Tuesday, December 20, 2011

Digital Transformation of Enterprises - Summary of a lecture at MIT Sloan School of Management

I attended the Innovations in Management Conference at MIT last week. I had started attending classes and workshops there in 2009 - there is always something to learn in the Boston area (the other tech center of the United States). Silicon Valley has its characteristic sense of urgency and bias for action, whereas Bostonians believe in first figuring out where to run before they start running. 

Here I summarize one of the lectures during the two-day workshop. If I get time, I will try to follow up with a few more. 

The speaker Dr. George Westerman is a research scientist at the MIT Sloan’s Center for Digital Business. His talk focused on the ongoing movement of digital transformation – the confluence of advances in Social Networks, Mobile Applications and Commerce and Cloud Computing -   that is spreading worldwide in both fledgling and established companies.

Westerman defined “digital transformation” as “the use of advanced technologies, such as telecom and mobile technologies, internet, cloud computing and social networking, to radically improve the performance or reach of enterprises.” He likened   the transformation to the metamorphosis of a caterpillar turning into a butterfly, implying that the digital transformation can radically change the business and – make it fly!
In Westerman’s analysis of digital transformation, he interviewed IT and business executives from several billion-dollar companies situated around the world and operating in a wide range of industries.

His findings showed that a business can gain in three ways by use of digital and mobile technologies:
  1. Enhanced Customer understanding involves analytics-based segmentation and “socially informed” knowledge about the customer.
  2. Digitally enhanced selling via social and mobile commerce, use of predictive marketing techniques, and streamlined customer processes.
  3. Coherence in customer service across multiple touch points and channels including in-person/ in store, telephone, web, mobile devices, and across various social networks including Facebook and Twitter.
All of these factors can be positively influenced: Business products, services and processes can be modified through product and service augmentation targeting internet and mobile channels, transitioning physical resources to digital resources, and adding digital and mobile wrappers. New pure digital businesses can be established through electronic goods and digital products (such as eBooks which within a few years have taken over physical books in sales) and by reshaping organizational boundaries. Digital globalization can be achieved through enterprise integration, redistribution of decision authority, and shared digital services.

Respondents to Westerman’s survey also reported that the pace of their business is, on average, 5.6 times faster than it was 5 years ago, and that their biggest challenges for movement are missing capabilities, ineffective coordination, and lack of vision. Surprisingly, only 40% of the companies involved in the study envision digital transformation to make a radical change in their business. This indicates that more than half of the world’s top corporations are missing out on one of the greatest movements of the modern age.

Westerman introduced the concept of digital maturity – how far along companies are in digital transformation based on the level of their digital intensity (DI) and transformation management intensity (TMI). The companies involved in the study were divided into four categories: beginners (low DI, low TMI), fashionistas (high DI, low TMI), conservatives (low DI, high TMI), and digirati (high DI, high TMI).
While it was exciting to note that nearly a third of the organizations surveyed were part of the digirati, it was also somewhat dismaying to see that a similar third of the companies in the study fell under the beginner category.

So what do you do if you want your company to attain digital maturity, be part of the digirati elite, and begin to fly?

Senior executives need to envision (What assets are valuable? How can the company upgrade customer experience and business models), invest (What are the key investment areas? What skills are missing?), and lead (How do you engage the organization? How will you iterate the vision?)

One thing that we all need to realize at this point is that Digital transformation of the society in terms of in terms of adoption of mobile technologies and social networks for connecting with others, making buying decisions and actually conducting commerce is here to stay  – it is a movement that will continue to push forward, bringing with it those who ride in the wagon and pushing aside those who are not. It would therefore be best for both small and big companies to understand digital transformation, use it to its fullest, and attain the advantage that will ultimately lead their organizations to greater heights.

Read my summary on the lecture of Social Influence on Human Decision Making

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