What type of digital transformation will give the most value to your organization?

"Nothing is a bigger priority for us than the digital transformation of our business..."

This is a phrase we hear every day in conversations among executives of various organizations. The reasons are clear: digital technologies are enabling radically new ways to deliver value to customers, changing the competitive landscape and altering the underlying economics of markets.

Technological change is nothing new, but the challenge facing companies has become even more ambitious in recent years, when the adoption of digital technologies by companies and the strategic importance of digital technologies has dramatically accelerated. Some executives cite the risk of this breakthrough as the impetus for transformation; this risk is certainly real. But while new technologies can indeed threaten established companies, they can also create unprecedented opportunities for their growth or the adaptation of their business model to new market standards.

An increasing number of leaders are concerned about losing opportunities for growth and consequently being forgotten by customers. After all, it is not the digital revolution that is forcing companies to change, but the fear that if they do not follow the changes that reality is forcing over time they will completely cease to count in the digital world. And will there still be one that does not interact with it seamlessly?

This is why it is surprising that most corporations still take a narrow view of digital transformation, and it is not one-dimensional. One can name at least four areas included in digital transformation: business processes, redefinition of business models, domains in the organization or organizational culture. We often see corporations focused solely on one of these. And failing to address all four types leaves significant value on the table. Second, the multidimensional nature of digital transformation means that its implementation must be a team sport, involving more than just the Chief Information Officer (CIO) or Chief Digital Transformation Officer (CDO). This in itself is transformational, as such projects always create strong tensions within the organization, which also, if properly carried out, bring about change in themselves - especially in the area of culture.

Therefore, digital transformation does not necessarily start with a cultural/organizational transformation. Teaching an organization to be more innovative, agile and digital is indeed important, but we see more success among corporations that are the first to implement business transformation initiatives, because they initiate processes that become much clearer and easier to digest for less digitally aware employees in the next steps.

Below I will focus on what I believe are the two main approaches to enterprise digitization that, depending on the maturity of the organization or its current priority, can be applied:

Digitization of existing processes

which involves the use of technology to achieve results related to cost reduction and increased operational efficiency through automation and leveraging economies of scale, which covers a specific slice of the organization.

Digital Transformation

which assumes that technology can change a company's business model and change what it competes with in the marketplace and how it creates customer relationships.

According to research conducted last year by global strategy consulting firms, the latter approach, being far more broad-based, is shaping future market leaders.

The approach to using digital technologies to optimize business (Digitization of existing processes) is quite well documented and widely practiced - despite the complexity of digitization projects, there are many methods and practices to achieve predictable results over time.

Creating today's digital strategies goes far beyond digitizing processes and building efficient digital delivery flows. It requires a design approach, readiness for experimentation, innovation, contingencies and, above all, the inextricable linking of business and technology threads. Digital transformation, therefore, must be designed. Just as business models, value propositions, customer experiences and organizational changes are designed today - so we can, and even must, design transformations to bring all these areas together and execute activities using multi-disciplinary business and technology teams.

As the McKinsey Annual IT Strategy 2021 report shows, best practices distinguish leaders from languishers. In the next 2 years, three times as many companies want to transform their business model with digital technology and not just digitally improve the existing one. The illustrative diagram is heavily inspired by the excellent lecture "Designing the next industry transformation" by Frog Design leader Harry West, which I had the opportunity to watch in Lisbon at the Web Summit. It shows what the orientation of the two models is and how they differ in implementation.

Click to zoomimg > Digital Optimization vs. Digital Transformation