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May 10, 2023
4 Min Read
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We should save the word transformation for when we fundamentally change how things work. Otherwise, everything is transformational -- even the new coffee machine in the kitchen. Here’s the basis of my reasoning: Words have meaning. Or they should have. Suppose I said, “Let’s transform our workforce?” Would you think I meant that everyone gets a raise? Or am I talking about retrenchments and restructuring? The latter would be the guess of most employees. If I said, “Let’s upgrade our workforce,” it would have a different meaning for employees. And if I said, “We want to upgrade our customer support system,” it would be different to transforming the system.
Digital transformation has been hijacked, polluted, and bent beyond recognition. Since when was an upgrade or the move to the cloud digital transformation? To transform something is to trans (change) form (shape). But it’s more than that. You could shave off a beard (or remove a step in a business process), but have you transformed? If the difference between change and transformation is a matter of degree, then transformation should always imply “fundamental.” Because unless you’re changing the foundation or the nature of something, you’re merely upgrading, adapting, or remodeling.
Transformation can be a scary word, even for “positive” transformation. Suppose I say, “Let’s transform our product offering?” This is a hair-raising idea for marketers, operations, supply chains, and customer support. Because the word “transformation” is, and should be, about fundamental (and daunting) change, we should not use it lightly. Neither should we use it to justify a business case or garner support for a vanity project. If you’re going to transform, then fundamentally change, not polish the chrome work.
How are enterprises doing in digital transformation? An Omdia study over the last five years shows that 60% of reported digital transformation projects focus on internal process improvement. Only 13.5% focus on customers and products. (The remainder aren’t even vaguely transformational -- moving to the next ERP release is just moving to the next ERP release.) The word “digital” suggests that the transformation has something to do with computing -- no prizes there. But, when almost everything in the organization depends on digital processes, shouldn’t we ditch the digital word? The answer is no. Otherwise, we are discussing business transformation and getting into the same circular arguments and muddy waters that initiated this article. Transformation is fundamental, and digital transformation is the fundamental change of processes, products, business models, and strategic objectives through digital means. One of the reasons digital transformations fail (and 70% of them do) is a lack of clarity and understanding of the transformation’s impact.
Some digital transformations merely fizzle out. Scope creep is where the objectives keep expanding, but goal creep is where we set lower and lower objectives to reach them. But, of course, that’s not the objective of transformation. We may say to ourselves that the impact of that radical change is too dangerous, so perhaps we’ll just do part of the project. Imagine setting a target of 100% improvement in a product’s revenue, but you’d have to change the manufacturing, branding, and distribution processes. So, you set a 20% target, with much less change to the organization (and executives’ power bases). Understanding the impact before starting a digital transformation project is critical. Or you’ll get goal creep, ending the project and saying: “We’ve spent all this time and money, but what have we achieved?”
In analyzing IT budgets for the last 20 years, I have never encountered a budget of less than 80% for keeping the lights on in operations. The average “below the line” IT budget is typically 92%. This leaves 8% for value-added or even differentiating IT. There’s a difference -- value-add is about improving the existing business model while differentiating IT is about doing something no one else is doing -- that amounts to 0.5% and 1% of the IT budget if you’re lucky. That’s not a lot of real digital transformation.
Shouldn’t we reserve a special place (and budget) for digital transformation? Firstly, if we analyze our spending and projects properly, we’ll find how little transformation we’re doing. That may focus the minds of decision-makers. Secondly, there is so little budget for genuinely fundamental change that we should not promote every IT project as transformative. Thirdly, over 90% of organizations have no rear-view mirrors -- they don’t look back and see the effects of previous initiatives. If they did, they’d find they’ve spent a lot of money on transformation and not transformed at all. And finally, we should challenge the “prophets of transformation” for being disingenuous.
Genuine digital transformation should have a reserved seat at the high table. Imposters should be exposed and shooed back to the cheap seats. Only then can we have the crucial conversations about the future of our company.
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