Having worked on the digitalization topic for the last decade or more, with dozens of companies and in a variety of capacities, ranging from researcher to consultant, I keep being amazed at the multi-dimensional, highly interconnected nature of the challenge as well as the lack of understanding and the confusion around the topic. Of course, the purpose of this series is to provide more structure and understanding, but a blog can only bring people so far. Reflecting on the last months as I worked my way through the topic, there are a few concluding thoughts I want to share before moving on to the next series (on product development).
The first reflection is that the notion of continuous value delivery to customers is still highly controversial in many companies. My view is that the essence of digitalization is a fundamental shift from transactional to continuous value delivery. How this materializes is a topic for discussion in companies. Some discuss it only for services surrounding their product. Others consider it for the software in their products but not the hardware. The most enlightened ones are open to offering the entire product, including the ‘atoms,’ in a continuous value delivery model.
A second reflection is that many companies still confuse continuous value delivery where the offering is improving over time with the delivery of a service and an associated service fee. There’s nothing wrong with a service business model, but some companies try to sell their product through a transaction and then offer a service on top of it without providing additional value over time. Most customers refuse to pay recurring fees unless they feel that there actually is some value they’re paying for. Why pay monthly for something that’s just static and doesn’t improve?
Third, it never fails to surprise me how poor an understanding most companies have of what it is that customers consider to be valuable and what they consider commodity, especially when trying to quantify this. The notion of continuous value delivery drives a conversation on what it is that actually and quantitatively provides value to customers. Here, many fall into the trap of the worthwhile many (rather than the vital few), meaning that there’s a long, long list of important factors to placate everyone but without a clear prioritization. Getting to the ‘vital few,’ meaning choosing a small number of the most important factors to focus on and ignoring everything else, requires leadership and is missing in most companies I work with. If you don’t know what you’re aiming for, how do you know you’re succeeding?
Fourth, successfully performing a digital transformation requires one to recognize its complex nature: everything is connected to everything else. The way we architect our products is an embodiment of the business strategy and a new, continuous way of delivering value to customers fails unless sales decides to actually sell it. Companies are complex, intricate and highly interconnected organisms and, consequently, finding the slices where we can drive progress in relative isolation from the rest of the company is surprisingly difficult. My experience is that a cross-functional team addressing a small, end-to-end slice is often the best way to create the first proof points. Once we’ve reached that point, scaling the approach still requires changing everything and everyone, but the proof points build confidence that we’re moving in the right direction.
Finally, the power of culture, including commonly held beliefs and underlying assumptions, never ceases to amaze me. I almost constantly have to use the “five why’s” mechanism when working with companies to identify the underlying reasons for the behavior I’m seeing. Almost always, what’s initially viewed by me and internal change leaders as the problem proves to be a symptom of a deeper cultural pattern or shadow belief. And frequently, we have to peel back multiple layers of the union to get to the true root cause. This is surprisingly difficult as virtually everyone in the company is blind to their own culture.
Digital transformation is hard. Not only because it’s so multi-dimensional and highly interconnected, but also because things aren’t black and white. It’s perfectly feasible to build and sell offerings using the old ways. The problem is that it’s an inferior way of doing things that, industry after industry, is rapidly being replaced by a better way embodied in the digitalization. People fear letting go of the known and comfortable as you know what you lose but don’t know what you’ll gain until you’ve reached the other end of the transformation. However, how long can we persist in an inferior way of operating in the market? To quote Hemingway when asked how a successful writer like himself went bankrupt: first slowly, then rapidly!