Yet, in this guide on Digital Transformation, we are going to tell you to stop updating your hardware and instead focus on updating your wetware.
Your people, their minds, their decision-making power, data literacy and digital literacy are what will empower your Digital Transformation.
Rather than investing in cloud computing, AI and other change programmes, invest in upgrading your people and their decision-making abilities.
Our definition differs from others, in that we see digital transformation as a people led process.
You’ve read over 100 articles on Digital Transformation over the past 10 years. Reports, business books, consulting pitches. In fact, Digital Transformation has been with us for nearly 30 years already.
You know that digital transformation is key to a competitive advantage in the modern business world. And even more so given the impact of COVID-19. But how has it changed over time?
And what actually is digital transformation? How has a term that has become so widely used, and of such importance, become so hard to define? And how do you go about successfully implementing a digital transformation for your organisation?
Here we outline what digital transformation is, and provide our vision for how you can succeed in your digital transformation by suggesting something radically different to what everyone else is telling you.
Investing in learning and building capabilities is the highest, predictable long term ROI investment you can make and foundational for your digital transformation. Almost all companies are not investing enough in upgrading the digital decision-making power of their leaders and teams
People are the key to your digital transformation success, not technology, as others may tell you. Here we tell you why and what to do about it.
Because the term ‘digital transformation’ means different things to different businesses, it resists a universal definition. With some organisations further along the road than others, and start-ups benefiting from the fact that they start afresh and have no need to transform legacy systems. There is no one size fits all solution. Automating a factory looks very different from automating sales flows for an e-commerce company.
In short, however, digital transformation is an evolution of your business into the digital age. Incorporating digital technology into all areas of your business to leverage value for your customers. Rethinking old structures and processes, and changing how you work. Your mindset. To become more agile, innovative, data-led, and importantly, open to learning.
We all know that even a small scale change is hard. Yet, digital transformations tend to be large in scope (in 8 out of 10 cases), covering whole organisations. And large scale change is the hardest of all.
According to McKinsey, only 16 per cent of organisations’ digital transformations were a success and equipped them to sustain change in the long term. With an additional 7 per cent saying that performance improved but those improvements were not sustained in the long term.
And it follows that success rates vary by company size. Organisations with fewer than 100 employees are 2.7 times more likely to report a successful digital transformation than organisations with over 50,000 employees.
It is estimated that of the $1.3 trillion that was spent on digital transformation in 2019, $900 billion went to waste.
The reason being that whilst digital tools and technology provide possibilities for gains in efficiency and productivity if most people do not have the mindset or skills to enable change, or processes are flawed, the programme is destined to fail.
The tools and technologies that are generally utilised in digital transformations are shown below (McKinsey 2019).
And while research shows that successful transformation efforts involve more numerous and complex digital tools like machine learning and big data architecture, the fact remains, that without a well-built foundation in human skills and capabilities, this would not be possible.
In one line:
Digital transformation is a human-led, tech-enabled, customer-centric process of continuous learning.
In a paragraph:
Digital transformation is the meeting point between human skills and capabilities, and the opportunity provided by digital technology and tools to increase value for customers. Where Bits and Biology meet. It is a continuous process of learning and unlearning, experimentation, adopting new processes, ways of working and mindset to thrive under continual change. It is human-led, tech-enabled, and customer-centric. A process of continuous evolution.
Whereas, others focus on technology and tools. We realise that technology and tools are nothing without people and their skills behind them.
We live in a knowledge economy, where knowledge is our greatest resource. Yet, technology is progressing faster than human capabilities and knowledge are. The tools and technology at our disposal are becoming exponentially more powerful. The result: a digital skills gap.
Digital Skills Gap:
“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.”
— Alvin Toffler
Despite the gap between skills and technology, a report by Bersin found that among more than 700 organizations studied, the average employee had only 24 minutes a week for deliberate learning.
Digital transformation efforts are destined to fail without investment in people and learning. Technology and tools empower digital transformation, but they are not at the foundation. People are.
The digital skills gap may seem daunting. Yet, you don’t need to fill it. You just need to be ahead of your competitors to reap the benefits.
Once you realise the people and deliberate learning are the foundation of digital transformation and unlocking customer value, you are on the path to success.
If we look at the traditional approach to Digital Transformation, it looks something like this:
Tools and digital technology provide possibilities for efficiency gains and customer-centricity. But they rest on a foundation built out of people's capabilities, mindset and a clear strategy to integrate both.
If we return to the average employee only spending 24 minutes a week for deliberate learning, we can begin to see where things go wrong. Only 1% of the average working week is spent on the highest ROI activity for your digital transformation.
The ROI of learning:
So why is learning the highest ROI activity? And why are you not spending more time and investment in learning and digital skills?
The facts show us that learning is serially overlooked:
The reason this happens often comes down to this. Below is a productivity pyramid, or as we like to call it, Return on Energy pyramid:
The pyramid breaks down a day, a week, month or year into 4 types of activities.
Based on the ROE of these activities.
Or the Return on Energy of these activities.
You have limited time, limited energy, how are you using that time, that energy?
The top of the pyramid is what we call Negative ROE. Activities that have negative ROE are detrimental. This includes activities like scrolling on social media.
The second part is things that have positive ROE, but the ROE is low. A low hourly value. Things like long meetings or slack notifications.
Then there are high ROI activities, they have a high value per hour. And finally, there are the High LTV activities. Where you see the most gains, but often on a much longer time scale.
For example, actively fostering key relationships, breakthrough ideas - spending time to sit and think with no distraction. Activities that yield 0.01% of ideas that give 50% of returns. Moments of deep work, of learning.
So why do we underspend on learning?
The reason comes from the same cognitive bias that prevents us from taking action on most long term issues, like climate change, for example.
And that bias is called - temporal bias.
It is where we prioritise short term gain over long term gains. We tend to spend more energy on things that provide a quick return, over longer-term returns. Like answering emails, or the endless rounds of meetings. You get a quick feedback loop, but, as we are all aware, these are not the most productive activities on your week.
Those who can overcome this temporal bias, and prioritise the long term, win.
Why does learning have such a high ROI?
MIT and Deloitte’s recent study of digital transformation with 4300 executives researched the most successful, fast-growing, digitally transformed companies.
They found the most digitally transformed companies are differentiated by one thing: they've transformed the way individuals and organisations learn new capabilities.
And this means learning all the time, not just once a year.
Among these highest-performing companies:
In other words, today’s successful companies are those who learn fast, learn well, and learn all the time.
Another study by Pluralsight showed a return on investment of 295% on continuous learning. With payback seen in less than 6 months. The return was primarily delivered in faster, better product development due to faster talent development through upskilling and closing the digital skills gap.
It comes down to the fundamental fact that people and their day-to-day decisions are the foundation of any organisation.
And if every person can make decisions that are one or two per cent better every day, then the returns begin to compound and grow exponentially over time. Just like compound interest in the world of finance.