Beyond Digital Transformation

We are approaching a point in time, where more businesses will have completed their digital transformation than not. However, only 11% of 1,140 surveyed executives, covering wide range of industries, believe their current business and operating models will be economically viable through 2023, while another 64% say their companies need to build new digital businesses (note, not digitally transform an existing business) to help them get there (McKinsey). How so?

In the past digital technology was a differentiator, that era is over. Winning in today's world requires more than digitization. It requires understanding that the nature of competitive advantage has shifted - and that being digital is not enough. Since the first commercial internet browser was created (going on 30 years), "being digital" has become a business mantra. But that is no longer enough. Companies now must focus on building new forms of advantage rather than just digitizing what was done in the past. Digitalization has become equivalency, and the expensive one at that. According to a new update to the International Data Corporation, global spending on the digital transformation of business practices, products, and organizations is forecast to reach $1.8 trillion in 2022, an increase of 17.6% over 2021. To realize the value of these investments, companies will have to rethink their place in the fundamentally changed world and how they must transform to build advantage that is sustainable. Therein lies the challenge...

In this new reality, leaders must think and act beyond digital transformation. Paul Leinwand and Mahadeva Matt Mani in their book "Beyond Digital" outline clear principles for positioning your company in the world where simply being digital is no longer a competitive advantage. Here are some of the core guiding principles for anyone helping their company to compete in this new post-digital reality.

1. Reimagine your company's place in the world.?Adapting to customer and competitor moves to stay ahead is no longer enough. The rise of platforms that allow to imagine and deploy distinct capabilities, removed the technical barriers that benefits you and the competitor alike. To remain completive, you need to take the leap of imagination to look beyond your current portfolio of businesses and products and beyond what your competitors are doing to imagine who you want to be as the business.
2. Embrace and create value via ecosystems. Sourcing elements of the value chain from suppliers, distributors, and other third parties are no longer enough. Trying to compete on your own will only limit value creation opportunities and it will make it impossible to gain deep customer insights and to scale up quickly. Today customer demands are so complex that no single company can meet them alone. They can only be addressed by networks of companies and institutions that work together. And the era of asking customers to be the integrator is over. Customers expect - and demand - those suppliers to work together to deliver integrated solutions. The good news, there are number of industry specific platforms today that can help scale your capabilities quickly (my employer happens to be one of them Microsoft Industry Clouds)
3. Build a system of privileged insights with your customers.?Investing in data analytics to better understand customer behavior is no longer enough. Customers want change more quickly, and their needs and desires have become more granular. To remain relevant, you need to build insights together with the customer. It requires companies to establish a foundation of purpose and trust, because customers share their most useful information only if the value you offer resonates with them and they trust you to make good use of the information. Gaining privileged insights is one of your most important capabilities.
4. Make your organization outcomes oriented. Organizing in matrix model of functional and business-unit specialization and set of cross-functional projects to deliver change initiatives is no longer enough. Changing the lines and boxes alone isn't going to get your organization to work in the new collaborative way. Instead, you will need to build more durable outcome-oriented teams that deliver your differentiating capabilities.

All the above cannot be accomplished without rethinking roles, skills and power structures of the leadership team and centering all the changes around the people. To position the company for success in the beyond digital age, leaders must be able to step back and re-envision the company’s place in the world and how it fits with other ecosystems, while keeping the trust of people and the customers. The revolution of demand, the revolution of supply is shifting context within which businesses operate are shifting customer expectations for value and how that value is created. But even for companies that have not (yet) felt the full weight of these changes, it would be unwise to just digitize what they are currently doing or increment their way into the future. Yes, you will become more efficient, but so will your competitors, and the gains will be competed away. The time to re-imagine your company's place in the world is now.

?In subsequent posts will dive deeper into each principle and provide practical recommendations. If you liked what you read, please subscribe to this newsletter.