My discussions with organizations looking to “digitally transform” themselves is yielding some interesting observations. I expect that when these discussions move into the execution phase, we will start to create some “Laws of Digital Transformation” that will guide organizations digital transformation journey. So with that in mind, let me start by proposing these “4 Laws of Digital Transformation”.
Digital Transformation is about innovating business models, not just optimizing business processes
Organizations are looking to leverage these digital assets to create new “economic moats.” Warren Buffett, the investor extraordinaire, popularized the term “economic moat.” “Economic moat” refers to a business’s ability to maintain competitive advantages over its competitors (through process and technology innovation and patents) in order to protect its long-term profits and market share from competing firms.
As highlighted in the McKinsey Quarterly article titled “Competing in a World of Sectors Without Borders,” organizations are embracing digital transformation to knock down traditional industry boundaries and disrupt conventional business models (see Figure 1).
While organizations that are looking to “digitally transform” themselves need to look long term, they can, and should, apply their digital assets to optimizing today’s key business and operational processes with machine learning and artificial intelligence capabilities.
Digital Transformation is about coupling digital technologies with digital assets in order to eliminate time and distance barriers in your business model.
Let’s say that you are in the retail industry and looking to identify opportunities to combine digital technologies with digital assets to eliminate time and distance as barriers to your business model. The scenario outlined in Table 1 provides an example of that process.
The scenario in Table 1 isn’t just optimizing the ordering process. The scenario in Table 1 requires the complete re-wiring of the organization’s business model and value creation process: from demand planning to procurement to quality control to logistics to inventory management to distribution to marketing to store operations to customer experience.
There are a multitude of opportunities for organizations to couple digital technologies with digital assets to remove time and distance barriers across the organization’s value creation model. Let’s go old school (“there’s no school like old school”) and check out the blog “Michael Porter’s Value Chain Creation Model” to start that brainstorming process (see Figure 2).
Digital Transformation is about creating new digital assets (data, analytics, and insights about customers, product, operations and markets)
Organizations need to create new digital assets around customer, product and operational insights. Organizations need to capture the analytical and behavioral insights about their customers, products and operations including tendencies, inclinations, predispositions, propensities, biases, preferences, trends, performance and usage patterns, associations and affiliations.
But these new digital assets can’t be built all at once. Organizations need a thoughtful process for building out these analytic and behavioral insights one use case at a time.
