Understanding Digital Transformation

Its close to impossible these days to avoid hearing the term "Digital Transformation."

Depending on the meeting you find yourself in, Digital Transformation could be about reducing carbon footprint, changing the way you work, offshoring talent, and even reducing gender disparities in the modern workplace.

The challenge many leaders are having is that when something becomes everything...it simultaneously becomes about nothing. This is probably why 73% of digital transformations fail.

So how does a leader cut through all of the smoke, mirrors, and corporate babble to understand what Digital Transformation *actually* means?

A Simple Working Definition

Digital Transformation: The act of shifting from manual processes that are reliant on human knowledge and experience to automated processes driven by data, software, and human insight.

Digital Transformation...a Journey...Not a Destination

Digital Transformation (ironically) isn't binary...its not a "Done-Or-Not Done" endeavor.

To illustrate, let's look inside the life of a sales manager over the past 20 years and see how a single task (in this case, forecasting) is becoming digitally transformed.

When I took my first role in sales management, I was given a 5 minute primer on forecasting from a veteran sales manager. Essentially, the forecasting "process" was calling up each rep and asking them which deals were going to book, and for how much. I would capture that information on a piece of paper and sum the total. I was then instructed to reduce that number by 1/3rd before reporting up the chain of command. There was nothing "digital" about this process.

Enter CRM...

When our sellers moved to CRM...each deal was entered by the seller into the database. Each deal had an associated value, and a predicted win date. Instead of having to interview each seller to determine what they were expecting to close, I could simply run a report to show me the pipeline value. I would meet with the sellers to get information about specific deals in the pipeline, then revise the forecast up or down based on the sellers input.

At this point...you can see forecasting becoming more digital (moving from paper to software), but at this point, there's still a lot of manual work happening.

...in other words...its different...but its far from transformed.

With each passing month, the CRM is acquiring more and more data...its learning about close rates for specific products, specific vertical markets, specific sellers, and even specific customers.

As the data continues to come in, the system is able to forecast as accurately (sometimes even more so) than the seller and the manager. The seller's time is no longer spent in tedious pipeline reviews and forecasting meetings...additionally, the manager's time is no longer spent curating forecasting reports for leadership.

As the tools continue to improve and adapt...the transformation continues.

In other words, what was once a manual process built on human experience and knowledge has become a process automated by data, software, and human insight.

Process vs. Product

Another cause of confusion is the fact that the term Digital Transformation is used to refer to both process (how we work) and product (what we sell). There are leaders who fully understand what it means to transform workflows, but they don't understand how the coming transformation will impact their product and service offerings.

As we shift our focus from process to product, the entertainment industry serves as a great example of how Digital Transformation has drastically changed the marketplace.

When I was a kid...you judged your peers by their cassette library. I can still vividly remember the days of going to The Warehouse to get the latest cassette. I took pride in the fact that my cassette shelf was over 4 feet long. On the horizon however...the digital wave was coming for my music collection.

First...my analog cassettes were replaced with CD's...my 4' line of tapes became 8" stack

Then my CD's were replaced by MP3's...my 8" stack of disks disappeared and became memory on my computer.

Eventually...my growing collection of MP3's (and the several GB's of memory they took up) were replaced by a simple monthly subscription that offered me access to every record ever made...the service even curates music based on my likes and dislikes.

The idea of transforming entertainment purchases from one-and-done events to on ongoing subscriptions brings us to the financial incentive behind much of the Digital Transformation.

Shifting From CapEx to OpEx

What is the underlying financial incentive for companies to transform their product and processes?

Two words: Recurring Revenue

In the legacy economy...purchases are one time events. In the digital economy, purchases are ongoing. Instead of a large one time capital expense (CapEx), purchases are shifting to more of a subscription based model (OpEx). Everything is "As A Service" now. Software As A Service (SaaS), Construction as a Service (CaaS), Mobility as a Service, and...even...Anything as a Service (XaaS).

So if you find yourself struggling with Digital Transformation, here are a couple of helpful strategies and tactics:

Keys to Surviving the Digital Transformation

1. Start With The Boring Stuff: Digital Transformation requires immaculate data, strong infrastructure, and impeccable processes. Consolidate ERP, CRM, and HRM instances, then clean up the data. If you're trying to transform the exterior of your business before the interior...you're moving in the wrong order!
2. Get Tactical: Conversations about Digital Transformation (especially with senior leaders) will tend to be very strategic...before you know it, you'll have spent 60 minutes talking about everything possible and exactly 0 minutes talking about anything useful. Focus on behaviors, the systems that enable them, and the changes that need to take place.
3. Be Honest About Your Current State: You need to know your current location before you build a map to a new destination. An effective means of doing this is by assessing your organization using surveys and/or knowledge assessments to determine how far you need to come. While there is certainly a host of consultants out there that can help you with this...I'd actually recommend investing in building some expertise in-house, and then using your in-house expertise to chart the course for transformation.
4. Think Years, Not Quarters: Transformation takes time and involves resources. Don't expect to get where you need to be overnight, and don't expect to see a return on investment immediately.

As you continue to grow and evolve towards a transformed enterprise don't hesitate to ask tough questions and challenge the "Digital is Everything" platitudes you'll no doubt hear. Digital Transformation isn't a panacea...if you're able to cut through all the buzz and jargon, you'll be part of a change that will preserve your work well into the next decade.