The digital transformation conversation shifts to how

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Attendees to CeBIT 2016 came from all over the world this week, and although cloud, mobile, and CRM — even drones — were all hot topics, the strategic conversation at the enormous Hanover Fairgrounds in Germany mostly centered around that top leadership subject in tech circles today: Digital transformation…

Attendees to CeBIT 2016 came from all over the world this week, and although cloud, mobile, and CRM -- even drones -- were all hot topics, the strategic conversation at the enormous Hanover Fairgrounds in Germany mostly centered around that top leadership subject in tech circles today: Digital transformation.

Of course, the notion of digital transformation itself isn't new any longer, though it has continued to steadily climb the charts of industry interest for the last two years. But as I viewed presentation after presentation at two confabs within the main CeBIT event -- Enterprise Digital Arena and Digital and Marketing Experience -- it was clear to me that we've largely moved on from defining the imperative to digitally transform, to figuring out how to actually best achieve it.

That's not to say that major investment is a foregone conclusion in many organizations. Far from it, as IT budgets stay nearly flat in a time of the greatest technology proliferation in human history. As a result, I've suggested that IT has likely one last chance left to lead in this space.

The reality is that digital companies today greatly outspend their traditional counterparts in IT (source: Gartner). This means there is a daunting digital investment gap to close in the average organization. Yet despite limited funding in companies where tech isn't the core competency, the data also shows that two-thirds of top corporate leaders overall -- mostly meaning CEOs -- plan to focus on digital transformation in 2016.

This is potentially good news, if the CFO can also be brought along in the planning to provide the significantly increased resources. Yet that same data suggests only a minority of CIOs, a mere 25%, are confident they have what it takes to actually turn digital transformation into new revenue streams.

However this is one of the central objectives of digital transformation: Making the outputs of the process -- compelling new digital products and services -- a P&L center in their own right, as my ZDNet colleague Michael Krigsman notes.

Certainly other goals abound as well, from moving to a truly holistic, multi-channel digital customer experience that better creates value, to developing an organization whose processes and structures are digitally re-imagined and realized in a contemporary manner. This means more efficient, connected, empowered, analytically-driven, and yes, automated ways of working, while the underlying technology defines the art of the possible.

Yet the central challenge to successful digital transformation, as I argued in my keynote talks at both of the aforementioned digital confabs at CeBIT, is that we live in exponential times. Technology is now changing at a geometric pace with vast new flows of people and sensor-generated data are accumulating even more rapidly. As for people, well, we're not changing at anywhere near these rates, so we somehow need to find sources of high leverage to sustainably adapt ourselves to ever faster changing market conditions.

These twin challenges -- combined with the tremendous amount of work that most organizations still need to accomplish in order to realize a genuine digital overhaul -- has led to an entire cottage industry of strategies and blueprints on how to get across the digital chasm. This was evident in the dozens of decks at CeBIT this week that showed numerous and often comprehensive models for how to potentially transform.

I'd argue, however, that we are early enough in the industry journey towards digital transformation -- and that organizations vary enough in their intrinsic strengths, cultural inclinations, and current state -- that there is no universal blueprint that will that take the average organization to success. Instead, I've been examining recurring patterns of success at a top level -- from leading digital transformation efforts at top firms like Burberry and Nordstrom -- to notable examples of new models of adopting and enabling IT more broadly and at scale.

From this, I believe that most organizations can learn enough from the pioneers and their successful experiments, to pull together a plan of action that will work for them. Last year, in a major piece of research on digital transformation, the MIT Sloan Management Review noted that technology progress itself doesn't generally drive change, though ironically it does help impose a response by organization when it's finally too urgent to ignore (and therefore too late to respond well.)

The early success factors of digital transformation

Instead, the most digitally mature organizations appear to emphasize change in a distinctly different way: One they don't focus much on individual technologies or over-emphasize existing operations. Instead, they fundamentally rethink the business by exploring the fresh potential that the digital world enables, from new business models and joining/creating new markets to reinventing the core business in contemporary technology terms. This might be, for example, employing co-creation and peer production to cost-effectively use the strengths of digital connectedness tackle scale and innovation.

This latter example points to perhaps the biggest challenge of all with digital transformation: Designing for loss of control. Yet it also appears to provide access to the richest reward. These are the lessons that we need to codify.

So, can we summarize what we've learned so far about successful digital transformation in 2016? Can we look to the strategies and blueprints emerging on the horizon and extract some insights? Because there do in fact, seem to be some broad outlines, and from this, we can see that two types of activities need to happen:

1) Some of the traditional success factors still work, like investing in workforce skill building and education for digital business, which the above mentioned MIT SMR report found four times more likely to be done in digitally mature organizations. Therefore, most enterprises will have to literally quadruple down on these types of high value supporting activities if they intend to succeed.

2) There are entirely new rules to the digital marketplace that organizations must quickly and effectively learn. Much of what works well in the non-digital world, does not in a digital one, which has often entirely different and sobering realities that must be understood and embraced. An example: The eventual cost/value of all technology tends towards zero, without a highly differentiating hedge, such as a unique data set or algorithm. Businesses that don't understand this relentlessly commodifying digital effect and how to avoid it, can lose early on.

A secret to transformation at scale: Digital change agents

It's also now abundantly clear that digital enablement won't be a largely centralized activity. I now believe, as others do, that ship has sailed. While the IT department, the digital line of business, the marketing department, and other major areas of technology investment will all have key roles to play, it won't always be -- an almost certainly shouldn't be -- one of direct realization.

Instead, it will be in the enablement of much broader digitization by empowering internal and external communities of change agents with the tools, resources, know-how, and most importantly, direct support that drives success. This ranges from unleashing hundreds of innovators on your data/APIs externally using developer networks and other vehicles, to working vicariously through eager digital leaders internally that want to realize change in their corner of the organization.

The vehicles for digital transformation at scale are now many and varied and include internal digital incubators, lean startup approaches in product development, open APIs, app stores, hackathons, centers of digital excellence, networks of digital enablement, and so on. Organizations will need to employ some or all of these methods to reach their digital future, especially the techniques that most capture and channel the strengths of the network, and avoid dependencies on central capacity and investment, as the latter is increasingly seen as the harder road to take.

As with so many digital trends, this implies that everyone is in the digital transformation department, with the usual caveat that this is not literal, but that everyone that can be should be. Empowered communities of technology enablement are the only way to cultivate a truly renewing and long-term digital change capability that can cope sufficiently with our current position on the growth curve of exponential change.

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