‘Digital Transformation’ won't help you innovate.
In my line of work, I meet many organisations struggling to innovate the way management intended. Most fall prey to the same fundamental mistake — they invest large amounts of money in Digital Transformation projects, hoping for a shower of success that will catapult them to an unassailable market position. Unfortunately, it often leads to underwhelming results.
As James Clear points out in his book, Atomic Habits, success comes not from a once-in-a-lifetime transformation but a continuous process of improvement. The issue with Digital Transformation is that it makes you think otherwise.
The problem with ‘Digital Transformation’
For me, there are two main issues — Digital and Transformation. Let’s start by defining the words.
Digital: involving or relating to the use of computer technology
Transformation: a complete change in the appearance or character of something or someone, especially so that that thing or person is improved
So in a nutshell, ‘Digital Transformation’ improves a business by completely changing its character through the use of computer technology.
It’s not a terrible offer. Yet, on closer inspection, both words are focusing on the wrong thing. Such a simple thing as this misplaced focus is what I believe is affecting an ability to adapt effectively.
The problem with ‘Digital’
First up, ‘Digital’ focuses on the solution, not the problem. At the end of the day, digital is a tool that businesses can leverage to better solve their customer’s needs or problems.
It’s not a tool to be ignored, but if you base your company’s progress on the application of particular technologies instead of customer needs, you run the risk of delivering the wrong kind of value – an expensive and time-consuming mistake.
The problem with ‘Transformation’
Next up, a pop quiz. Think of a transformation that occurs in society or nature, then continue reading.
Was your choice a once-in-a-lifetime transformative miracle?
Low-budget mind tricks aside, most transformations tend to be these single monumental events – a caterpillar becomes a butterfly, a seed becomes a flower. However, in business, assuming transformation is suddenly going to prepare you for what comes next is wishful thinking.
Like it or not, new technologies – digital or otherwise – will continue to emerge and at a faster pace than ever before. It’s unwise to pin your hopes on a Cinderella ending when the next disruptor is just around the corner.
Thankfully, a simple shift in mindset (through language) can help focus our efforts on delivering truly innovative offerings.
A new way of thinking
As an innovator, I want to focus on the problem I am trying to solve and not on an end solution like digital – which has constraints in the long term. For that, I need to upgrade my innovation language.
Technology: the practical use of scientific discoveries
Tool: something that helps you to do a particular activity
Value: the importance or worth of something for someone
Imagine our early ancestors trying to bring down a large animal before the advent of stone tools. Things got a lot easier when the spear and hand axe amplified our ability to hunt.
In business, the companies that thrive are the ones that create or at least learn to use new tools to their advantage – that’s the heart of innovation.
Technology is a tool that helps us deliver more value to customers. It’s an extension of the way we do business, but it is not the business itself. Our real aim is to add customer value. As an example, big data is a tool that you can leverage to help you better understand customer needs, but it will not deliver more value to customers in itself.
We see this in the language of many successful companies. Netflix don’t class themselves a technology company but an entertainment company. In the words of founder and CEO Reed Hastings, “We compete with everything you do to relax."
When you start thinking about how you can add more value for consumers and not how you can out-tech your competitors, you’ll end up creating just the right amount of technology to achieve your goal.
Evolution not transformation
As mentioned, for most, reaching a ‘digital nirvana’ will unlikely end the race. Organisations should get used to the idea of continual improvement, so cue an alternative natural phenomenon.
Evolution: a gradual process of change and development
For complex systems, evolution works. Species evolved, language evolved. Most importantly, both continue to do so. However, it’s all so easy to forget that small tests of what works and success feedback loops are the way we got to where we are.
key differentiator here is gradual vs complete change.
Gradual doesn’t mean slower. On the contrary. Organisations who do smaller changes more often will have a shorter feedback loop, enabling better solutions at a faster rate of change.
When the risk of failure is so high, why would any company choose the all-or-nothing approach?
Value Evolution
So, we’ve gone from Digital Transformation to Value Evolution. Is that really going to make a difference? I believe so.
When you stop saying 'we need a mobile app' and start saying 'we believe our customers need X', you can look to technology and what can help get you there. Most importantly, you can question whether there’s a better way to give them value outside of technology – there are other tools after all.
As an example, let’s take Addison Lee, a London taxi firm that had a huge share of the dial-a-taxi market.
The value offered by traditional taxis allowed customers to hail one, on the condition of course that one was nearby. Uber exploded onto the market by allowing riders to ‘hail’ cabs in a fraction of the time, at a fraction of the cost.
Despite being a critical factor, it was not the advance in technology that made Uber the success it is today. It was the advance in value. What Uber provided that Addison Lee didn’t was a marketplace and business model that allowed far more drivers to serve their customer base, which brought down customer waiting times significantly.
Addison Lee could have added an app, and did, but the new technology didn’t improve the value of their offer much above what was already there with a telephone call. The problem was the existing value in their network–they only had so many drivers. New technology, same value, underwhelming results. If they had thought problem-first, perhaps we’d all be riding Addison Lees abroad.
You can’t just add technology to existing value if you want to be truly innovative – you have to repackage it or even go as far as to create something entirely new. That’s why you have to start with the problem.
This can be hard for organisations to do, due to the lenses employees wear day in day out. They are focused on their current customers, and their current value proposition. Sometimes it helps to approach the problem from a different angle – for that, I’d recommend creating a separate business unit that functions independently, or working with an external provider.
For those who think Uber was completely transformative from the get go, check out their initial investor pitch and notice how their offer has evolved, several times over.
Final Thoughts
Companies who think about the evolution of their value will be the ones who gain a competitive advantage in a world saturated by digital megaphones. Technology is a phenomenal tool with which to improve customer’s lives, but it takes the silver medal behind what customers really want. Finally, increasing value little and often can help spark an innovation process built on continuous improvement, and is far more likely to end up looking completely transformative than an all out attempt to achieve it for transformation’s sake.
Don't strive for digital transformation, strive for value evolution.
Footnote: Why I believe I’m right about digital transformation being wrong
For reference, I’m the CEO of Danger Farms. Some might describe us as a digital services company, and at face value the end result of our work is digital products (and ecosystems).
To us, though, we’re in the game of helping organisations help their customers.
That’s why the term Digital Transformation has always bothered me. It puts technology front and centre and feels nowadays more like a marketing buzzword than a means to help companies better serve their customers. I believe we as technology advocates can and should do much better in explaining where it all fits into the puzzle of better companies.