Digital transformation has become a buzzword — a worthwhile concept that is difficult to put into practice.
Broadly speaking, enterprises embedding different capabilities into their operations have better outcomes and craft long-term strategies that keep customers front and center and the competition at bay.
But the gap between intent and execution is captured in the stat that roughly 70% of transformative projects fail. In many cases, firms tackle innovation when it’s the classic case of too little, too late, having identified threats only where they’ve become fully formed. Digital transformations are taken from a defensive posture.
David Teece, executive chairman at Berkeley Research Group (BRG), economist and expert on corporate transformations (and author of “Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth”) told Karen Webster that “you have to have a 360-degree radar because with digital transformation and digitization, traditional industry boundaries are blurred. Markets are blurred. The way you think things are organized is no longer true.”
Platforms such as Uber and Instacart have made inroads into all manner of verticals, disrupting delivery and transportation in general. Apple captured the smartphone market by building an operating system that helped forge connectivity across devices and use cases and did much to hobble competitors like Nokia.
Teece noted it has become harder than ever to identify emerging threats — and opportunities that may be abstract — for prolonged periods.
“There are competitors all the time that are unseen,” Teece remarked, quoting the maxim from Intel’s Andy Grove that only the paranoid survive in business. “You’ve got to be alert to the new dimensions and corridors around which competition occurs.”
The big picture is harder to keep in sight (especially in large organizations), as executives and boards get lost in the day-to-day operations. None of this is to say they aren’t trying. Many firms use scenario planning. Other companies may have processes in place for collecting information from people on the front line.
“The problem is that management is not often enough on the front line to think about the future and the uncertainties that they may have to confront,” Teece said.
CEOs and boards often delegate digital transformation to others. It’s a mistake to delegate something so central to a company’s survival, he said. Digital transformations must be rooted in a sense of urgency, not shunted off to tomorrow’s to-do list.
For the executives themselves, he said, a mindset shift is in order, sometimes with radical adjustments that demand a pivot toward entirely new business models (perhaps taking them out of their comfort zones).
“There’s a role for boards, and board members should be asking whether there is an active program that they’re personally engaged in on digital transformations” and whether they need to be nudging CEOs in a certain direction, Teece said.
What’s needed for board members and CEOs is a framework to identify the challenges and opportunities that are in place now and just emerging on the horizon, forging dynamic capabilities.
The starting point is for CEOs to get their teams focused on the current customer experience and the improvements that could be made on the way to a transformation.
“With digital technologies, you can imagine all kinds of services and solutions that you could not imagine before,” he said. “There needs to be a creative group of people around the CEO and the top management team … that’s focused on the customer experience.”
As he noted to Webster, “being customer-focused is exactly the right way to run any kind of digital transformation business.”
As for the framework itself — which Teece developed decades ago — it is flexible enough to address internal challenges and exogenous macro threats. It focuses on three prongs: sensing, making sense and seizing opportunities.
Sensing the changes in the competitive landscape is important as executives take stock of their own competitive ecosystems and are aware of what’s happening in other ecosystems as well.
Making sense of those changes to drive new approaches to innovation (and sometimes invention) is what executives should do next.
Then, they are ready for seizing opportunities, which leads to a subsequent transformation.
The framework is one that CEOs should have at the ready to help deliver to the customer what the customer wants when they want it.
The framework, he said, helps develop an understanding of what the competitive situation may be, how technologies have changed, and the threats — and how to boil it down to a narrative that can help motivate people within an organization.
Those last two parts — seizing opportunities and transforming — demand an examination of innovation versus invention.
Invention comes out of labs and excites scientists and engineers. An invention without a customer solution connected to it is not going to go anywhere in the market, said Teece, who added that companies must constantly “sort out” the inventions that address real needs from those that don’t. (AT&T, for example, invented the Picturephone back in the 1970s, an early version of video-calling that fizzled.)
“Very often, you have fantastic inventions that are before their time or are too late, so timing is critical,” he said.
As firms develop new dynamic internal capabilities and bring those capabilities into the market, they must be able to build those competencies in house. Mergers and acquisitions can only go so far, he said. Apple is an example again, as the platform and operating system it spent decades building and protecting now serves as a network for other businesses upon which they can build their own innovations.
“The framework tells you what to worry about, what not to worry about,” Teece told Webster, “and gives you the discipline and rhythm around dynamic capabilities in order to be successful.”