Digital Transformation (DX) is picking up speed. According to a recent announcement by IDC, the market is expected to grow at a Compounded Annual Growth Rate (CAGR) of 17.9% to reach a whopping 321 billion dollars by 2021. In 2018 alone, IDC expects that 326 billion will be spent on transforming how people and things communicate.
Based on these numbers, it looks like Digital Transformation has become the real deal. The chances are it will have a tremendous impact on how our societies work and play going forward. Yet it seems that there is some ambiguity as to what Digital Transformation really is, how it came to be, and what actions organizations should take to embrace it.
The Short History of Digital Transformation
Over the last 20 years, most of the things we use on daily basis have been digitalized. Our communication methods have changed from analogical to digital. Much of our day-to-day activities including work is nowadays carried out electronically. Yet at the same time, the underlying processes have not changed drastically.
Looking at the productivity growth in the Western economies, the advances started winding down already some 30 years ago. Even digitalization and the growth of the Internet have been unable to change this pattern. As these two phenomena were expected to increase productivity, many economists have been taken by surprise.
What I believe has transpired is that the law of diminishing returns caught up with the industrial processes and business models of the post-war era. Despite all the digitalization efforts, we have reached a productivity plateau where improvements to the existing processes have become costlier than the productivity gains that they realize.
But while the productivity gains eroded, something else changed. With on-going advances in new technologies such as cloud computing, Artificial Intelligence (AI) and the Internet of Things (IoT), we have created new enablers that can be used to implement rethought processes that leverage the digitalized assets and media at our disposal. Essentially, it is the creation of these new processes and business models that Digital Transformation boils down to.
Making Digital Transformation Happen
With all the buzz going around on Digital Transformation, it sometimes reminds me about an old joke about teenage sex. Everyone is talking about it; no one knows how to do it; everyone thinks that everyone else does it; so everyone claims they are doing it too. At the end of the day, though, there are a few simple steps that can be taken to improve the chances of a successful transformation:
- Focus on people. Like with all changes of large magnitude, they do not happen without engaging people. Therefore, before embarking on a Digital Transformation journey, we should be extremely clear on the why and what driving the change. With no concrete goals and little motivation, any transformation initiatives are likely to be watered down into a series of incremental improvements.
- Define the business processes. Once the what and the why have been clarified, the next step in the transformation is to define the how. As this will essentially becomes the source of one's competitive advantage, majority of the input should come from within the organization. This ensures that transformational activities are based on challenges and opportunities specific to the organization. Once the how is defined, it also makes it easier to obtain the required buy-in, once the transition is on its way.
- Implement the framework. After the what, why and how have been laid out, the time is right for designing a business platform that enables the rethought processes and business models. Since predicting the future is hard, one of the most important considerations here is to ensure that selected systems have been designed to meet the agility, the scalability and the interoperability requirements of tomorrow.
Considering the technological advances over the last couple of years, we now have the foundation in place to take the leap forward. The biggest obstacles holding us back are our imagination and the creativity in how we harness the new technologies. By being willing to let go of existing business models and processes, we are able to rethink new ones that will create unprecedented levels of prosperity and well-being for the decades to come.
To me, this is really what digital transformation is all about. Enjoy the ride.
By Juha Holkkola, Co-Founder and Chief Technologist at FusionLayer Inc. – Juha Holkkola is the Co-Founder and Chief Technologist at FusionLayer Inc. An inventor with several patents in the US and Europe, he is an advocate of technology concepts with tangible operational impact. Juha is an active proponent of emerging technology trends such as cloud computing, hybrid IT and network functions virtualization, and a regular speaker at various industry events.