What is the goal of digital transformation? For many enterprises, the purpose is to modernize operations through investment in new, connected digital technologies. For others, it's the use of digital to transform their interactions with customers. But while these may be worthy objectives in themselves, they are not sufficient to deliver real transformation. They may even prove counter-productive in the long run.
It is not enough merely to swap out technologies or adopt new models of engagement. The technology is merely a catalyst for more radical reform of the entire organization, encompassing its structure, business processes and modes of working. This may not be achieved all at once, but the ultimate goal must be clear from the outset if the project is to be successful.
Today's connected digital technologies — pervasive smart devices, widespread, industrial-scale cloud computing and near-ubiquitous Internet connectivity — are powerful enough in combination to unleash what the noted economist Carlota Perez calls a techno-economic paradigm shift. In other words, connected digital technologies demand a complete reinvention of what we think of as the enterprise.
This is a difficult task for an established business, as venture investor Jerry Neumann explains in a recent blog post channeling Perez' theories:
The techno-economic paradigm shows a way of using the new technology to make businesses more efficient and profitable, and so more competitive than existing businesses. But existing businesses have a techno-economic paradigm of their own, the one associated with the previous technological revolution, and they have a lot invested in the old way of doing business.
The enterprise as we know it today was defined at a time when the transaction costs of doing business were far higher than they are in today's digitally connected world. As I noted in a previous article, the classic structure of the firm therefore internalizes as many of those transactions as it can. I went on to explain how the massively reduced cost of digital transactions now demands a new organizational model:
Today’s connected digital infrastructure has completely transformed the economics of those transaction costs, fundamentally changing the equilibrium of the enterprise. Much of the friction caused by time, distance and lack of information has been swept away, forcing a complete recalculation of the cost-benefit analysis that led to the creation of the twentieth-century enterprise.
That is why effective digital transformation must go beyond merely digitalizing processes as they stand. Many existing processes are now delivered faster, better and cheaper from external providers, while others can only be done better in-house if they are completely refashioned to take advantage of today's technologies.
The goal must be to eliminate all of that institutionalized friction — not only from its internal operations, but also from the organization's external interactions with customers, suppliers and other stakeholders. The enterprise must transform itself to become frictionless.
There's no way to adopt such disruptive new technologies without disruption to the established order. Frictionless reinvention means sweeping away totemic processes, dismantling functional fiefdoms and challenging corporate culture. It may even mean redefining the business goals of the organization to adapt to new competitors and opportunities. Connected digital technologies open up new paths that deliver outcomes far more effectively and with immensely lower friction than was previously conceivable.
The traditional enterprise is poorly equipped for this new order. It is structured around sequential processes designed to pass static documents internally from one functional department to another, carrying with them the information they need. Frictionless enterprise is structured around dynamic processes that connect digitally networked content, resources and participants, often criss-crossing organizational boundaries. This is another reason why 2-speed or bimodal IT approaches don't work — the old processes can't be isolated and kept separate.
In frictionless enterprise, mobile connectivity from smart devices makes it possible to dynamically update and access transactions from anywhere, even verifying signatures and identities without a scrap of paper in sight. Cloud computing can process and deliver the necessary information instantly and keep it continuously updated, while near-ubiquitous connectivity makes functional resources available on demand wherever and whenever they are needed. Digital platforms enable connections among networks of providers and subscribers, replacing traditional organizations with frictionless ecosystems.
It's one thing to implement all of this starting from scratch — to be Uber or Google or Amazon or Airbnb or some other emerging model of frictionless enterprise. It's much harder and long-winded if you have legacy processes to dismantle first. But newcomers are not immune to the conventional wisdom of legacy thinking and must also struggle against legal codes and customer habits that persist from the old paradigms. Meanwhile, judicious use of devops and cloud applications can significantly accelerate the progress of established businesses.
Digital transformation projects most often fail not because of some problem with the technology but because the organization is not ready for the scale of change that is required to achieve success. Be ready to challenge functional tribalism and raise the collaborative readiness of the organization. Follow the seven steps on the path to a frictionless future that I set out last summer.
Most important of all, remember that the purpose of frictionless enterprise is to enable your organization and everyone who contributes to it to become a more effective network participant in all of their interactions.