Although digital investment is almost unquestionably the right course of action for most firms, organizations still struggle to create the desired results. Estimates of digital transformation failures range from 66% to 84%. Such a high failure rate isn’t surprising, as leaders are trying to create entirely new competencies and wedge them into an organization with strong legacy cultures and operating models.
While most executives are pros at managing change, digital transformation is a much deeper change than the usual process or system update. Of course, digital technology can be used to improve or augment existing ways of operating, but it also opens entirely new ways of doing business based on digital networks like Uber, Airbnb, Yelp, and the Apple Developer Network — which is where a great deal of the digital value resides.
So as you navigate your own digital transformation, we recommend beginning with a few questions that go deeper than “what talent do you need” or “how much money will you spend” and probe broader organizational readiness.
Is this a digital upgrade or a digital transformation? Most companies target digital transformation and end up with digital upgrades, using digital technology to increase efficiency or effectiveness at something your firm is already doing. For example, increasing your marketing spend for digital channels or upgrading internal communication systems. On the other hand, a digital transformation occurs when you use digital technology to change the way you operate, particularly around customer interactions and the way that value is created—for example, Apple using its developer network to create software for its devices.
If you discover that you are actually embarking on an upgrade instead of a transformation, ask yourself if that will be sufficient to maintain competitiveness when business models based on digital networks create market valuations four times higher than the rest.
Are you really bought in, and is your team? Digital technology and business models are on the radar of every executive, and there is an expectation that most companies must change to keep up. However, a situation that we have seen over and over again is a leadership team trying to lead a digital transformation that they aren’t particularly passionate about.
We all have core beliefs about what creates value in the world, and these shape the way we allocate our time, attention, and capital. Most leaders have decades of experience focusing on assets like plants, real estate, inventory, and human capital. Shifting away from these habitual priorities takes self-reflection and openness, and often a concerted effort to build new patterns in thought and action.
Are you prepared to share value creation with your customers? The latest technology-enabled business model, network orchestration, is premised on the fact that companies can allow customers and other networks to share in the process of value creation. Uber relies on a network of drivers; Airbnb relies on a network of property owners; Ebay relies on a network of sellers. These networks are essential to the organizations, and, by accessing external assets, these firms are able to achieve outstanding profitability.
Sharing the workload seems like an obviously winning proposition, but many leaders are hesitant to relinquish control and rely on a network that lies outside of their chain of command. Working with these external groups requires new, co-creative leadership styles, but also can allow organizations to tap into enormous pools of capabilities and under-utilized resources.