Framework 119  Digital Transformation (evolutionary or revolutionary)

Introduction

There are 2 approaches to handling digital transformation, ie evolutionary or revolutionary. With
"...the revolutionary model preferred by consumer-facing companies or an evolutionary one exemplified by industrial companies......The right choice depends on certain characteristics of an organisation's products, customer and partnership relationships, and user needs..."
Ivanka Visnjic et al, 2022

The evolutionary approach is usually more successful as it involves managing it in an integrated and incremental way, and encouraging buy-in from the different stakeholders, ie executives in these organisations
"...took a long term view, exploring cases of new technology in small pilot studies scaling up cautiously. They also took a decentralised approach, with a view to building digital capability in the heart of the business rather than in a specialised or separate unit..."
Ivanka Visnjic
et al, 2022

These organisations encourage mid-level managers, especially those in technical roles, be actively involved; not just senior management; use multi-disciplinary and cross-functional teams

This involves 3 key aspects
"...i) the choices companies make in the initial responses to new technology
    ii) how digital initiatives are scaled up effectively, and
    iii) the pros and cons of appointing a chief digital officer (CDO) to oversee all these activities..."

Ivanka Visnjic et al, 2022

The advantages of this approach include

- focusing on genuine, real-world cases to reduce costs and/or increase revenue, rather than rolling out solutions looking problems

- enabled internal capability-building, ie mid-level managers and technicians are exposed to the digital projects to ensure that they understandthe initiatives' potential and limitations.

There can be much trial and error in these projects, eg selection of technology, development of user interfaces, etc
"...this integrated approach with a mixed team keeps everyone focused on practical use cases aimed at generating measurable business impacts, ensured better integration with other activities of the business, and help build digital skills across the organisation...:"

Ivanka Visnjic et al, 2022

Digital technologies as separate units

This is best done

"...where cases involve direct sales and customers, very early-stage and highly uncertain market needs, and new business model. The lack of interdependence with established operations, along with concerns about cannibalisation, make it sensible to pull them out as separate operations and help prevent them becoming costly distractions..."
Ivanka Visnjic et al, 2022

Freedom of scale

"...In customer-facing businesses, scaling up often involves bringing a promising product out of an incubator or venture unit and placing it in a mainstream business unit so that it can leverage an established distribution network (often referred to as a 'separate then integrate' model..."
Ivanka Visnjic et al, 2022

However for industrial companies, as the new digital technologies were already embedded within a division, the process of scaling them up usually involved giving the project team greater autonomy to facilitate growth.

Sometimes scaling up can be done with outside partners helping. Linked with this are spin-offs.

This highlights 2 important points

i) allow them a significant degree of freedom so that they can take whatever steps are required to succeed; this can include collaborating with competitors

ii) external partners can play an important role facilitating growth like technology service providers or venture builders
"...In contrast to the 'separate then integrate' model......model for industrial companies can be characterised as 'embed then scale out'.......this requires careful attention to structure and, notably, an openness to letting go and allowing the digital activity to operate on a semi-independent basis. But both models depend on robust sponsorship from the top. The successful cases......had senior leaders who were sensitive to the power bases within the organisation, and who were able to use their political skills to overcome potential sources of resistance..."

Ivanka Visnjic et al, 2022

Chief Digital Officer (CDO)

The appointment of a CDO early in the process signals the importance of a digital agenda and provides a focal point for important digital initiatives. Usually the CDO was centrally based to
"...put in place large numbers of 'lighthouse' projects that captured attention and helped evaluate strategic options, but with limited business impact..."

Ivanka Visnjic et al 2022

As things progressed
"... Emphasis shifted to enabling and embedding digital capacities across the company......business lines typically took the lead in piloting and scaling digital activities. The CDO then became the facilitating partner evaluating opportunities, providing a reality check in assessing emerging technologies, setting up the implementation projects, and fostering collaborations across business lines. CDOs also play an important role in building the technical backbone on which many of these digital initiatives were built.
.."
Ivanka Visnjic et al, 2022

CDO's role continues to evolve, ie achieving business impact. Some CDO's comments
"...Digital is not an end in itself......is to help businesses evaluate their needs, which starts with the customer, not the technology......the more digitally mature we become, the more the focus shifts towards a measurable impact..."
Ivanka Visnjic et al 2022

The next steps beyond being the digital-business enabler, involve:

- evaluating emerging technologies
- ascertaining organisational capabilities to handle them
- building profitable digitally-enabled businesses
- creating more digital-native revenue streams
- brokering relationships with ecosystem partners

NB this is best done when driven from 'bottom-up' rather than 'top-down'.

Sometimes the CDO becomes the CDIO ( we are 'I' refers to information), ie integrating digital and information technology and its importance

Questions

The initial question is around
"...Whether the company should create a new digital technology unit or embed a digital project within an existing line of business..."

Ivanka Visnjic et al, 2022

To help answer this question, there are 5 other relevant questions

i) What is the form in which the digital technology will be delivered?
(for example, is it being integrated into a physical product with the value proposition having both digital and physical elements? If so, evolutionary approach may be superior. However, if it is replacing a physical product, and the value proposition exists in a purely digital form, setting up a separate unit may be better.)

ii) What is its implication for current company assets and capabilities?
("...An embedded approach may serve you best if your existing assets and capabilities still have value alongside the digital technology, but if the technology will render those assets and capabilities obsolete or threaten to cannibalise them, it is advisable to manage it in a separate unit..."

Ivanka Visnjic et al, 2022)

iii) To what degree does using the technology depend on the company's relationship with the buyer?
("...For example, many consulting companies provide data analytics services that need to be tailored to the needs of clients and delivered alongside other services. In such cases, integrating these digital technologies within an existing line of business can be helpful..."

Ivanka Visnjic et al, 2022)

iv) Does the digital technology meet an entirely new need, or better satisfy an existing one?
("...if the technology is essentially creating a new market by delivering a previously unrecognised need, then it may be best managed through a separate unit. However, if it is meeting an existing user need but for doing things efficiently or effectively, it may be most appropriate to launch it within an existing business unit..."

Ivanka Visnjic et al, 2022)

v) What is the level of integration between the digital technology and related company activities?

There is a need for mutual adjustment as integration can be complex. For example,
"...IoT technology collect data to identify or predict equipment failure, offering the opportunity to sell services (such as maintenance) and/or to design better next-generation equipment..."
Ivanka Visnjic et al, 2022

This could be best done via listing business lines to maximise synergies and handle potential conflicts of interests.

However, using a separate unit is an option where clearly defined interfaces make a modular approach possible, like 3D-printing spare parts or the digital marketplace that sells your and your competitors' products.

Summary

"...While many consumer-facing companies took a highly strategic approach, using a quickly assemble and semi-autonomous unit reporting in at the board level, we saw a very different model in industrial companies, with front-line teams taking small steps, working directly with users, piloting projects with embedded teams, and then gradually getting freedom and more visibility as they scale up..."
Ivanka Visnjic et al, 2022

The most effective CDOs
"...preferred to work directly with front-line teams, facilitating them in their digital initiatives, connecting the dots, and building the organisation's capability..."

Ivanka Visnjic et al, 2022

 

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