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February 1, 2021

What does digital transformation actually mean?

Focusing on digital assets, not technologies, can help organisations achieve a shared understanding of digital transformation, writes David J Harding.

By david j-harding

Digital transformation is touted as the silver bullet to respond to business disruption and accelerate organisational change. However, there is still a great deal of confusion about the actual meaning of the term, which is often surrounded by nebulous expectations and hype.

If we are to believe the hype, digital transformation will soften the blow of unavoidable disruption. But a study published last year found no correlation between the quantity of ‘hype’ about disruption in a given industry and the amount that actually takes place. “The important conclusion for executives is ‘do not believe the hype’,” the paper’s authors wrote.

What is digital transformation?

Blockbuster fell at the hands of Netflix but the threat of disruption is often over-hyped. (Photo by Rblfmr/Shutterstock)

But what about ongoing competitive advantage – the other promise of digital transformation evangelists? Surely business initiatives have always targeted change that results in competitive advantage, so arguably there is nothing new here.

Irrespective of the ‘drivers’ for so-called digital transformation ‘journeys’, it’s clear that there are wide-ranging perceptions on what digital transformation actually is. And the answer depends on who you ask.

Perspectives on digital transformation

For the ‘technologists’ amongst us, digital transformation centres on major changes to IT infrastructure in terms of legacy divestment and replacement through new infrastructure installation, integration and continuous protection.

By contrast, business unit managers consider digital transformation in the context of developing market, customer, and operational insights to understand current performance in order to plan changes to products, services, and resource capabilities.

And business leaders? For the strategically minded, they will be preoccupied with digital transformation in terms of the next big thing. Right now, that is the ‘promise’ of automation and the ‘inevitable’ organisational impact of this as the machines take over using artificial intelligence (AI).

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But for a more constructive conversation on digital transformation, we need a shared understanding of what it is and what it can do. One way to achieve this understanding is to ask: what is actually going on with our customers; and what do we need to do about that?

To help with this, ask yourself, what is the one thing that connects your customers, your business units, and your supply chain together? The answer, of course, is data. While that has always been the case for many years, digital technologies have added two more dimensions to the equation – transparency and speed.

If we place this technology-agnostic lens over our businesses, we can highlight where we need to focus the digital transformation effort.

If we place this technology-agnostic lens over our businesses, we can now rearticulate today’s reality to highlight where we need to focus the digital transformation effort.

The flow of digital assets

Central to this reality is the fact that we can describe many aspects of digitisation in terms of the flow of ‘digital assets’ (i.e. virtual or physical products and services) which are described using data – the currency of today’s digital revolution.

Such assets are exchanged between ‘providers’ who own and control them (e.g. vendors, suppliers, sellers, etc.) and those wishing to ‘exploit’ them (e.g. customers, consumers, buyers, etc.).

Exploiters and providers are both locked in a continuous cycle of behavioural adjustments – or what I call a perpetually adaptive digital loop – as each attempt to maximise their gains; while exploiters will keep looking for the best deal, providers will constantly adjust their offerings whilst maximising market share and profits.

For providers, this cycle of continuous adaptation and change is manageable – up to a point. Providers must satisfy their shareholders. However, such is the rate of diffusion of new digital technologies, providers face the challenge of constantly changing their capabilities to simultaneously exploit their installed base while accelerating their abilities to explore and adopt (and then exploit) the opportunities presented by changing, evolving digital technologies. This rate of change is accelerating – and will continue to do so for the foreseeable future.

Who is leading who?

The implication of this is quite startling. The digital transformation conversation takes on new meaning as we move away from ad-hoc conversations about business requirements and one-off IT investment programmes and start to talk more in terms of continuous, interwoven IT and business change as a single, joined-up process.

From this perspective, what would digital transformation mean to you now? Would it still be about IT infrastructure changes? Business resource capability changes? Neither? Or both, or something else entirely?

The answer to these questions is likely to be shaped by the personal preferences of in-company digital leaders, but the logic leaves us with a worrying question.

If businesses leadership and management is focused on maintaining this continuously adaptive digital loop, then is there any room left for business strategy? Why not just achieve excellence in being able to continuously change to follow the market? Surely the customer is always right… right?

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