The Digital Paradox
A couple of months ago, IT managers gathered for a roundtable session to discuss digitalization. They were asked to define the concept of digitalization and its implication for their organization. The IT managers, representing different industries, had diverging definitions and views of what digitalization was all about. Some had a very technical perspective (with focus on automation, tools and processes) while others had more strategic and market perspective (with focus on governance, time-to-market challenges, and customer behaviour). What we can agree on, based on this example, is that there is seldom one common definition of digitalization but rather views depending on who you ask and when. The fact is that our perception of digitalization is a result of all our experience in this practice – spiced with mindset and knowledge. Our perception of digitalization needs to change in the same rate as the digital evolution and it can be a painful journey without the right support.
Digitalization: Digitalization: Integration of digital technologies into everyday life by the digitization of everything that can be digitized (technical evolution and customer behavior).
(businessdictionary.com, HBR.com - 2016)
Most of the different views of digitalization (and its implications) that we encounter in our dialogue with IT and business managers are partly correct but do not capture the complete picture. The key implication of digitalization is increased unpredictability in every industry challenging the company’s ability to continuously change its capabilities and ability to compete. Company capabilities is not limited to digital technology but also include customer engagement, offerings, people & competence, structure & value chain, and business model. All of these capabilities exist in an ever-changing symbiosis that jointly create value to customers. A change in digital technology will impact (strengthen or weaken) the other capabilities.
“The digital enterprise has to embrace both, in equal amounts, the technical evolution and the change/people capacity in the organization. A one-sided investment in digital technology will make the organization less digitally prepared. That is the digital paradox.”
I had the opportunity to discuss digitalization with a digital transformation team at a Swedish company. They had attempted IT transformations numerous times in the name of digitalization with limited success. They openly told me that IT/Digital transformation had mainly been a technical transformation with investments in new IT platforms – but never succeeded with changing the mindset of the IT organization to be more business oriented. The fact was that change management and people-focus had never been on the IT management's agenda and it hindered the company to pursue its digital ambitions. A few weeks ago, I visited the company again and despite the fact that business is screaming for IT interaction, IT still focuses on internal processes, tools and structure hindering the business to compete. IT is believed to be hiding behind the complexity of architecture and processes. IT platforms and processes are needed but need to be balanced with change management, innovation, business interaction. The company is today less digitally prepared than before despite huge investments in IT platforms.
“When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.”
George Westerman | Principal Research Scientist with the MIT Sloan Initiative on the Digital Economy
During the last 10-15 years, we have seen an increase in the number of disruptive digital trends and companies that re-write the business rules. Companies such as Airbnb, Spotify and Uber that use digital technology to challenge traditional multi-national companies. The success of disruptors is based on a profound understanding of digitalization and finding new approaches and combinations of the digital capabilities. In essence, they challenge the culture and change ability of the traditional companies. For me, it is no surprise that digital unicorns have been successful in challenging traditional as they challenge very conservative (“fat cats”) industries without the ability and willingness to change. No industry is safe in the digital disruption race.
- Start by defining what digitalization and digital transformation means for your company. Do you have a common definition and list of implications? What are the main drivers of digitalization in your industry?
- How much of digital investments, energy and attention is spent on evolving the IT capabilities in comparison change capabilities? If there is a one-sided bias towards IT investments, then there is a risk that your company is less digitally prepared. The idea is then to rebalance the focus with change management capabilities – avoiding the digital paradox.
- How would you address a threat of a digital company with disruptive business model or services today? Is there a plan for this market threat? Identify a number of possible scenarios and how you would respond to them. It will happen to your company!
To conclude, the success of mastering digitalization and digital transformation is not only about technology but also about managing the unpredictable market conditions with efficient change management. Unfortunately, a majority of company’s primary focus only on technology without understanding the impact on other business capabilities and ability to compete. What we can learn from history is that this approach will be challenged by someone more dynamic and agile – seeking to disrupt your industry. The chance of surviving this challenge is very low.