In 2013, the term “digital transformation” was rare. But today, and you would be hard-pressed to find a technology conference where the buzzword wasn’t featured prominently. Last week’s Gartner Symposium in Barcelona was no different. The expression, which refers to the use of digital technologies such as the Internet of Things, application programming interfaces and artificial intelligence to drive business transformation, was the centerpiece of the opening keynote from Peter Sondergaard, executive vice president of research & advisory at Gartner Inc.
But while the concept of leveraging digital technology as a central strategy for everything from manufacturing to marketing, the notion of digital transformation is receiving an unhealthy amount of hype. It’s as if we have been on a digital transformation rollercoaster for the past four years, but climbing the coaster’s initial slope the entire time. “If the hype cycle teaches us anything, a trough is coming,” Sondergaard said, referring to the analyst firm’s famed model for technology adoption. “Sitting at the peak, how do you react? Do you close your eyes and hold on for dear life hoping to survive? Do you resign yourself to the ride with faith you will get through?” he asked. “Or do you raise your hands high and say ‘faster!’ Make no mistake: digital is here, and you will take the ride.”
In any event, not all organizations will make it through the trough. Ultimately, digital transformation is tough work and there a multitude of possible errors that business leaders can make along the way, Sondergaard explained. Here, we capture seven digital transformation strategies from the keynote.
1. Scale: A tool for getting through the trough
Surviving the frothy highs and crushing lows of a technological adoption cycle takes discipline, and not all organizations will be able to make it through.
One factor that can help predict whether an organization can navigate the rough patch in the adoption curve is its ability to drive “digital value at scale,” Sondergaard said.
But scaling doesn’t merely mean getting bigger or that only the largest organizations with digital business plans will survive. “In the emerging world of interconnected platforms and ecosystems, smaller organizations can very rapidly compete,” Sondergaard said.
Organizations, no matter the size, can scale in three ways.
First, scaling up, which means gaining efficiencies. “In economic terms, [scaling up] means maximizing output relative to input,” Sondergaard explained.
Next, there’s scaling across. “This means quickly taking capabilities and lessons learned from one organizational unit to another,” Sondergaard said. “This is not a technical consideration only but, more important, it’s about the digital agility of the organization’s culture and structure.”
Finally, there is scaling out, which means interconnecting platforms and ecosystems inside and outside of the organization.
2. Digital transformation projects should have a sense of urgency
While the term “digital transformation” may be trendy, it is common for digital transformation strategies to be vague and lack the power to drive real change that extends throughout an organization. How fast your employer transforms matters. “Two- thirds of all business leaders believe their organizations must pick up the pace of digitalization to remain competitive,” Sondergaard explained. “And frankly their board of directors agree. They are getting impatient with slow execution.”
3. Establish digital KPIs
In a digital age, key performance indicators (KPIs) must evolve to reflect the concept of digital strengths and weaknesses. Sondergaard referenced L2’s Digital IQ Index for consumer brands as a role model for such metrics that focus on leading indicators of success. “But even if you are not a consumer-focused industry, follow the leaders and create your set of enterprise-wide digital KPIs,” Sondergaard noted. “These will become your enterprise compass built into the performance objectives of every leader within the organization,” he added. “Digital allows for deeper outcome-driven measures and [digital KPIs] apply to all industries including government.”
4. Launch digital businesses rather than digital projects
The first business websites were translated from business pamphlets, giving rise to the term “brochureware.” But such websites soon gave way to e-commerce sites like Amazon.com, which would go on to embrace digital marketing and ultimately the concept of digital business, helping to make digital transformation strategy a core focus for many enterprises.
One factor that separates innovators like Amazon from their peers is their ability to unleash the power of digital technology throughout their organization rather than compartmentalize it. Consider how Amazon, for instance, helped to quickly establish a market for e-book readers. Launching the Kindle reader in 2008, by the end of the following year, the company had more sales of e-books than paper books.
Still, it is common for organizations to launch experimental digital projects that live within a single company division. “But digital projects are not a digital business,” Sondergaard said.
It is easy to underestimate the power of digital businesses, Sondergaard said, pointing to the retail sector as an example. “In 2005, traditional [retail] stores were in denial. They said: ‘Nobody will be buying clothing online because everybody wants to try it on.’ They were wrong,” Sondergaard explained. And this year, Amazon became the biggest clothing retailer in the United States.
The same basic template will apply to other sectors, Sondergaard said. Once digital revenues for an industry hit one-fifth of total revenue, the digital shakeout begins. “No matter what industry you are in, that 20% mark will be the point of no return,” he added.
5. Be realistic about cybersecurity
With hacking in the news on a seeming daily basis, it should come as no surprise that cyber breaches can undermine digital transformation strategies. As Sondergaard put it: “Cybersecurity is a pervasive and critical threat.” The topic of security has indeed proven to be a thorn in the side of many trying to implement enterprise IoT projects.
While organizations should certainly prioritize cybersecurity, this doesn’t mean, however, that they should strive to blot out all cybersecurity risk. While it is a mistake to postpone digital transformation initiatives out of fear, another mistake is to launch them with the idea that cyber risk can be negated given enough investment. “You can't spend your way towards perfect cybersecurity,” said Paul Proctor, a vice president and distinguished analyst pointed out in a separate session at the Gartner Symposium. Instead, a mature security strategy — like IT — should be treated like a business function, where organizations determine the level of cyber protection they need and the amount of resources need to achieve it.
6. Chart a new talent strategy
To ensure that digital transformation strategies succeed requires a focus on talent and that organizations leverage “cross-functional teams with technology at their core,” Sondergaard said. Technology is now critical to each functional area of organizations, including everything from “supply chain, sales, marketing, HR, finance and the rest.”
The rise of digital business is changing how firms hire and retain talent, but the shift isn’t easy. “Our board of director studies show that talent and culture are top challenges for all functional leaders including CIOs,” Sondergaard said. “But one thing that is clear, you will need a different approach than traditional hiring.”
As recently as 2015, organizations were mostly able to find professionals with the skills they needed, including professionals versed in areas such as customer relationship management software, cloud computing, project management and infrastructure. But now, the market is not meeting the demand for professionals experienced in cybersecurity, artificial intelligence, and the Internet of Things.
Sondergaard predicted that the job market would ultimately not be able to meet the demand for those three areas. The most important of the three is artificial intelligence, for it can help organizations deploy the other two, while also providing value on its own, Sondergaard said. AI can help augment human labor and enable organizations to be smarter in hiring, he added, explaining about 10% of companies are already using AI in recruitment and talent management processes.
In terms of finding talent to help with AI initiatives, Sondergaard recommended a creative approach. “Find alternative ways to fill the need using contracting, renting, sharing, nurturing from within,” he advised. “Crowdsource. Lease skills instead of buying them and work with your sourcing leaders to capitalize on external services.”
One of the most potent aspects of AI may be its ability to augment human workers, combining the best capabilities of human workers with the best capabilities of machine learning systems. “AI will automate some people out of work,” Sondergaard acknowledged. “Starting in 2020, 1.8 million jobs will indeed be lost globally.” But by that same year, AI will have created 2.3 million new jobs, creating trillions of dollars' worth of new business value while saving billions of hours of work. “So, prioritize your investment in artificial intelligence, beginning at the top with AI capable leaders.”
7. Creating a workplace culture that favor digital dexterity
“The secret to digital is analog and by analog, we mean people,” declared Tina Nunno, a vice president and Gartner fellow in a keynote immediately following Sondergaard’s. “It is about augmenting the people you already have [and] modernizing your talent for scale.” Nunno noted that the looming skill gap is not just an IT problem. “There has been a 60% growth in technology skills required for non-IT roles in the past four years,” she said. For organizations to scale digital projects will require a shift in how they approach culture and talent, instilling what Nunno called “digital dexterity” in workers, which requires being agile, analytical, innovative and creative. Digital dexterity also requires bridging the physical and virtual worlds. “Talents like being a customer empath, a skill mentor, a process hacker and an app savant will all require a rich blend of digital and analog competencies in the broader workplace,” she said.