March 6, 2019
By Chris Steele, Forbes Technology Council
Most people are familiar with the meteoric rise of companies like Airbnb, Uber and Lyft. They are often discussed as examples of “digital disruptors” — agile, engaging upstarts that have utilized technology to create new service paradigms and offerings that consumers are finding irresistible. Those same customers are shifting their loyalty away from traditional service providers, which are often mid-market enterprises that have built a long history of success and have been left reeling by this rapid shift in fortune. As a result, mid-market enterprises across a huge range of industries are finding themselves under threat, and many aren’t ready to respond. This segment is becoming more clearly stratified between top and bottom quartile performance, and the life cycle is shrinking.
We remember the stories of longtime innovators like Sears and Blockbuster that lost the ability to adapt, leverage and own the new markets that were being created by their more digitally-savvy competitors. As their profits shifted away from being tied to innovation and more to financial engineering, eventually they all began to accumulate what I refer to as “digital debt” — the loss of competitiveness and business agility that is the result of failing to make good investments in technology. Their digital debt accumulated and, in each case, they compounded late awareness of the need for change with an inability to affect that change.
CIOs are stuck between a rock and a hard place. They need to innovate, but the pressures and budgets for operational continuity are forcing them into a series of hard calls. At the same time, investments into IT aren’t necessarily increasing enough to do it all. This means getting smarter and more strategic about what gets spent and how. Disruptive technologies force new operating models and new capabilities, even though it might not be immediately clear what those capabilities should be.
Marketing organizations have led the way with a focus on customer engagement, leading some to consider CMOs more effective digital change agents than CDOs. However, even with the right ideas for offerings, digital transformation requires true organizational change. Corporate culture plays a large part in overcoming digital debt, as do capabilities in content handling, digital operations, continuity and more. All of these things can become roadblocks to growing a digital organization, and depending on the business case for digital reinvention, will contribute to (or limit) the effort in different proportions.
That’s why it’s important for enterprises, regardless of size, to understand where they stand and what factors are keeping them from getting to where they want to be. This is truly the foundation for how they operate and how they innovate. Understanding the cost and the effect of digital debt, quantifying it and modeling it to your own company’s values and actions helps to relate a “typical” blueprint for remediation into a real action plan. This allows for true acceleration and transformation.
Uncovering digital debt can be done with careful assessment of technology, practices, people and methods against best practices, and by applying a “lean” mindset towards identifying potential roadblocks against increased agility. The best results are then achieved by crafting business cases that guide remediation, where each program has the maximum benefit in either adding new capabilities, removing issues or creating a foundation for innovation.
There are plenty of companies that have gotten this right, and they can serve as good examples. Lego, for example, was almost killed by digital debt; after decades of growth, it suffered a decline and was near bankruptcy. A unified vision and attitude towards innovation created new capabilities and offerings, such as their digital designer. Crowdsourcing designs brought customers into an “ownership” experience. These innovations continued as new revenue streams like movies, mobile games and tech-enabled toys were introduced.
Another example is Domino’s Pizza. Its digital reinvention is a success story that came only from a combination of measured, innovative experiments, investing into the business and understanding the customer’s real wants (sometimes even better than the customer was able to express). This transformation was so deliberate and well-managed that its stock price increased more than 1,300% since 2010, reflecting the payoff of its commitment to digital maturity.
The ability to sustain change is worth inspection as well: Digital transformation is a choice that affects the very culture of an organization and is the very definition of disruption. As additional capabilities launch and information is gleaned, new gaps and roadblocks are found and new opportunities for improvement present themselves. Most organizations will have a three- to five-year plan. Tough choices must be made when you’re considering such a reinvention. Will the plan be changed (potentially even scrapped), or will the transformation initiative simply serve the plan that exists today? While the latter option seems like a safer bet from the surface, it is in no way a recipe for success. Most companies will follow that path, and that is why such a small percentage of digital transformations achieve or exceed expectations.
There will always be times in which the market is good and times when the market is tight. However, the businesses that do the best in both times are those that focus on creating operational value always. They have an internal mechanism for identifying opportunities that are unrealized and then carry them out with appropriate governance. Digital transformation is not a single initiative. Just as the cost center of today can become the revenue center of tomorrow, it is equally possible for once-profitable parts of the business to become limiting factors and operational drains.
Digital transformation is a journey enabled by people, process and technology; in my experience, very few businesses place the proper emphasis on all three elements. The billion-dollar company of today could be gone tomorrow, or it could be the next example of transformative reinvention. The choice is not far less dramatic than that. Digital transformation is not only a tremendous opportunity, but it can be a matter of survival.
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About the Author
Chris Steele has over 14 years in the software industry. He has been working with agile for over 9 years, with a heavy focus on Scrum. Working independently with consulting agencies, or internally both on-site and remote in North America, Europe, Asia and Australia has provided him with a wide range of experiences and a keen insight into the common problems and solutions that companies find when embracing agile, as well as how to present and sell it to clients ranging from the smallest to global enterprises. A certified PMP, as well as a Six Sigma Black Belt, Chris has the formal training and experience that forms the backbone of his enterprise management skillset, and adding agile to his toolset has allowed him to interpret those best practices in new and exciting ways, as well as opened up great new ways of solving existing problems.