Understanding Digital Transformation and Digital Disruption

The first thing to recognize about digital transformation is that it is neither a new thing or a single thing. One could argue that it has been going on for 60 years or more since the advent of the very first computers. Since that time, business and industry have been evolving, using computer and communication technologies to make every facet faster, more profitable, and more practical.

There is no single moment of change, like turning on a light switch. Instead, digital transformation is marked by progressively steeper points on a line representing virtually any indicator: speed, accessibility, usage, revenue, data throughput, or capacity for productivity.

The relative speed of change as a function of key technological innovations.

Each development builds on its predecessor. The internet could not have existed if computers had not been able to connect to the ARPANET, the earliest incarnation of the internet, which itself was a project of the U.S. military. Companies like Google and Amazon redefined information processing at a moment when consumers discovered the joy of mobile technologies. Reliable high-speed wireless internet connectivity cemented the mobile, instantaneous nature of life, paving the way for a new generation of minds to reinvent the system once again using the decentralized communication of blockchain.

Such achievements can be plotted as a logarithmic scale, and there are many other smaller points that could be added along the line.

Is Transformation Disruption?

The term disruption connotes chaotic and unwelcome change, which is not an accurate description of the types of adjustments that companies have embraced along the history of digital transformation. It is used as a dramatic buzzword, an implication of chaos and instability.

What people take to be disruption is actually innovation; new techniques and technologies that make life easier for people in all areas. Take, for example, the native mobile app.

Imagine walking into your favorite shop, whether it be for clothing, hardware, sporting goods, or anything else. As you approach, the shop’s app on your smartphone alerts a sales associate who briefly reviews your past purchases, memorizes your name and face and greets you personally as you enter. Knowing more about your preferences, the sales associate delivers a heightened level of service making the entire shopping experience even more pleasant, while winning some business away from the shop’s online competitors.

This native mobile app is innovative. It is also disruptive, changing the nature of the relationship between shopper and sales associate and redefining issues around privacy. It must be mentioned that these native mobile apps will only function in this way with the shopper’s permission. Yet for some, this disruption causes worry and concern, while others embrace it wholeheartedly.

It must also be mentioned that the same types of personalized service translate directly into other areas of business such as industry and consulting. It’s all about using data and technology to further a commercial relationship.

Interestingly, though, if one were to question where the term disruption is most appropriate, it is with those who decide upon management strategy for their organizations, and for whom these changes pose a significant threat. It is not the technologies themselves, but the friction between current management philosophy and a market pressure to advance.

Disruption Example: The Ransomware Crisis

Key Fact #1: The C-Suite remains isolated.

Since the earliest days of using computers (IBM mainframes in the 1960s), the IT department has operated as a separate entity, with roles and priorities that few other people understand. This is a practice continues to this day. IT is vital to the operations of an enterprise, yet it tends to work at arm’s length from senior executives and decision-makers. In recent years, specific areas of IT’s domain, including cybersecurity and blockchain have made it essential that its presence at the C-Suite table be enhanced. Although most corporations already have a Chief Information Officer (CIO) and/or a Chief Technology Officer (CTO), the interaction with, and attention from the rest of the executive goes lacking, often due to insufficient comprehension of IT related issues and the seriousness of their impact on the company’s life.

Take ransomware, for example. Ransomware is a process by which access to a company’s vital online files is captured by an external agent who then demands payment to unlock them. Entire companies have been ground to a halt as their data becomes inaccessible. Most often, the bad actors gain access and implant their ransomware software through simple actions performed by the staff themselves, such as inadvertently clicking a link on a phishing email and releasing a virus into the system.

Just one of many charts available from a range of sources highlighting the growth of ransomware. Whichever source you choose, the data always plots in the same trajectory: upwards.

Traditional (pre-disruption) thinking would identify this as an IT problem since it involves data, computers and the internet. But the reason for the initial infection was due to employees being overly busy and distracted, which leads to mistakes. This means the true cause of the ransomware event is in fact HR and skills-related. Employees do not have the knowledge or time to practice proper security hygiene.

Secondly, there is the issue of data backup. Ransomware is far less effective if a company has a thorough, real-time backup policy. This, however, can be expensive, and is either dismissed as unnecessary by the executive or is insufficiently understood.

Finally, there is the policy of how to react to a ransomware event. Many organizations buckle and simply pay the ransom. A recent study by IBM revealed that 70 percent of impacted businesses will pay up quickly. This emboldens cybercriminals and points to a lack of policy in understanding the overall impact of a ransomware attack in terms of brand management and security. The lack of advance anti-ransomware preparation paired with an inadequate or missing crisis management plan leaves a company to deal with panic reflexively and not strategically.

Key Fact #2: Inadequate policy for transformation.

The political decision to bring IT across the line and embed its representatives at the highest level of corporate strategy has yet to be made in most boardrooms.

The Root of Disruption: Inertia

There are many very smart managers and executives in business, but all, regardless of country, gender, or age, share a similar human weakness: people tend to judge changed based on preconceived notions, dating back decades. Many adults, for example, feel less technologically capable than their children or grandchildren, yet they still find themselves in decision-making situations. A manager or executive whose career started in an age where invoices and contracts were printed and sent by postal mail will inevitably have trouble understanding the concepts behind a viral meme, a pop-up competitor, or an employee who wishes to work from home and send a virtual presence robot to attend a meeting.

Executives are busy people with many other priorities to take care of. It seems only natural to leave IT issues to the IT department. But inertia or even slow change threatens to push a company even further towards the back of the competitive horserace.

Example: The Meeting

Meetings have been a staple of business for centuries. That’s because up until the age of digital transformation, meetings have been the only way for a person to share information with a group of other people, that is to say, everyone must be physically present in the same room at the same time. The introduction of conference calls and video technologies made it easier for some to participate remotely, but the notion of the need for a real-time meeting persists.

More aggressive, disruptive companies will have recognized by now that in many cases, a meeting does not have to happen at all. Online document editing applications, paired with collaborative chat environments allow work and information to be shared dynamically from anywhere, without the need for as many formalized meetings.

Those companies that embrace a more dynamic, distributed approach to communication will attract the better employees and the better customers.

Example: The Accounts Payable Process

Many companies use an accounting department to pay their bills. Accounting is an arm of the business that is much more closely tied to a company’s monetary assets than IT would be. Hence it is given greater leeway in pursuing habits that have been in practice for centuries.

Key Fact #3: People are reluctant to update procedures.

One of these is the “net 60” form of payment. This practice, along with similar time periods, like “net 90,” allows companies to protect their cash flow by delaying payment to suppliers for a period of weeks. This makes sense from a risk perspective, but not so much from that of digital disruption.

Using smart contracts, secure transaction methods, and online bookkeeping practices, it is physically possible for a supplier to complete work and receive payment immediately, should a company wish to pay that quickly. However, most will not.

The net effect, however, of maintaining traditional delay tactics in a modern digital economy, is that the better suppliers will drift toward those customers who have evolved into more prompt and efficient payment relationships. This will leave more traditional companies to pick from lesser quality suppliers who are willing to accept a more archaic and inconvenient payment structure.

The speed of digital transformation brings along a necessity for agility within strategy, with immediate deployment of newer best practices, to ensure customers and suppliers alike continue to support the company’s wellbeing.

What Should You Do?

Every manager or executive should question – every day – whether the company is doing enough to keep pace. This requires regular SWOT analysis (strengths, weaknesses, opportunities, and threats) paired with a desire to keep or at least stay aware of new innovations and best practices.

It means bringing a wider range of experts to the C-suite table, recognizing that their particular areas of activity – IT, HR, accounting, etc., – are changing quickly and have an immediate impact on the company’s bottom line. As technology advances, silos and walls continue to fall.

It means recognizing the need to speed up and to keep speeding up. A five or ten-year plan is not the same thing as it was two decades ago. It cannot be in an era where everything, social, commercial, and political, is changing so fast.

Digital transformation is an ongoing process, but one that can be embraced by management for the opportunities it presents. But transformation means change, and human beings have great problems facing change, which means that disruption, as a negative impact, may continue to happen to those who are not prepared to understand it.