The companies that I work with, both in my research and my consulting engagements, are all going through a digital transformation. These companies are looking to become digital companies rather than whatever they were before. In this journey, however, there is an interesting question that comes up on a regular basis: what does it mean to be a digital company?
The naive and obviously wrong answer is to assume that using digital solutions, such as email, websites, video conferencing, social media or even chatbots, would make you a digital company. Although all these solutions are based on software, most would agree that using these do not make you a digital company.
When reflecting on the question of what makes a company digital and, admittedly, looking around on the internet how others think about this, I identified eight characteristics of digital companies and I’ll discuss those below.
First, digital companies use data-driven decision making rather than opinion-based decision making. Many of us have spent countless hours in meetings discussing the perceived advantages and disadvantages of certain alternatives, but the discussions were entirely based on the opinions of the participants that, though based on experience, frequently were not at all relevant to the situation at hand. Digital companies aim to take decisions based on data.
The second characteristic is concerned with relentless experimentation. As there are many situations where the data required for decision making is not readily available, the solution is to experiment with the alternatives that are considered with the intent of collecting the data required for data-driven decision making. Experimentation can be achieved by A/B/n testing, but also through quasi-experiments or more qualitative means such as simply trying things out in customer meetings.
Third, digital companies continuously strive for fast feedback loops. The time between taking a decision and having the data to determine the effect of a decision should be as short as possible. This facilitates data-driven decision making as I discussed in an earlier article.
The combination of fast feedback loops and data-driven decision making leads digital companies to pushing decision making down in the organization. Whereas traditional, hierarchical organizations thrive on pushing decisions up in hierarchy, this is problematic for two reasons. First, it slows decision making down as those higher in the christmas tree get overwhelmed with request for their time. Second, the decision maker is very far from the actual problem at hand and is not aware of the reality on the ground and consequently the quality of decision making tends to be poor. Digital companies solve this by pushing decision to the team that actually works with the issue at hand.
Fifth, digital companies are very intentional about strategic data collection. The ambition to base decisions on data causes these companies to start to collect data concerning likely future decisions early so that the required data is available when necessary. That doesn’t mean that digital companies collect all possible data, but these companies rather collect too much than too little data.
Sixth, the data that digital companies have available tends to be stored in one location and this data is accessible and fully transparent for everyone in the company. The notion of a unified data warehouse is an important aspect ignored by many traditional companies where data is spread out through the company, has undefined and conflicting semantics associated with it and is only accessible to the folks in that part of the company.
As the seventh property, digital companies focus on pervasive automation. Any task that is even remotely repetitive is a candidate for automation. The human talent in the company is directed to those tasks where human skills such as creativity, problem solving and initiative are required and everything else is, wherever possible, automated.
Finally, digital companies tend to have job descriptions that are not even found in traditional companies. Although a traditional company may have data scientists and most certainly will have product managers and engineers, the actual jobs that people with the same job title have in digital companies is quite different.
Concluding, digital companies exhibit a set of characteristics that differentiate these companies from traditional companies. These characteristics touch the culture, norms, values and beliefs as well as the ways of working, i.e. the “soft” aspects, as much if not more as the “hard” aspects of the company, such as software, data and AI. So, when going through the digital transformation and aspiring to become a digital company, make sure to focus on these characteristics as the more visible, hard evidence is actually a consequence and effect of these “soft” aspects and not the other way around.