The 6 Realms of Digital Transformation You Need to Master
Master the 6 modes of digital changeBeing a leader in the digital era means being a change leader. Because today, change comes from every direction and all at the same time. Be smart: There is no single “digital transformation.” As leaders determine how to best integrate digital capabilities into the organizational strategy, it’s critical to understand which areas to transform, and how.
Transformation No. 1: From atoms to bitsThe first external digital transformation to understand is the conversion of physical products and services into digital ones. New and emerging digital technologies not only introduce new value chains, they also pave the way for new business models — and subsequently new competitors — to arise. Uber, the first big ride-hailing app, is the perfect example. “A taxi becomes something else completely when you add a digital layer to it,” said Dr. Sivan. Powered by data analytics, artificial intelligence, GPS, and customer rating information, Uber transformed the traditional taxi service and unleashed unprecedented competition for the taxi industry. It takes a mundane service — transportation — and introduces a new level of personalization, convenience, and access. Not only that, but these same capabilities provide new opportunities for people to find employment as drivers. For Uber, this is a win-win. As companies seek ways to take advantage of digital technologies, they will first have to dissolve the boundaries between the physical and virtual worlds, according to Dr. Sivan. From there, they can decide how to transform their offerings.
Transformation No. 2: From places to spacesThe second external digital transformation to master is the shift from physical marketplaces to virtual market spaces. Today, physical marketplaces are increasingly moving to the digital sphere. Traditional retailers, banks, supermarkets, therapists, and even universities are servicing customers via apps and websites. With greater digital offerings, you can expand the customer journey and begin engaging shoppers much earlier, according to Dr. Sivan. “You start the shopping inside Facebook or Instagram,” he said. “You do the physical shopping, most of it, over the internet. But it doesn’t stop there, because you continue to brag about it, or if you don’t like it, post about it.” The services that stand out in the eyes of the consumers today are no longer the well-known icons. They are the disruptors who show up and prove they can offer something better. They are the ones with the greatest digital capabilities. The transformation from physical places to virtual spaces is pushing some companies to be exclusively digital, while some will operate in a dual mode. But a business that ignores this transformation completely will sink.
Transformation No. 3: From products to servicesIn a rapidly changing digital business landscape, long-term customer relationships are more valuable to your business than transactional ones, according to Dr. Sivan. It is this reality that is driving the third external digital transformation from products to services. The success of many subscription-based service providers is clear evidence. For example, Spotify embraced the digitization of music via streaming but didn’t stop there. It also created a subscription service offering in which customers pay a fee each month for anytime access to a vast music library. Instead of buying an album — a product — customers pay a monthly flat rate for a premium music service. They can build their own playlists, play any song on demand, and even receive curated recommendations based on their personal listening history. When music was just a product, customers could purchase an album from any store, with no incentive to commit to a single provider. But when music became a service, customers had much more to gain from pledging their loyalty — and so do the companies.
Transformation No. 4: From sustainable to transient competitive advantageOne of the most profound internal digital transformations is the evolution of the theory of competitive advantage. Traditional methods of assessing companies’ competitive positions, including those of renowned business author Michael E. Porter, no longer fit the business landscape, according to Dr. Sivan. In the past, markets enjoyed greater stability and predictability. Business leaders could take their time to develop strategies with great precision, then execute them slowly over the course of years. Even when it became clear a strategy needed to be revised, such revisions still usually happened slowly. But with the advent of digital technologies, the pace of change in all markets is accelerated. This “sustainable” competitive advantage creates sluggishness and rigidity instead of adaptability and rapid change, Dr. Sivan argued. “It doesn’t work because the market changes so quickly,” he said. “The nature of changing very quickly in different ways and different places with different clients, locations, industries, supplies….means your ability to cater to these things is most important.” Instead of a sustainable competitive advantage, business leaders must ingrain a transient one. With a transient competitive advantage, you can rely on traits like agility and flexibility to help your business bend to market forces.
Transformation No. 5: From disruptive innovation to “killer” innovationThe disruptive power of digital technology raises the potential for innovation in your business — as well as the stakes. Failing to innovate doesn’t only mean losing out to the competition, but losing badly. “It is no longer the case that you’re either getting pushed or simply being killed — your being destroyed,” said Dr. Sivan. While it didn’t stay buried in the ground, Dr. Sivan described how Nokia’s initial reluctance to embrace the touchscreen smartphone cost them in dramatic ways. “When Steve Jobs came out with the iPhone, the rumor is that the CEO of Nokia basically looked at this and said, ‘This is not a telephone because it doesn’t have a keyboard,’” said Dr. Sivan. “That confused them and that was the end of them — even Microsoft wasn’t able to help them at all.” With digital technology, change happens fast. Successful digital transformation doesn’t just call for innovation, but for killer innovation. It’s either that or get killed.
Transformation No. 6: From the classic business model to a digital business modelEmerging technologies have transformed the traditional business model into a digital business model, which focuses on leveraging digital tools to operate, perform business functions, and produce value. Transforming the business model requires you to add new digital assets, but it also requires you to understand your capabilities from an implementation and usability perspective. “When you look internally, ask yourself, what are my digital capabilities?” said Dr. Sivan. “Because if you don’t have enough digital capabilities, you’re simply blocked in creating your own strategy.” The potential of your digital strategy depends on your level of digital maturity, he added. This is determined by a careful blend of the technology and human elements. Namely, it depends on your level of digital adoption. If your users cannot use your digital tools as they are intended and to the fullest extent, it’s impossible to operate on a digital business model.
Bigger digital investments call for greater digital adoptionIt is now clear that unlike 20 or even 10 years ago, businesses don’t have the option of skipping out on digital investments. Complacency is not only the enemy to progress, it’s a fast track to failure. To stay relevant, you must embed digital tech into your every aspect of your organizational strategy. But to thrive, you need to ensure you are reaping the true value of your digital investments. In all digital transformations, adoption is key. For a more comprehensive look into Dr. Sivan’s six digital transformations, click here to read more.
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