The tadpole needs to transform into a fully-grown frog to gain new capabilities and fulfill its potential. In a similar way companies need to transform on an ongoing basis to gain new capabilities. The strongest driver now for transformation is digital technology, which comes in many forms like AI, Internet of Things, blockchain etc. The heart of digital transformation is data, but the complexity of going through the transformation is, that it also relies heavily on transformation of processes and mindsets.
When data is digitized, i.e. made available in digital format instead of analog format, it becomes possible to digitalize the processes using this data. A complete digitalization of all processes changes the way a company can operate, its business model is transformed, and this represents the digital transformation. On a company level this is a major exercise as it impacts many systems and processes. It is therefore often preferred to move ahead with digitalization initiatives as they may be implemented more selectively and faster.
A key reason for digital transformation is, that it allows you to tap into exponential growth. What does that mean in practice? Most companies are used to linear growth. They aim to make incremental improvements to their business by growing revenue and cutting costs with a certain percentage every year. Exponential growth means that the growth accelerates.
How may digitial transformation help you achieve this? Here are three powerful factors:
Exponential technology is technology, which learns and adapts with use and over time. For instance the technology may get faster or may be able to handle more complexity. Or both. Which means the technology in 1 year's time may be 10 times more performant.
As new technology is implemented it will add new capabilities and also change work processes. The requires new skills from the organization, but also enables the organization to focus more on value creation. This grows the organizational perfomance.
As more and more technology connects and exchanges data and intelligence, new business processes and business models become possible. This network effect of the technology will super boost the growth.
Point 3 is not possible until a certain level of technology has been achieved. This happens by repeating steps 1 and 2 many times across the value chain to expand the digital capabilities and the skillsets of the organization. It also means, that there is not one single AI solution. Many technologies will be applied and not all will be AI based, but together they will support the path to full digital transformation. For instance Robotic Process Automation will be the right solution for certain tasks, which in turn may feed into other AI-based technologies. It is not a matter of either this technology or the other, but rather of combining many different technologies and processes to achieve a new level of capabilities.
The growth models from the digital transformation drive growing profitability from the combination of growth and lower costs of transactions and overheads. The growth will happen on a continuous basis and will not appear as step-wise as the diagram to the right shows.
The actual transformation process is often a loop of experiments, adjustments and new implementations, where the organization learns at the same time and management can adjust plans according to learnings.