Today digital transformation surrounds us. It has radically changed the way we live and go about our daily tasks—from the way we catch a ride, watch movies, set our thermostat, connect with friends, and even manage our fish tank! Digital business models are making our lives better and our economies more efficient, and are keeping us healthier and more fit. And incidentally, they also generate tons of shareholder value.
That’s why businesses are rapidly setting up digital transformation offices, appointing chief digital officers, and generally moving toward everything digital. The term digital disruption is even starting to show up in annual reports.
But there are differences in their approaches. On one hand, there is true digital transformation: a new business strategy that focuses on creating and delivering unprecedented value to customers at very large scale.
On the other hand, there is the “digital veneer,” which wraps old business practices in the cloak of digital technologies: adopting social media, creating a host of mobile apps, or refreshing the company websites. Like any veneer, it looks good, can be done quickly, and is not expensive. But does it really work?
Let me share with you my personal experience with the digital veneer.
I recently tweeted a product complaint and promptly got a response asking me to send a private message (PM) with more details. A few days after I sent the PM, I received an email notifying me that my case was with the customer service department. About a week later, I got another email from customer service asking for some pictures. By then two weeks had passed. After another week, I received a voicemail asking me to call a customer care agent. After playing phone tag for a week, I finally got a chance to speak to the agent, who basically told me that there was nothing they could do.
This was very far from an Uber-like experience, and it begs the question: Why do smart companies opt for a digital veneer?
There are two fundamental reasons. First is the need and urgency to act quickly. In a recent survey of more than 900 business leaders conducted by Global Center for Digital Business Transformation, respondents believed that roughly 4 of today’s top 10 incumbents in each industry will be displaced by digital disruption in the next five years. Translation: “We need to do something and we need to do it fast.”
Source: Digital Vortex, Global Center for Digital Business Transformation, June 2015
The second reason is that true digital transformation is hard to achieve, especially for the incumbents, because it challenges the status quo, questions traditional assumptions, and affects almost every function in the organization. Companies need to rethink their business models, their investment focus, monetization model, routes to market, and many other fundamental aspects of their business — most importantly, their corporate culture.
To harness the benefits of the digital opportunity, incumbents must have the willingness and courage to go beyond the digital veneer. They must adopt new KPIs, develop new capabilities to empower customers, redesign many of their core processes to become more transparent and collaborative, and ultimately, find new ways to drastically create more value for their customers. This remains a high-stakes game, with very high rewards for the organizations that are determined to become a digital business.
For more on digital business strategies, see How Is Your Digital Transformation Going?