Most of you would know about Simon Sinek’s presentation of The Golden Circle. There are three parts of The Golden Circle: Why, How, and What. Simon recommends starting with the ‘Why’ as it is a very impactful way to communicate and define the unique value proposition of your business or strategy and this inspires others to act and join in on the journey. I am going to use the same model here and lay out why starting with the ‘Why’ for digital transformation is important before articulating the how and the what of digital transformation.
Why Digital Transformation?
Former Cisco CEO John Chambers made the claim in 2015 that “at least 40% of all businesses will die in the next 10 years … if they don’t figure out how to change their entire company to accommodate new technologies”.¹ If companies do not keep up with the pace of overall technological change, it has the potential to impact the very existence of the organization. In addition, the current state of the world and impact of events like the pandemic exacerbate that digital transformation is necessary to combat the challenges the external environment brings such as Volatility, Uncertainty, Complexity and Ambiguity (VUCA).²
Starting with adopting technology changes is never the answer to digital transformation unless a clear strategy articulating why we need leverage digital technology of today such as social, mobile, analytics, cloud, and Internet of Things (SMACIT)³ to uncover new paths for value creation is defined. When the ecosystem around the organization in terms of consumer behavior and expectations, competitive landscape, and the availability of data rapidly changes, there is no other way but to innovate and redefine the organization context and reason for existence to stay in the game.
Digital transformation is the fourth industrial revolution and organizations now need to function as a platform to enable fast decision-making, respond with agility and adaptability to market conditions and quickly innovate for real competitive advantages. Leadership for digital transformation needs to be therefore visionary and not only be able to clearly define and communicate the ‘Why’ of transformation specifically for their organization but also re-shape company mission, vision and values and build trust across the organization and value chain.
How to do Digital Transformation?
To truly embrace digital transformation, companies need to improve on current products, innovate to add new products and services, re-evaluate old processes, rethink the content of work and workflow, build new business models, and enable digital capabilities to support these. It involves being able to adapt continuously with constantly learning new information through leveraging data analytics, considering the current and future business context and be adaptable to change business processes on the fly.
Digital transformation is thus an ongoing process of changing the way of doing business and is a multifaceted approach to solve business problems and is not just about technology transformation. This involves
This means that the strategic approach to digital transformation requires innovative, dynamic and even entrepreneurial ways of thinking, managing and leading which is absolutely crucial to thrive.
What needs to be addressed in digital transformation?
In developing new business models, companies need to approach implementing strategy in terms of the customer, organization and technology.
Designing the customer experience should involve understanding the customer journey through all channels and across business processes, continued engagement of customers and online communities and blending both physical and digital customer experiences seamlessly. This means every part of the organization can see and visualize the customer journey.
Organization strategy should incorporate having everyone on the same page with the ‘Why’ and vision of digital transformation, fostering a digital culture including innovation and continuous improvement, developing right digital skills, improving employee experience with people centric digital work tools, providing opportunities to work in cross-functional teams to grow as well as role clarity tied to organization clarity.
With regard to technology, it is about integration of digital technology into all areas of a business whether developing insights from data analytics, modernizing legacy applications, automating business processes or digital technologies enabling platforms to seamlessly connect and interact with one another. The value provided by underlying technologies is substantially dependent on the business model in which they are integrated. Thus, technology should be seen as an enabler to solve problems and not just as a driver for digital transformations.
Many mature organizations adopt a “zoom out, zoom in” approach to defining digital transformation strategy.⁵ This involves working on two timelines in parallel. The first timeline is for the long-term horizon scanning over a five-to-ten-year period to identify potential disruptions and prepare the organization. The second timeline targets a 12-to-24-month period very much focused on current challenges and market forces and continuing to build towards the long-term goals.
The question is therefore not what technology will be predominant in five or ten years’ time but how can an organization prepare for the future, maintain agility, stay current and disrupt to avoid being disrupted. It is important for organizations to start with the ‘Why’ of digital transformation and get this right to be able to get the rest of it right.
¹ Ross (2015) “Why 40 percent of businesses will die in the next 10 years”, Ross & Ross International, Accessed 10th Sept 2021, www.rossross.com/blog/40-percent-of-businesses-today-will-die-in-10-years
² Bennett, N., & Lemoine, J. (2014) “What VUCA really means for you”, Harvard Business Review, 92(1/2), https://ssrn.com/abstract=2389563
³ Sebastian, I. M., Ross, J. W., Beath, C., Mocker, M., Moloney, K. G., and Fonstad, N. O. 2017. “How big old companies navigate digital transformation,” MIS Quarterly Executive (16:3), pp. 197–213.
⁴ Hinterhuber, A., Vescovi, T., and Checchinato, F. 2021. Managing digital transformation: Understanding the strategic process. 18:38
⁵ Hagel, J., & Seely Brown, J. (2018) “Take a zoom out, zoom in approach to business strategy”, Risk and Management Journal, Accessed 10th Sept 2021, https://deloitte.wsj.com/riskandcompliance/2018/07/27/take-a-zoom-out-zoom-in-approach-to-business-strategy/