Digital Business Transformation

Some have recently asked me to connect my book, The Digital Matrix, published in 2017, to my recently co-authored book, Fusion Strategy, published in 2024. The connection between the two goes back to my 1994 article in the Sloan Management Review on “IT-induced business transformation.” Since my involvement in the MIT Project on “Management in the 1990s,” I have been intrigued by the interplay between strategy and IT. Collaborating with John Henderson on the strategic alignment model (IBM Systems Journal, 1993), we articulated how IT not only supports business strategy but also shapes its very formulation.

In The Digital Matrix, my thesis was that digital technologies will fundamentally impact every industry, although the scale, scope, and speed of transformation will vary. As sectors become digital, the competitive landscape is redefined, with incumbents facing new challenges from digital giants and ambitious tech startups. The transformational shifts since the publication of the book have validated this thesis. It is no longer a question of if your industry will face competitive challenges from digital giants such as Amazon, Apple, Alphabet, Alibaba, Microsoft, Meta, and the like, but when and in what form. I outlined the cycle of innovation-disruption-transformation through three phases of digital transformation: experimentation at the edge, collision at the core, and reinvention at the root. The phrase, Digital Matrix, was intentionally chosen to highlight the moves by the three sets of players across the three phases of transformation that cycle through continually.

Why is this transformation inevitable? Digital redefines at least one (if not more) of the following in every industry—products, processes, services, business models, and the organizing logic. When will this happen? When computing becomes affordable, connectivity seamless, and the cloud mainstream, companies will have little choice but to embrace these technologies; otherwise, they will be left behind. Where will this impact be most profound? Initially, information-rich, asset-light sectors such as advertising, music, movies, banking, photography, and news showed the way with the pervasive availability of smartphones. These sectors were impacted, and incumbents mostly lost out to new digital companies because they failed to read the ‘weak signals’ on how fast digital could be disruptive.

Working with Vijay Govindarajan on Fusion Strategy, I focused on asset-heavy industrial sectors in the early stages of transformation. These sectors are now in different stages of codifying information along the value chain, fundamentally changing not only the nature of the product but also the overarching business model and value delivery to customers and partners in interconnected ecosystems. Fusion Strategy, as a phrase, was deliberately chosen to denote the blending of physical and digital domains where steel meets silicon and industrial engineering intersects with information sciences.

So, what exactly needs to be transformed? It’s no longer only information-rich sectors but a larger swath of the global economy. There’s no distinction between digital and non-digital sectors. But what precisely? In asset-heavy sectors, this includes integrating digital technologies into physical assets, creating intelligent products, and leveraging data analytics to optimize operations and unlock trapped value in analog business models. The transformation involves turning physical products into smart, connected products and embedding intelligence across the value chain. How can organizations achieve this transformation? This consists of adopting new technologies such as programmable hardware chips, sensors, IoT, industrial software, AI, and next-generation robotics, restructuring organizational processes to be more agile, and fostering a culture of continuous innovation where how an organization manages its real-time data flows with AI become the core competencies. In this shifting space, industrial Gen AI becomes the force multiplier.

Who are the key players to lead this transformation? This is beyond the mandate of IT Directors or newly created digital units inside corporations. This is the defining leadership challenge that the CEO must lead with the full involvement of the entire C-suite. However, it cannot stop there as creating the new organizing logic involves becoming a “data-driven, AI-first” company. That means infusing digital thinking into every function across every level of the organization. It means that companies recognize and accept that AI is not an existential threat but a contemporary opportunity to create a new organizational logic beyond functional independence and siloed databases. The C-suite accepts that its scope is not defined only by the assets it owns but also by the expertise acquired through a vibrant network of partners who bring complementary perspectives.

Six Questions, One Answer

In today's rapidly evolving business landscape, every company must embrace digital transformation not just as a technological initiative but as a strategic imperative. The why is straightforward: digital technologies redefine products, processes, services, business models, and organizational logic. These changes are not optional; they are necessary for survival and competitiveness. Ignoring digital transformation means risking obsolescence as more agile and tech-savvy competitors seize market share and redefine industry standards.

The where and when are equally pressing. Digital transformation is pervasive, affecting every industry in every geography and every generation of individuals and professionals. It's not confined to any particular sector or timeline—every company must be proactive regardless of industry or size. The right time to start is now. As computing power becomes affordable, connectivity seamless, and the cloud mainstream, the cost of inaction is growing. Businesses need to act before the accelerating pace of technological advancement leaves them behind.

So, how can your company keep up, thrive and grow? Every company must think holistically about digital transformation, addressing all six dimensions—why, where, when, what, how, and who—to realize its benefits fully. Narrow, isolated initiatives often fall short, failing to deliver the transformative potential that a cohesive, strategic approach can achieve. By adopting a comprehensive digital transformation strategy, companies can keep pace with technological advancements and drive sustained growth, innovation, and competitive advantage in the digital era. This is a call to action and a blueprint for thriving in a future where digital and physical domains are inextricably linked.

The one answer is embedded in this simple fact: successful companies invariably fail when they over-invest in what they were good at yesterday and under-invest in what they should be good at tomorrow. Digital technologies show that what made you successful in the past will not necessarily guarantee success in the future.

Rethink how, where, and when you reallocate your scarce resources. Remember that the valuable resources are not only financial and human, but the management time allocated to pose fundamental questions such as "What business will we be in the future?" "What customer problems will we be solving in the future?" and "What will be our relevance in the digital future."