Published by Graham Davis on the 28th of September 2016.

Is there a difference between turning to digital technology to unlock or even create capabilities which were previously impossible and digital transformation?

One perspective would be to take a functional view of the business and then look to technology as an enabler of new capability or as a means to make an impact on the bottom line. Consider introducing a Sales Force Automation solution from one of the Leading CRM vendors. The conversation might include envisioning some significant shifts in the way that the company engages customers, drives deal progression, manages pipeline and increases deal closure rates. At the end we may even see a completely digital sales organization with sales people interacting with the business almost exclusively from mobile devices and management sitting atop mountains with only their breathtaking analytics to detract from the views. To make things a little more exciting, the entire sales solution might be in the cloud, have web services and augment customer information using data from several data sources using impressive amounts of integration. The board might be thrilled with the cost cutting that comes from reduced headcount in the sales team and increased revenues realized through a more efficient sales organization. Investors may even look in through the window and produce higher valuations on the back of a more robust sales asset… but is this digital transformation?

One could argue when examining the sketch that the sales function in the business has indeed been transformed. This argument would stand its ground in a good robust debate, but the premise for the such a debate should be the role of digital in functional transformation and not digital transformation. Digital transformation is not functional, its foundational. What has actually happened in the sketch above is that CRM has matured and is now positioned to deliver against the promises that it has been making for over a decade. Organizations are realizing their CRM business cases and the ROI studies presented during the development of these business cases are coming to fruition. Scratch the surface of this solid value proposition and what you find is the same value proposition that IT has been making to business since computational capability arrived on the scene and made its promises to drive up efficiency and drive down costs.

The functional view of digital transformation is not digital transformation at all. The functional view of digital transformation can be compared to the defensive behavior of a Chameleon. The Chameleon defends itself by making some fairly substantial changes, the chameleon actually does look different when its strategy for survival is implemented. Organizations will look to functional transformation to defend or even create competitive positions. Technology vendors will deliver compelling and seemingly visionary pitches under the banner of digital transformation which will typically involve cloud computing and impressive digital tooling. The result as emphasized in the sketch above will satisfy all of the stakeholders and maybe even investors, but a chameleon even if almost completely invisible is still a chameleon.

Caterpillars (larva) after releasing a hormone called ecdysone molt a few times and then either spin a cocoon or produce a chrysalis. What is interesting is what happens next. The caterpillar digests itself using enzymes called caspases and almost completely dissolves except for tiny bags of cells called imaginal discs which then use the melted caterpillar stew as fuel to divide and form the antennae, wings and other parts which make up a butterfly. The result is a creature which is fundamentally different from a caterpillar in that it behaves differently, defends itself differently, moves differently and most importantly possesses characteristics and capability which did not exist prior to metamorphosis.

Functional transformation enabled through digital means is not the same as digital transformation. With functional transformation, the improvement and increase can be significant while the essential nature of the function remains the same. Digital transformation is not about technology it’s about business models and the impact is significant. Digital transformation will impact businesses in very much the same way that email impacted the telefax. The driver of the paradigm shift was not that people no longer needed to exchange documents, the technology which created the ability to send mail electronically caused a shift in the way people communicate and exchange documents. The shift was both technological and sociological. It would be a mistake to look at the relationship between email and the telefax and draw a direct parallel to what is happening to industries as a result of true Digital Transformation. Digital Transformation is not driven by technological innovation, it’s “melted caterpillar stew” is not technology but rather changes to business configurations that redefine the way in which value is created.

If technology is the cocoon and new business models are the fuel for metamorphosis, then all that remains is the imaginal discs which must then develop into the new business. This is a far subtler element and one which is easily eclipsed by a technology centric view of digital transformation. The imaginal discs are the stakeholders in the newly transformed business. Business models which truly demonstrate Digital Transformation also exhibit wider and highly scalable networks of beneficiaries. Perhaps the most important thing to see is that the digital contribution to the new paradigm is more about its contribution to creating and scaling value networks than it is to enabling more advanced products or more efficient business processes. Digital transformation does not call for the reinvention of products or services, it does not even necessarily require investment into products or services so that they can produce data streams and become “connected”. Digital transformation calls for the redefinition of the way in which those products or services create value and more importantly for whom that value is created. Digital transformation is not about technology; it is about the networks which become possible as a result of technology.

A network centric view of Digital Transformation has some interesting effects on business model development. The network centric view forces a close look at the value proposition at the core of product go-to-market strategies and an extension of the definition of those value propositions to include the articulation of value sharing across a potentially expanded value chain. A few moments of network centric introspection should cause business leaders to question their portfolios of assets. What percentage of the company’s business model should be tied up in physical assets or human capital when digitally enabled networks allow for those assets to become distributed throughout a larger network provided that a sustainable value proposition can be created which will hold that network together.

A network centric view of Digital Transformation should also strike fear into the hearts of any business leadership which can admit that their organizations place emphasis on relationship capital. A surface level understanding of the economics of sustainable relationships quickly shows that sustainability is rooted in mutual benefit. Digital disruptors will undermine business relationships with scalable value propositions that will extend far beyond simple economic benefit. Digitally enabled value propositions which are network centric are also more competitive in the new customer centric economy. Digital technology lays the foundations for highly scalable networks which distribute value; but they also create superior capability for customer service, process efficiency, predictability and redundancy.

Companies which are Chameleons and attempt to comfort themselves with investments into functional transformation using digital technology and continue to protect existing business models will be killed. Their demise will not be because they did not embrace the cloud, or because they did not invest into technology centric product or service development. They will we destroyed by the value chain itself. When digital disruptors arrive on the scene in every industry, they will reconfigure the value chain, they will find ways to deliver scalable value propositions which are inclusive, they will find ways to connect stakeholders in ways which were previously not possible and they will do all this using networks made possible by digital technology. The Chameleons will stay in the trees with the immature caterpillars and the butterflies will find themselves able to fly.