Digital Transformation: Lessons from the Past and Strategies for the Future

A panel of distinguished subject matter experts convened to discuss Smartening the State of Digitalization. I was joined by Nicole Béky, Founder, anderline, Switzerland; Daniel Diemers, Partner, SNGLR Group, Switzerland; Güçlü Ilalmak, Co-Founder and Chief Executive Officer, MTradeVerse, Türkiye; Igor Jakomin, Deputy Chief Executive Officer, CargoX, Slovenia; Ferhan Köksal, Chief Executive Officer, Connected Systems, Türkiye and Kouhei Kurihara, Co-Founder, Privacy By Design Lab, Japan. During this enlightening session, two overarching themes took center stage:

– How to Navigate the Digital Landscape from a Strategic Perspective?

– How to Enhance the State of Digitalization from an Operational Standpoint?

With these themes in mind, let’s delve into the challenges of digitalization and transformation from a strategic lens.

In a world in fast-motion, businesses of all kinds are facing dynamic phenomena and emerging trends that serve as powerful driving forces, disrupting and reshaping entire industries and the world that we know it. One of the key challenges faced by organizations in this ever-changing landscape is the convergence of digitalization, digital transformation, Industry 4.0, and lately Industry 5.0. These terms, often used interchangeably as buzzwords, have resulted in significant ambiguity, scope limitations, and a low success rate when it comes to execution. 

This year -2023, global spending on what is commonly referred to as “digital transformation” is projected at 2.16 trillion USD. However, research findings reveal that a significant percentage, ranging from 68% to 84%, of these digital transformation strategies fail in execution.

First Things First

History is a great teacher, it tells us that each industrial revolution stemmed from the widespread adoption of new tools or “technology.” Industry 1.0 marked the era of mechanization, powered by steam. Industry 2.0 evolved as the age of mass production, powered by electrical energy. Then came Industry 3.0, characterized by automation, driven by electronics and IT systems. Today, we live in Industry 4.0, the era of cyber-physical systems that infuse intelligence into automated systems through digital technologies like AI, IoT, and Cloud, etc.

Throughout this historical trajectory, several other factors play vital roles in this line of evolution. In Industry 1.0, the manufacturing facility was introduced to facilitate mechanization. Industry 2.0 witnessed the emergence of scientific management and assembly lines to boost productivity. Industry 3.0 brought standardization and process improvements to ensure quality. Finally, Industry 4.0 revolves around digital transformation as the driving force behind smart innovative businesses.

Why Do Digital Transformation Strategies Fail?

It’s a stark reality; almost two-thirds of digital transformation strategies fail in execution. The question is: why? While it’s not a straightforward answer, several contributing factors come into play. This article delves into a few of these factors to offer some food for thought to the readers.

1. Digitalization vs. Digital Transformation

Let’s begin with the basics. Digitalization is the process of converting a physical, manual, or analog product, service, or process into a digital format with the primary objective of enhancing efficiency. On the other hand, digital transformation is a profound transformation of the business model aimed at value creation, market creation, and value capturing.

Imagine a taxi transportation company looking to enhance its efficiency and services. They introduce a hotline for customers to call and request a taxi, equipping all taxi drivers with smartphones with GPS to optimize routes and receive customer location updates. This is a digitalization strategy, designed to enhance efficiency and services, ultimately capturing a larger market share within their existing geographical area.

Now, consider the Uber model. Uber revolutionized the traditional transportation model with Transportation Mobility as a Service, connecting riders and drivers worldwide, 24/7. This innovation enables faster, safer, and more efficient travel for riders and generates income for drivers by utilizing their excess capacity (cars). Uber’s approach embodies digital transformation. It disrupts the traditional model by creating new value, new markets, and capturing value through a scalable business model that serves millions of people globally.

The rule is clear—digitalization does not inherently lead to business transformation. Pouring vast sums of capital into digitalizing every aspect of your processes, products, and services will not automatically lead to transformation.

2. Digital Transformation Is Not Just a Strategy; It’s “The Strategy”

The world is evolving at an unprecedented pace, encompassing changing customer expectations, rapid development of digital technology, diminishing industry boundaries, and changing market dynamics.  In this environment, digital transformation isn’t just a strategy; it’s “the strategy” to remain relevant in a rapidly changing world. Organizations must embrace digital transformation. It’s not merely about business objectives but it’s it about how to foresee and compete in the market of the future.

Alvin Toffler’s words resonate strongly here: “The illiterate of the 21st century are not those who cannot read and write, but those who cannot learn, unlearn, and relearn.”  Why this is important? because the history tells that organizations “ Fail” when they foresee the future as an extension of the past, remember Kodak’s failure to see the future of photography beyond film, or Nokia when they got stuck with what was once their competitive advantage ( I mean the design and features), Nokia’s inability to harness the power of 3G that enabled a new collaborative operating system, they remained in the design and features mindset while customers were looking beyond feature phones, are testament to the perils of getting stuck in an outdated paradigms.

In summary, digital transformation is about constantly envisioning and shaping the market of the future. This necessitates an understanding of the driving forces, embracing innovation, and adopting digital technologies to compete, collaborate, and orchestrate across markets and ecosystems.

3- Key Imperatives

So, how can organizations navigate the complexity of digital transformation successfully? Several key imperatives illuminate the path forward, this includes:

• Strategic Thinking: 

The ability to shift between learning (how the market is evolving), unlearning  that your competitive advantage is not sustainable but it is transient), relearning (the new capabilities that you need to have to achieve your goals) is paramount.

• Innovation: 

Innovation is a structured approach that comes in various forms for different objectives, from sustaining innovation, which prolongs the product life cycle, to disruptive innovation, which creates new value and markets. Employ the right type of innovation at the right time.

• Competition/Co-opetition: 

The zero-sum game is not the only game, exploring collaborative market relationships to expand the pie, rather than competing for the same piece, can be more rewarding.

• Competitive Advantage: 

The true competitive advantage lies in an organization’s capabilities, which can continuously evolve to create and capture value across markets and ecosystems.

It is not a product, resource or even a market position.

• People: 

People are your most valuable assets, everything else is replaceable.

• Digital: 

Digital is the name of the game, when leveraged strategically, digital technology offers the combined power of 3 economies: Economy of scale, Economy of scope, Economy of speed.

The combined power of these 3 economies is the driving force behind the digital economy.

In conclusion, as businesses race to keep pace with the dynamic forces of the modern world, digital transformation is not a mere choice—it’s an imperative. To thrive in the ever-changing market of the future, organizations must constantly evolve, innovate, and utilize digital technologies to create, capture, and sustain value across diverse markets and ecosystems. 

It’s a journey that demands strategic thinking, innovation, and a relentless commitment to staying ahead of the curve.

By Khaled Eid, Director, Executive Education; Associate Dean, School of Business, Nile University, Egypt