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Gold Rush or Fool’s Gold? 10 Digital Transformation Myths

Aug. 14, 2019
Keep these misconceptions in mind as you explore the IIoT’s wide-open spaces.

Data is the new gold. The current digital revolution is a gold rush. Thousands of firms are launching comprehensive and expensive digital transformations with the hope of finding a significant gold vein. As in any gold rush, there will be winners and losers. A tiny fraction of these organizations will show successful and significant success from their digital transformations. Others will learn from the process and still benefit internally from large-scale digital investments. Right now, though, we are still in the midst of the rush, and everything looks shiny indeed.

As in any gold rush, there are beautiful stories and anecdotes of companies striking gold. For every one of these stories, there are dozens of failures and false starts reinforced by a series of myths. I list a few a below that I have found working and interacting with industrial peers.

Myth #1: A digital transformation is an externally focused transformation. Digital transformations are focused on delivering digitally driven innovation to customers and markets. That is true at least on paper and in the strategy-building process. However, a digital transformation cannot be successful without the right digital tools internally. That implies that, for the sake of execution and value capture, an internal digital transformation must also happen. This is a duality that is hard to grasp at the executive level. It is much jazzier to invest in an IoT platform than to deploy an internal sales enablement platform.

Myth #2: A digital transformation is a technology transformation. This is the most prevalent myth in industrial markets. Most digital transformations are led by engineering and technology folks who have very little knowledge of marketing and business models. As a results, firms fall into the 90/10 trap: 90% of investments, attention, and resources are in IT and technology and 10% are going to marketing. This is deadly. A digital transformation is first and foremost of strategic and business model transformation. It needs to be led by strategy and marketing. In practical terms, it means that your Chief Digital Officer must be a marketing expert. Then, there needs to be a balance of investments: 50% in marketing and 50% in technology.

Myth #3: You can execute a digital transformation at the same speed you would deploy innovation in your legacy business. Speed is the new currency of business. In the digital space, that speed is supersonic. Nimble start-ups and digital natives go to market fast and take much more risks than industrial natives.  I often say that it takes 90 days for an industrial native to get a workshop organized. It takes a start-up 90 days to conduct a go-to-market sprint.

Myth #4: A digital transformation on top of a broken business model or strategy is going to save the business. There are probably good ways to turn around a business or a division in the event of a broken business model or disrupted strategy. A digital transformation is not one of them. It requires large investments and a significant portion of the organization’s bandwidth. Without cash and resources, it is a lost cause and it will distract the organization from fixing the structural issues in the core business.

Myth #5: You can digitally transform without marketing maturity and customer intimacy in the core business. Simply said, if you do not have the right marketing and customer maturity in the core business, you will not be successful in your digital transformation. Most industrial natives lack deep customer intimacy and lag behind in digital marketing investments. A lot of them still rely on channel partners to manage the customer relationship. Without customer data, it is hard to develop digital innovations. It is imperative to invest very quickly in the right marketing tools and to gather the customer intelligence that is languishing in people, laptops, static PowerPoint slide decks, and forgotten SharePoint sites. And by the way, if your core business suffers from a deep gap between sales and marketing, your digital transformation might be rocky.

Myth #6: I can package current digital pilot projects into a transformation. A digital transformation is a comprehensive set of transformational programs and investments carefully designed to support a strategic agenda. It is not the packaging of a few connected products and software into a digital umbrella. A digital project or two do not translate into a deep digital transformation. I have visited dozens of web sites of industrial firms, and I find this is often the case. Some industrial groups have also acquired a few software companies and have called themselves “digital champions.” Finally, there is a perception that opening a digital factory or an incubator can be called a digital transformation. It is part of it, but not all of it.

Myth #7: You can make money and produce industrial unicorns overnight. Every industrial company wants to become the go-to platform for their industrial ecosystem. They often underestimate the time it takes to get to unicorn status. They may refer to Uber, Airbnb, and Amazon to describe their aspirations, but forget to mention that these businesses have been around for over 10 years and have lost significant sums of money to get there. And they still lose significant sums today. In digital, competition is fierce and a lot of the value chains have already been commoditized. Executives cannot have the same EBIT and cash flow requirements in the digital transformation that they apply to the core business. It is going to take some exploration, experimentation, and losses along the way.

Myth #8: You can take people from your core business and turn them into digital champions overnight. Naming divisional and functional digital champions and digital product owners is a first step. The next step is to invest heavily in upskilling and reskilling them as soon as possible. That means that your digital academy or other digital learning infrastructure needs to be in place before you start your digital transformation, not two years into the transformation. People do not acquire skills magically overnight. Reading a book and attending a conference is not going to cut it. You need sustained action learning. By the way, the HR strategy of plugging holes with available people and B-players is also a bad idea. Digital transformations require the best of the best dedicated to their journey.

Myth #9: If you are a product-driven company, you will have an easy time becoming solutions-oriented in digital. If you have been a product-centric industrial organization for decades, your organizational mindset is that of a product company. You might have some service departments embedded in your product divisions, but chances are they are fragmented and not coordinated. A digital transformation requires a service mindset. If you do not have that, you cannot hope to go from product centricity to solution centricity in a couple of years. It is going to take a decade. If your organization is already organized for services and complex system delivery, then you have a greater chance of success. You need to crawl before you can run. The sequence is from products to services to connected services & products, and to product-as-a-service (PaaS). That transition takes time.

Myth #10: You can scale your digital innovation and startups with traditional legacy back-office. Do you think that your IT, finance, and sales team are going to embrace your digital innovations and programs with open arms? Think again. Someone needs to worry about the integration of all these innovations and technologies in the core infrastructure and back office. This is where lots of digital projects get stuck and killed altogether. Culture does matter. Running a digital transformation as a shiny and trendy project managed by young folks in jeans and flip-flops reinforces silo thinking, generational cleavages, and turf wars. You think I am kidding? Try to convince IT to integrate an open-source IoT digital platform into a highly secured optimized IT network. Similarly try to get finance controllers to change their KPIs for success for a SaaS opportunity that is going to be cash flow negative for 5 years!

Most consulting and industry reports note that over 85% of firms have started some type of digital transformation. The gold rush is a reality! Before jumping on the bandwagon and committing significant investments to a digital transformation, I strongly recommend candid C-suite discussions around these 10 myths. Most of these potential issues can be avoided in the design phase of the transformation even if you have already gotten started. My recommendation is to get started by reinforcing the core and back office with the right digital tools while exploring digital innovations in the market. The key to success is in the design and road-mapping of your transformation.

Stephan M. Liozu, Ph.D. is chief value officer at Thales Group and founder of Value Innoruption Advisors, a consulting boutique specializing in value-based pricing, digital pricing, and industrial pricing. He is the author of nine pricing books and is a frequent keynote speaker at industrial and digital conferences.

About the Author

Stephan Liozu | Founder, Value Innoruption Advisors

Stephan Liozu ­­­is co-founder of Pricing for The Planet, a consulting boutique specializing in the monetization and pricing of sustainability and ESG initiatives. Stephan holds a Ph.D. in Management from Case Western Reserve University (2013). Stephan wrote and edited fifteen books on topics of monetization, customer value, and pricing. He recently co-edited a book called Monetizing and Pricing Sustainability.

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