According to McKinsey&Co, by 2025, digitization is expected to contribute $2 trillion to US GDP—and those on the digital frontier have 2-3X faster profit margin growth. Digital leaders maintain an enormous lead over everyone else. IDC predicts that by the end of 2016, two-thirds of CEOs of the largest 500 European enterprises will have digital transformation (DX) at the heart of their corporate strategy.
It would be easy to view ‘digital transformation’ as just another hype curve promoted by the IT industry to sell more tech, but that would be a miss-reading of the current dynamics of the business world.
It may be that key technologies such as 4G, cloud computing, the Internet of Things and big data have only reached a point of maturity that makes them useful but that’s only one side of the page that makes digital transformation a big story.
The other side of the page is left to topics like the shortfall in talent, growth of e-Commerce, social networks, consumerization of IT, globalization of markets, the broadening of markets like Europe, the rapid growth of BRICS economies and the increasingly robust regulatory environment that organizations find themselves having to deal with.
All of these factors are contributing to the need of organizations to make smarter decisions, adapt to change faster, harness new ideas more often and be prepared to shift between traditional market segments – just as competitors and rivals are doing. You could argue that digital technologies are a timely agent of change servicing the challenges of a maturing digital economy rather than the instigator of change or unwanted guest forcing him or herself into the room without invitation.
What is the digital maturity of your organization?
Market analyst firm IDC breaks down the transformation journey into five levels of maturity:
- The Digital Resister – These organizations are responding to ad hoc requests but are yet to grow a positive bias towards digital transformation business projects. It is unlikely that such enterprises have built the organizational capability to repeatedly embed new digital technologies into processes to engender new business models and achieve step change transformations. Neither is such an enterprise likely to have appointed dedicated management to oversee digital projects.
- The Digital Explorer – This category of organizations will be seeking opportunities where technologies and business models can bring competitive advantage as and when business units bring forward suggestions they want to champion. Inevitably such demands have to compete against all of the other IT budget and resourcing pressures which make these initiatives difficult to progress. A lack of organizational modelling towards a sustainable capability will mean that many of the critical capabilities needed to underpin digital transformation projects – like strong leadership, a digital culture committed to ideas innovation, a cross-organizational development team and simple things like a thoughtfully designed master data management and data integrity agenda – are not in place and are likely to compromise results. This phase of transition is perhaps the most worrying for business leaders who will be depending on quick-wins and satisfactory results to build momentum towards a digital transformation agenda and yet the poor talent capability, departmental conflicts of interest, unfit for purpose IT architectures and tooling together with a blend of other factors will be unwittingly working against the successful fulfilment of these projects.
- The Digital Player – These organizations will be on the road to success; repeatedly using digital transformation methods and tools to fulfil projects that are making a real difference to the efficiency and effectiveness of their business models. Digital Players will be making progress in establishing the skill-sets and tools required for sustainable business transformation and are most likely to have leadership in place.
- The Digital Transformer – Is an organization that is transforming: Applying digital transformation projects as an embedded part of day-to-day operating behaviour. All of the necessary hygiene factors for digital transformation will be established; a strong and dedicated leadership, a development operations team, a digital culture that is always looking to lever advantage through the application of digital technologies, key IT services such as a coherent data management and integrity plan, well-designed cloud technology architecture etc.
- The Digital Adoptor – These organizations have transformed both their business models and their ability to apply them through the thoughtful application of digital technologies. They have embedded IT and digital processes into key aspects of business models. According to McKinsey, these firms will be ahead of the game in their respective markets. They suggest those companies on the digital frontier have 2-3X faster profit margin growth.
So – Are you a digital transformer?