Although IT modernization is in full swing, business transformation — the more strategic form of change — will take time. A survey by the Leading Edge Forum (LEF) reports that examples of large-scale business transformation today are spotty, and that efforts to fully transform will run far into the 2020s.
LEF segments factors that are often called “digital transformation” into three broad categories: IT modernization, business transformation and industry disruption. Although IT modernization is the most prevalent, business transformation is at the heart of making 20th century enterprises operate more like today’s 21st century leaders. Business transformation is how enterprises successfully adapt to major marketplace shifts, whether through changes in strategy, business model, organization or culture. (By contrast, industry disruption is how technology-led rivals displace incumbents.)
IT modernization and business transformation are the true digital transformations, in which the incumbent prevails. Industry disruption is about total displacement, where the new players win.
Source: Leading Edge Forum
Let’s focus on business transformation. Key business transformation strategies LEF observed include:
- A stated commitment to digital leadership
- The use of “burning platforms” (crisis situations that clearly demand major change)
- A sharpened focus on inherently digital markets
- The use of incubators and targeted acquisitions
- The investment of IT cost reductions into forward-thinking digital initiatives
Transforming while performing
In its study, LEF noted that some of the most powerful examples of business transformation are in the tech sector. Microsoft changed its focus from Windows to cloud computing. AT&T had to rapidly transform itself from a wired to a wireless telecom provider. Dell shifted from consumer PCs to a mostly large-enterprise focus.
But outside of tech, widely recognized large-scale business transformations are more spotty. Few companies feel they are deep into the journey, with saying that they are only 10 to 20 percent of the way there, reinforcing LEF’s view that we are looking now at business transformation initiatives and processes that will span much of the 2020s.
One company that is well into its business transformation is Philips, which has been spinning off its traditional businesses to focus on healthcare technology. This approach of aligning digital with a sharper strategic focus appears to be working. As Jeroen Tas, Royal Philips’ chief innovation and strategy officer, said in his interview with LEF: “It’s about transforming while performing. If you do only one or the other, you won’t be successful. If leaders only focus on performance, you have an imbalance in leadership. You need to be able to make explicit trade-offs between the next quarter and performance over 3 to 4 years.”
Being more data-driven
A common theme in business transformation is to become more data-driven. People see how today’s digital leaders use data, algorithms and machine learning to automate, anticipate and problem solve in ways that traditional organizations do not. For example, in a recent LEF Study Tour visit to Facebook, one of Facebook’s engineers told us that some 80 percent of its engineering workforce now uses machine learning as part of their day jobs.
Closing the huge gap between today’s digital giants and the traditional large enterprise is clearly a long-term digital transformation goal, but as of now, the gap is still widening. As one LEF client noted, “We have been trying to be more data-driven for a decade and feel we’re only about 20 percent there.”
The stage is set for becoming a data-driven enterprise. Enterprises that believe in a digital future must prepare and proceed.
Read the LEF report, A Tale of Two Missions: From IT Modernization to Business Transformation.