Digital Transformation – Strategy or a Business Model ?
In corporate arena, we have been hearing a lot about digital transformation since last couple of years.
It has always been a hot debate for business executives how to leverage digital technologies to transform their business and survive from the wave of disruption coming from new startups.
Corporate world stand on the brink of a digital revolution. Technology has changed consumer life styles and trends – making a lot of companies extinct from arena while adaptable organizations leveraging from digital technologies like Artificial Intelligence, Big Data Analytics, Block Chain, Internet of Things, and Natural Language Processing etc look at those changes an opportunity for them to serve customers in line with their evolving expectation set.
It all started with the widespread use of smart phones and then companies like Uber, Netflix, Airbnb, Alibaba and Spotify changed their respective industry dynamics by coming up with innovative models backed up by technology resulting in increased value creation for customers.
Now, millennials and Generation Z (collectively known as clickers) expect a change starting from the process of search for any product/service till its consumption.
Consumers constantly remain on smart phones and use numerous applications expecting searchable information on any device, at any time, contextualization and personalization and all of this to be accomplished seamlessly and quickly.
Companies are trying to cater to these customer expectations (or else they’ll be left behind) and currently fall into one of two camps – they are either being coerced to change (already disrupted by new entrant, or they are actually driving a change agenda but in anyways both camps are looking for a digital transformation to stay competitive.
But question still remains as to if they need a digital strategy or a paradigm shift in business model to stay competitive??
Let’s first look at the history on industrial revolutions to answer this question. Industry witnessed its First Industrial Revolution with the use of water and steam power to mechanize production.
The Second Industrial Revolution started with used electric power to create mass production.
The Third used electronics and information technology to automate processes and production.
Now the Fourth Industrial Revolution is building on the Third, the digital revolution a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.
Acceleration of innovation and the velocity of disruption are hard to comprehend in this age of digital disruption.
Platforms are replacing products in other words goods and services, a ride across city was a product while ride hailing service Uber is a platform people use to access it.
The same goes for news stories and Facebook, or accommodation and Airbnb and list goes on with companies like Ali Baba, DBS Digibank etc.
Technological progress and its outcomes that are so obvious in retrospect are hard to see accurately while they are unfolding. During 2nd industrial revolution at the start of 20th century electrification was one of the most disruptive technology that caused a mass extinction on US manufacturing industry.
The studies suggest that by the end of 1920 many companies (40-60%) had been knocked down from their earlier market positions.
Clearly, electrification made a factory much more productive than it was before electrification.
The larger gains came not from simple electrification of factory but smartly realigning business model around electrification – motors attached to every machine, with assembly line conveyors belts, with overhead cranes resulting in expediting the entire production value chain and made them formidable in industry.
Such companies did more as their cost of operations came down and they started to undercut their rivals on price.
Factories who considered electricity only as a better source of power missed the point entirely and they lagged behind their electrified rivals in a period of one decade.
These laggards might have been making good products and distributing them well to markets but they fail to adapt.
They could not compete on price, their time to market was more than rivals and it was difficult for them to switch to another set of products. The reasons behind their extinction were, not embracing the electrification process completely and their dominant logic of doing things in a similar way like they were doing years ago which had led them to success.
Current situation in the age of digital revolution can be related to the electrification revolution of 20th century; a lot of companies still believe that digital transformation is either a strategy like developing a mobile app, making strong presence on social media or leaving technology adoption within the hands of Information Technology department.
This approach is similar to the attitude of factory leaders who opted for electricity as a better power source only, instead of improving the complete production value chain through electrification for gaining competitive leap over rivals.
Similarly, digital adoption is not merely a strategy it demands a holistic approach to re consider complete value deliver chain and make realignments to business mode in order to embrace digital technologies and uplift the value creation for customers before rivals do it!