Why Transformation Is Key to Thrive in The Digital Economy
Leaders first need to recognise the fundamental difference between change and transformation, before they can lead their companies on a journey of legitimate business transformation. While ‘change’ is required to maintain and modernise an organisation, this is not enough to sufficiently elevate both its internal capabilities and external offerings. Too many companies are being lulled into a false sense of transformation security through siloed digital projects and change initiatives that are not strategically transformational.
To take advantage of the opportunities and protect against threats that new digitally enabled business models present, leaders need to commit to being bold and transformational, ahead of those that remain safely within their comfort zones and traditional ways of working. Leaders need to communicate this fundamental difference across their organisations to avoid their best resources being tied up making small changes instead of driving transformation. This is also required to keep the company’s best people on board and attract new talent, because the high-performers have an insatiable desire to be part of an ambitious digital transformation journey. If one company fails to take them on that journey, they will move to one that will. Legitimate transformation also requires a fundamental shift in other aspects of an organisation. Appropriate governance, mindsets, business models, capabilities and culture are just some of the transformation fundamentals that need to be addressed.
The Digital Economy
The digital economy is developing at a phenomenal rate and is the single most important driver of innovation, competitiveness, and growth. It is changing our lives, from the way we shop, socialise, and entertain ourselves, to the way we learn, communicate and go about our work. Traditional industries and value chains of every type are being reshaped by business models that have never existed before, and customer expectations are rising rapidly. There should be no doubt that the digitization of the economy is one of the most critical issues of our time.
The digital economy presents huge potential for solo entrepreneurs, small and medium and large companies, but the majority of firms are not taking full advantage of it. In fact, the European Commission has stated on its web site “Unfortunately, only two percent of European enterprises are currently taking full advantage of new digital opportunities”. This is worrying for existing companies when considering the successful adoption of digital technologies will be a key success factor for future growth. The European Commission added, “Businesses that fail to get digitally connected will become excluded from the global market”.
There are no barriers to entry for innovation. The hardware and software that was once limited to those who could create it or afford to buy it is now readily available and affordable to almost any company large or small. Even the sole entrepreneur now has affordable access to technology that was not so long-ago off limits to all but companies with healthy budgets.
So, with hardware that can be rented, and software that is affordable and sometimes free, only the idea of innovation stands in the way of companies and new business models that can proliferate globally. This ease at which we can all innovate introduces a new threat to established incumbents, because they now face competition from start-ups that were unable to complete in the pre-digital economy. Start-ups are now a very real threat to many incumbents, all as a result of their ability to complete using digital, and without the expensive assets previously required to do so.
Just look at how the Dollar Shave Club sliced an eight percent share of the Three-Billion-dollar global shaving market for itself in less than five years of existence, taking profits from under the nose of the 115-year-old global giant Gillette. This would have been impossible in the pre-digital era. But the world has changed, and more companies than ever can now compete for market share without many if any, tangible assets.
So going back to the European Commission’s statement that only two percent of European enterprises are currently taking full advantage of new digital opportunities, when we consider that digital is so affordable, we can assume that companies are not adopting digital either because their leaders do not understand how important it is to their future, or because they simply don’t know how to undertake digital business transformation. Let’s face it, this is not something that most leaders have much if any experience in. Which is why there is such an important need to deliver digital business transformation education to executive leadership and senior management levels.
Regardless of the size or history of a company, the need to digitise and transform is unquestionable. The question on the minds of many leaders is, How and what do we transform?
THRIVE helps leaders take a holistic and integrated perspective of their enterprise and its complexity. It does not reinvent individual management disciplines, but it provides a framework that integrates individual disciplines, which should all be sufficiently mature to undertake successful transformation.
Leaders first need to recognise the fundamental difference between change and transformation, before they can lead their companies on a journey of legitimate business transformation. While ‘change’ is required to maintain and modernise an organisation, this isn’t enough to sufficiently elevate both its internal capabilities and external offerings. Too many companies are being lulled into a false sense of transformation security through siloed digital projects and change initiatives that are not transformational.
Unlike business process re-engineering, which focuses on business processes, or app development which focuses on technology, or projects, which focus on producing outputs, digital business transformation requires a more integrated and holistic approach.
Organisations must respond strategically to the opportunities and threats they are presented with. Internally this could involve responding to the evolutionary needs of the company’s culture, maturing the capabilities required to achieve transformation excellence, and the establishment of new governance that facilitates innovative transformation while minimising bureaucracy. Externally it could involve defensive and offensive responses to the changing
market dynamics caused by disruption, or seizing the opportunities that digital technologies and new business models can be used to take advantage of.
Innovation empowers companies to consider many new possibilities that can be part of a strategic response, and this requires effective approaches to innovation, which transcend technology upgrades and simply doing the same things faster, better or cheaper. Companies need the ability to envisage how new technologies can be converged into a scalable architecture that is prepared for near, mid and long-term digital adoption. While the IoE, Blockchain, etc. will take years for most companies to derive value from, the foundations can be laid now.
External value represents the benefits created for customers, and is generated through digital business models shaped by strategic responses to what is happening in the market and new opportunities that technology makes possible. Internal value is generated through initiatives that provide stakeholders with tangible or intangible return on investment. This could involve increased workforce capabilities, better operational excellence or more effective marketing, etc. – which in turn enables the company to serve customers better.
Transformation must encourage, embrace and educate people from across the enterprise and build a collaborative culture of new capabilities and mindsets. CEOs need to foster a transformation mindset among their executive teams, which is aligned with the strategic aims of the company. This transformation mindset then needs to shape the company’s culture at every level, to create an environment within which innovation and digital business transformation can thrive. Opportunities to upgrade workforce capabilities need to be identified and people made to feel safe and comfortable about innovation, success, and failure.
You then need to drive home each of the six THRIVE principles, and why they are key to your organisation’s transformation. This starts with helping everyone understand the need to transform and the risk that digital disruption presents.
To what extent you do this will depend on how well-versed your stakeholders are on this already. A digitally savvy audience will not need you to spell out why the company is at risk of disruption. However, the less informed might need you to paint the picture of what has, is, and could be happening soon in your industry, with real-life examples to help drive the message home.
Provoke discussion with questions such as:
- What are the market disruption trends in our industry?
- Who are the known market disruptors?
- What examples of disruption victims in this or similar industries?
- Are powerhouses like Apple, Google and Amazon a threat?
- What start-ups are developing a potentially disruptive business model or seeking or receiving venture capital?
- What companies from other industries are considering our industry as a new market?
- Finally, the question that might help provoke the deepest thought about digital disruption, which is ….
When considering what Uber has done to the taxi industry, and Airbnb has done to the hotel industry, what Skype has done to telecoms, and what Amazon has done to book stores. What is the worst that could happen to our industry? You need to explain the difference between transformation and change.
“Change fixes the past, while Transformation creates a new future without the constraints of the past. You innovate and transform.”