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Digital Transformation: Substance vs. Hype

In the late 1990s I worked for an ERP services company that made an all-out strategic shift toward hosting business applications. The founder believed that someday (presumably in the not-too-distant future), software would be deployed in the cloud and delivered on a pay-as-you-go utility model.

Unfortunately, he arrived at that conclusion about a decade too early.

The technology hype-cycle can be tricky. It’s tempting to adopt a cynical view of these things, especially when the hype curve starts to look like the slope of Mount Everest. In most cases, though, there is at least some substance behind all the hype.  With each new tech trend, there’s almost always an upside somewhere along the way.

The question is: When and where is that upside to be found? What’s the pragmatic approach? How aggressively should companies invest, and how early should they take the leap into new technologies?

That question is on a lot of people’s minds right now, as the COVID-19 pandemic has shifted business agility from being a “nice to have“ to being an outright necessity. With that, the case for digital transformation has become stronger than ever.  What are the practical implications for today’s business leaders?

Throw a bunch of new technologies into a big pot and stir.  These are ideal growing conditions for innovation.  Now it is up to innovators around the world to do something with all that goodness.

In our view, digital transformation has fully arrived, and companies that fail to develop and execute on a digital strategy are at risk of losing competitive advantage.  Hype and reality are tracking fairly closely right now, and while optimism should always be tempered by common sense; those who hesitate for too long risk being left behind.

How Is Digital Transformation Different?

How does digital transformation differ from the technology hype-cycles of the past? In a nutshell, digital transformation isn’t about just one thing. It’s about a handful of emerging technologies reaching a critical stage of maturity, all at the same time. It isn’t about just one new possibility; it’s about a whole world of new possibilities opening up. 

For business leaders, this is an opportunity to establish a foundation upon which innovation can happen frequently, quickly, and relatively cheaply.

Let’s consider the difference between specific innovations versus innovation in general:

In the late 1990s, hosted applications were a new idea.  That concept has evolved over the past few decades. Connectivity became faster, more ubiquitous, and more reliable.  A new generation entered the workforce, having grown up with the Internet. Security practices have improved dramatically.  In 1999, the world simply wasn’t ready for software-as-a-service. Today, it is.

None of that changes the fact that SaaS is, broadly speaking, a single innovation.

Digital transformation, on the other hand, is what happens when a bunch of nascent technologies all become viable at the same time.

Ride-sharing services like Uber and Lyft would not have been possible without a variety of relatively new technologies: GPS and mapping software, mobile phones, secure payments, and push notifications, all held together with fast & secure cloud connectivity. Someone saw an opportunity to combine those technologies in a way that had never happened before. 

Now add drones, blockchain, IoT, AI & machine learning, high-performance analytics, location intelligence, plummeting storage costs, improved integration… and a few more that I probably missed.

Digital transformation has fully arrived, and companies that fail to develop and execute on a digital strategy are at risk of losing competitive advantage. 

It’s not that these technologies didn’t exist before; it’s that they have reached a threshold of maturity, affordability, and viability that has opened the door to widespread adoption.

Throw a bunch of new technologies into a big pot and stir.  These are ideal growing conditions for innovation.  Now it is up to innovators around the world to do something with all that goodness.

Widespread deployment of 5G networks will add a nitrous-shot to all of that.

Bringing it Down to Earth

None of this is to say that you have to be the next Uber, Lyft, or Airbnb.  More often, digital transformation technologies can be applied to distinct business processes, creating efficiencies and driving competitive advantage.

We see insurance companies using fine-grained geolocation data to change the way they evaluate risk. In the past, risk of property loss might may have been based simply on a street address. By combining detailed geo-coding with machine learning algorithms and big-data analytics, insurers can look at the specific location of a building on a plot of land, its distance from lakes or ponds, proximity to combustible materials, and other factors that affect risk. Better accuracy equals higher profits.

In supply chain execution, we see AI and machine learning being used in combination with IoT sensors, weather data, and a host of other inputs to make earlier and more accurate predictions that impact value in the supply chain. That translates to increased fill rates, improved margins, and higher customer satisfaction. In other words, higher profits.

Drones are being used to monitor the condition of crops and livestock, to map and survey land, and to apply fertilizers and pesticides more efficiently.  Efficiency translates to lower costs and reduced environmental impact.

Digital transformation doesn’t necessarily result in wholesale changes to entire industries. More often, it is driving meaningful improvements in efficiency, accuracy, and customer service across individual business processes. All of those changes add up to something bigger. Companies that make a strategic commitment to digital transformation stand to gain a long-term competitive advantage. Those that do are late to the game will find themselves struggling to catch up.