The buzzwords ‘digital transformation’ already sound like old hat. But the truth is that we have only just started the digital journey and most organisations can prepare themselves for years, or even decades, of relentless change and innovation to come. In fact, if digital technology was a child, it would only just have started to crawl.

By some estimates, only around 25% of transactions and processes have been completely digitalised so far. The bulk of the economy remains industrial and analogue – with some industries further into their digital transformation journey than others. COVID-19 has helped to fast-track some companies and industries into the digital age, but it also reminds us of how far we have left to go.

The implication is that CEOs of established companies need to look at digital transformation as a long-term strategy – most companies will still be running analogue systems alongside digital platforms in 30 years from now. The challenge is to build a bridge between the analogue and digital worlds in the years to come.

This is easier said than done because technology is advancing at such a speed that humans and organisations cannot keep pace. We have seen exponential improvements in computing power, memory and storage capacity over the past 50 years—along with the benefits of cloud computing capacity on-tap—yet labour productivity has not kept up.

Exponential change 

The raw power of today’s computers, paired with the network effects of the web, are enabling a range of exciting technological and scientific advances. A hyperconnected world, cheap computing devices, and the cloud are birthing a new generation of emerging technologies, including the Internet of Things, blockchain, artificial intelligence (AI), 5G and augmented/virtual reality.

These technologies, as they race to maturity, promise to upend many business models, just as companies are beginning to get to grips with first-wave digital technologies like mobile, cloud and analytics. Innovative companies and industries are combining these technologies to create solutions and business models that will change the face of many established business sectors.

The autonomous vehicle is an example – a development that will disrupt industries such as insurance, potentially reconfigure cities, and cause upheaval in the job market. The self-driving car is not a single technology, but the effect of how a set of technologies are combined with each other – including 5G, Internet of Things sensors, and advanced AI.

It’s telling that regulatory issues appear to be as much a reason as technology for the move towards self-driving cars taking longer than some commentators forecasted five years ago. Legal frameworks, human behaviour and organisational structures cannot assimilate change at the speed at which technology is moving.

This is a world full of promise and risk for incumbent companies. On the one hand, the exponential advances created by how emerging technologies interact and amplify each other is exciting stuff. On the other, there is a real danger that more agile start-ups without legacy systems and processes will be able to use these technologies to disruptive effect.

CEOs should approach digital transformation from two angles to ensure their companies’ relevance in this changing world. The first is to accept the industrial age foundation of the company will be there for many years to come. Most incumbents can reap significant rewards from optimising this historical business with digital technologies.

Optimise the old, invent the new 

For example, back-office automation tools can help to significantly shift the cost curve, creating funds to invest in innovation. And investment in digital self-service tools can enable the organisation to offer a better customer service at a lower cost. These efficiency gains are important, but they are not enough to ensure survival in the longer term.

The digital optimisation drive should thus also be paired with a longer-term digital transformation strategy. Some companies are going about this by creating red teams or entrepreneurial ventures inside the business – but one needs to be careful that the corporate antibodies don’t kill promising ideas before they grow into robust business models or products. There needs to be a clear mechanism for scaling successful new digital businesses and models and integrating them into the wider organisation.

However the C-suite approaches digital transformation, there are a few principles worth bearing in mind. One is that we are moving towards a world where companies operate as ecosystems, with digital platforms serving as the connective tissue.

It’s no longer about linear supply chains, but rather about how companies can work together to solve customers’ problems. Partnering is thus an important capability to master. Organisations need to think about how they will build trust in a world where customer, IP and data from several companies will often be combined to deliver an offering to the customer.

The next is that shifting towards as-a-service model for technology can give the organisation more agility, lower the costs of technology and de-risk experimentation. Cloud tools enable new competitors to come to market faster, but they can offer the same benefit of speed to market for traditional companies.

Finally, access to data is what makes the digital world go around. Those organisations that use data not just for better internal decision-making, but to become truly customer-centric will be the winners in the digital world. Here, the challenge is to move beyond simple personalisation towards true customer empathy.

[Photo by Ali Yahya on Unsplash]