, discover new value in previously unremarkable data.  Digital transformation is the latest management philosophy, like ERP or business process re-engineering or innovation that have come before it.  Yet unlike some of these previous philosophies, digital transformation has the power to actually transform a business, rather than simply improve core processes or cut costs.

Right now, digital transformation is a moniker without a definition.  Some people refer to digital transformation as digitalization - improving systems and processes to the point where the business runs on fully integrated digital data and systems.  Other people refer to the goal of being "data driven" - that is, letting data drive processes and decisions.  Some people refer to digital transformation as the advent of artificial intelligence and machine learning as a core component of business operations.  The truth is, like innovation, digital transformation is in the eye, and the definition, of the beholder.  And when definitions are loose and not shared, different implementations will create different outcomes, and what could be a transformative activity is likely to become a discrete project.

Digital and Transformative

There are digital projects and there are transformative projects, but there are very few digital transformative projects.  I use the emphasis intentionally, for this reason:  improving your ability to manage your data (a digital project) won't necessarily transform your business, and you can transform your business without necessarily improving your digital operations, but both are discrete projects.

Digital transformation is a journey.  There.  I said it.  It is an old trope but sometimes old sayings are valid.  To transform a company and make it much more digital, agile, fast and innovative, it will take time and commitment.  This is not a one time AI project in a portion of the business, but an intentional change to how business is done.  Nothing like that happens quickly or in isolation.  Many of the leading firms working on digital transformation have been at it for several years, and when they are being honest they'll admit they have several more years to go to achieve any real digital transformation.

Secondary and Tertiary effects

What's equally if not more important than the realization that digital transformation is a journey of many projects and not a single project is the subsequent understanding that the transformation isn't simply a technology or business process transformation, but will eventually impact:
 - data
 - customer service and experience
 - business models and revenue models
 - partners and the delivery or service ecosystem

While digital changes that you implement today may not seem to impact how you interact with customers, the channels you use or the service experiences customers enjoy, think about the fact that you are transforming your business, as customers and expectations are also being transformed.  If you believe you can continue to operate in the models and methods of the past, while transforming only the data portion of your business, you are sadly mistaken.

Digital transformation will change much more than the data, internal processes and products.  Take for example the new Lumi diapers from Pampers.  These are diapers with a sensor to alert parents to their child's activity and the dampness of the diaper.  With a single sensor (digital capability) information can flow from the diaper to the parent's phone or PC.  Also included in this solution is a digital camera, which the parent can use to turn on or off and view the child at a distance.

From that description, all we've done is place a sensor on a diaper, and exchange data.  But look at what happens next.  The app on the PC or table must be interactive and useful for parents in order for this to succeed.  Thus, customer experience becomes important.  Then, for Pampers to actually benefit from this device they must drive more diaper sales, and create more loyalty, so being able to order diapers from the app is a fairly simple addition, changing the business dynamic between Pampers, the retail channel and the parent.  Of course the delivery of diapers is part of the customer experience as well.

One small change, many secondary and tertiary effects

The challenge with digital transformation at a project level or at a corporate level is the unexpected or even unanticipated secondary and tertiary effects.  By simply including a sensor or data device on a product, you create data flow which creates new insights and opportunities for customer interaction, leading to the importance of customer experience.  As the customer becomes more involved in the data stream, the company has new opportunities to market goods and services, changing the retail channel dynamic and creating new revenue streams and business models.  To support these new models, new and existing ecosystem partners must play an integrated role to provide the service and product expected.

Pandora's Box or Horn of Plenty?

The pessimistic side of me says that many companies will focus on the data flow as they add intelligence to devices, and ignore all of these secondary possibilities.  Some portion of me wonders if these opportunities are a Pandora's Box, full of promise at the start but unleashing issues we haven't fully addressed like ethics and privacy.

But perhaps the best metaphor for the prepared and thoughtful company is a horn of plenty.  There are many opportunities within a digital transformation, and companies that fully consider their opportunities, including the immediately obvious data and analytics opportunities but also the opportunities new data exchange creates, can reap fairly dramatic rewards.
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posted by Jeffrey Phillips at 9:27 AM


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