‘In too many organisations, digital transformation operates in a strategic vacuum’

* Digital transformation is not about technology but rather about changing an established business so that it can grow in the digital era. While the change that is occurring in the market is being driven by technology, businesses response to that change should be driven by strategy rather than by technology. Understanding this difference so that you employ the right strategy is the key to success in this era, says David L Rogers, one of the leading global experts on digital transformation.

Rogers, a faculty member at Columbia University, defined much of the thinking about digital transformation in a ground-breaking book in 2016, and his latest thoughts are contained in a new follow-up book, The Digital Transformation Roadmap.

“In too many organisations, digital transformation operates in a strategic vacuum, as little more than a collection of individual projects. Without clear priorities for growth, it is extremely common for a business to find itself overwhelmed with ideas for new digital projects. Lacking any clear criteria for decision-making, digital becomes hijacked by the latest shiny new things from the technology world,” he says.

“Often, digital transformation becomes limited to cost cutting and optimisation of legacy processes. At worst, digital may be handed off to a dedicated team, separate from the day-to-day challenges of the business. This small group focuses on blue-sky digital ideas while the rest of the firm continues their work unchanged.”

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McKinsey research has found that the biggest single factor affecting digital transformation success is having a clear change story but most companies lack this kind of shared vision

One of the smarter moves a company can make is to take digital transformation away from the IT department, he advises. The goal of digital transformation should never be defined in terms of the technology you will use. Nor should it be defined in terms of the capabilities you will build such as data analytics, machine learning, cloud infrastructure, or the processes you will use such as customer journeys, agile squads and so on. Instead, you need to focus are on where you can make the most impact.

Mission statements tend to get a bad rap but a clear statement of strategic vision is important. McKinsey research has found that the biggest single factor affecting digital transformation success is having a clear change story but most companies lack this kind of shared vision. It is much better to get all stakeholders agreed on the business theory for change than to secure a big budget for your transformation without consensus on what it is meant to deliver.

Most successful digital innovators have succeeded through experimentation and making modest bets. Take Airbnb. It was through constant testing and learning that its founders validated their business model, says Rogers.

From the first test of the idea (in which they themselves hosted guests on a weekend when San Francisco’s hotels were fully booked) through countless iterations in different cities, the founders gradually validated what would draw users to the site, what would earn the trust of both travellers and hosts, how the company could comply with myriad local laws and regulations, and how they could leverage network effects to fend off competition and grow to a phenomenal scale.

Contrast that with broadcaster CNN. Encouraged by the success of streaming services such as Netflix, Disney+ and Amazon Prime, it piled $300 million into a news streaming service called CNN+ in 2022. The broadcaster projected the service would attract two million subscribers in a year and 15 million within four years. The project was led from the top with huge enthusiasm from CNN’s top management, who sanctioned the massive budget.

Within weeks its false assumptions became clear as only 10,000 viewers tuned in to CNN+, compared with 773,000 watching its traditional news channel. CNN’s parent, Warner Bros Discovery, axed the new service, concluding that customers didn’t want to pay for another streaming service, let alone one focused on news.

Rogers says, “The problem with CNN+ was not that it failed but that it cost $300 million to fail. The harsh truth of innovation is that most ideas that sound good on a sketchpad turn out to be unworkable.”

When Amazon decided to pursue its idea for Amazon Web Services, it decided, wisely, to run the project independently from the ecommerce division

Ambition is good and innovation is necessary but once a company becomes successful there is a tension between those who want to grow the existing business model and those who wish to pursue opportunities beyond the core. In too many firms, the default is to stay close to the core.

Don’t underestimate the role of politics in the innovation process. Rogers advises that when you pursue a new venture that diverges from your core business, with different customers, revenue, cost structure, or capabilities, that venture should be managed independently from the core – at least in its early stages. This independence may even include physical distance, to escape interference and meddling.

When Amazon decided to pursue its idea for Amazon Web Services, it decided, wisely, to run the project independently from the ecommerce division. AWS was started as an independent group of 57 people, with most of its hires from outside Amazon, many of them based at a new centre in Cape Town, South Africa, from where one of its key products was built.

Rogers writes with great insight about the challenges and opportunities for established businesses, and the book contains a rich vein of case study material from businesses such as the New York Times, Mastercard, Apple, Google and Disney.

The key ingredients in successful digital transformation, he makes clear, are articulating a shared vision of a successful future, meeting or smartly anticipating customer demand, testing and validating a business proposition and building and scaling capability.

Define your growth opportunity

Rogers describes four powerful ways that companies define their strategic priorities through what he calls an “opportunity lens”.

Customer delight statement

Try describing an unexpected and delightful experience to create for the customer. Bezos’s dream for Kindle was “every book ever printed, in any language, all available in less than 60 seconds”.

Attractive market with a right to win

Find a large or growing market to enter, one where your business has a built-in advantage. For animal health company Zoetis, the opportunity to “enter the diagnostics business” meant selling to an existing base of customers, one that it was already serving with treatments and vaccines.

New capabilities with clear application to your business

Look for new skills or emerging technologies that are relevant to an important part of your business model. Amazon chose to invest in robotics because of a specific application: picking products off warehouse shelves. More recently, drugmakers have invested in machine learning because of its specific application to key steps in the drug discovery process.

10x stretch goal

Try envisioning value creation at scale, not just incremental improvements. “Grow watch time to a billion hours a day” was a huge goal for YouTube and a compelling business opportunity. One of Google’s core principles is to “think 10x, not 10 per cent”. Similarly, the Gates Foundation defines ambitious goals for public health by interviewing doctors and pushing them to think big, asking, “What would you do if you had unlimited resources?”

The Digital Transformation Roadmap by David L Rogers is published by Columbia University Press

* This article was edited on Thursday, August 31st, 2023