Driving past digitisation on the journey to digitalisation and finally digital transformation…

I was discussing with a few executives the need to develop a digital transformation strategy to stay ahead of the curve when I realised that many of them were actually stuck at the digitisation stage.

Whilst digitisation is about converting physical or analogue into digital, digitalisation impacts the way things get done. The digital transformation of business however, is a wider concept that broadly means the way a business incorporates technology within its organization to change the way it does business internally as well as how it presents and sells its products and services externally.

The Covid-19 acceleration

Such a transformation has been on the cards even before Covid-19. A survey by McKinsey Global from before the pandemic already saw 92% of global business leaders fearing that digitization of their businesses was happening too slowly to allow their business model to survive. Covid-19 has put that process on steroids. After the pandemic hit, McKinsey now reported that businesses had accelerated their digitization plans by as much as seven years. Data from Microsoft showed that two years’ worth of transformation had been crammed into just the first two months of the pandemic, with as much as 149 million new digital jobs expected to be created by 2025 globally. Another study by IFS Global reported that 70% of businesses worldwide had ramped by spending on digitization since 2020. The pandemic also changed the thinking around digitization: as late as 2017 , nearly half of global CEOs saw digitization as primarily a way to save costs internally, Post-Covid, digitization is now seen as a must to gain competitive advantage or to refocus the entire business.?

The Carrefour experiment

One example of this accelerated digitization is the retail giant Carrefour which operates 315 supermarkets in 16 countries. During the pandemic, it saw online grocery orders explode by 400% compared to 2019. The retail giant responded by converting some of its brick-and-mortar stores into online fulfillment centers, setting up a 54,000 square foot online fulfillment center tent, complete with freezers and fridges in just five weeks to handle 3,000 online orders a day, expanded its delivery services, launched contactless payment options in its stores and launched an online marketplace with 420,000 new products from other retailers who were forced to shut their doors. Carrefour had planned to do these since 2015 and expected that it would take seven years to accomplish them. During the pandemic, they did it within one.

Three kinds of transformation

Antony Edwards, the COO of software testing company Eggplant divided digital transformation strategies into three main types : the first is organizations that want to change how they engage with customers. This is what Carrefour did. The second is organizations changing how they do business internally. This is demonstrated by the way that global pizza giant Domino's managed to turn its fortunes around. In 2008, Domino’s was struggling with plummeting stock prices. It responded through a two-pronged approach, redoing its entire menu and changing its business model to incorporate more tech. It introduced tracking software to allow customers to track their orders online, allowed customers to place orders through various devices, and boasted of using AI to help improve product quality and improve its internal operations. Today Domino’s is exploring ways of using driverless cars and drones to deliver its pizzas. In 2008 Domino’s stock was worth just $4.71, in 2020 it was $385.71. And the third strategy of digital transformation is businesses that are changing their products and services themselves to become more digital. This third strategy is being driven primarily by the rise of big data.

The rise of big data and the ‘inverted firm’

Massive advances in computing power and the development of 5G are leading to an explosion of data. In 2020, the world produced an estimated 44 zettabytes of data, that’s going to increase three-fold by 2025. To put it another way, by 2025 the world is expected to be producing 463 exabytes per day , that’s just under the world’s entire digital storage capacity of 487 exabytes in 2009. According to Fortune Business Insights, this means that the global market for big data technology is set to grow from $41 billion in 2019 to $116.07 billion by 2027. The reason data is becoming more valuable is because more data means more opportunities for businesses to observe and track customer behavior to trigger loyalty.

This has given rise to what has come to be called the ‘Inverted Firm ’, a company that does not create value from within, but from external partners. Examples are Apple, Facebook, or Netflix, which don’t produce the vast majority of apps and movies on their platforms, or Amazon or Alibaba which do not produce the products sold on their websites themselves. What they trade in is data. And more and more companies are using data and partnering with such platforms in their digitization push. Levis digitized its operations by embracing Instagram, TikTok, and Snapchat to better target Gen Z shoppers. Goldman Sachs partnered with Apple and Amazon to launch Marcus, a digital consumer business to allow customers to carry out financial transactions on their phone, which grew into a $92 billion operation in just four years and Walmart partnered with Microsoft to use the latter’s computing capacity to include AI and data analytics in its retail operations and Google to allow for voice-enabled shopping.

The enemy within

Just because the advantages of digitization are there for all to see does not mean that all companies are capable of adapting to the digitization transformation. In a 2019 survey, the Economist Intelligence Unit found that the culture within a business was the biggest obstacle to embracing technology. While McKinsey found that, on average, just 16% of digital transformation efforts by businesses succeed. The main culprits were a lack of complete buy-in within the organization, business leadership unwilling to relinquish strategic control in favor of data-driven decision making, new technological initiatives being siloed within organizations, and a focus on short-term quarterly gains rather than a long-term strategic view of transformation.

Outside of management, it’s important to bring employees aboard. Today there is a paradox; the world is increasingly being run by data, whereas the majority of employees do not trust it. A global survey of 9,000 employees by Accenture found that although 87% of them recognized the value of data, only 25% said they knew how to leverage it effectively for the organization. 48% of employees said that they preferred their gut instinct to data-driven insights while only 37% of employees said they were more confident about decisions when they were based on data. The vast majority, 74%, said they found handling and analyzing data to improve an organization’s performance, to be stressful and overwhelming.

To get everyone on board and make digital transformation a success the lessons are clear: treating it as an ongoing process rather than an overnight shift, investing in employees to be more digital, and being willing to take paradigm-shifting risks, rather than being terrified of failure.?

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