The story of the Facit company is the classic story of how a global leader is phased out of the market when new technology (digitalisation) and innovation changed it completely. The company was a leader in mechanical calculators and during the 1960’s had subsidiaries in over 100 countries with exceptional growth and profits.
The success was built on patents of (and business models based on) physical components that made the calculators exceptionally good. In the early 1970s, the company was at the peak of its success but there was a dark cloud on the horizon. Japanese companies (such as Sharp) started to conquer market shares (with digital calculators with cheaper and better performance. The disruption instantly made Facit’s mechanical calculators obsolete. For the next 15 years, Facit struggled to change and recover, before it was put out of business in 1988.
Today, the business world is rapidly re-shaped by some form of technology (mobile apps, social media and internet) that challenge traditional business. According to HBR, approximately 50% of all Fortune 500 companies have disappeared since 2002 due to digitalisation. The democratisation of technology (with access to funds and entrepreneurial culture) is creating a digitalization vortex that quickly and forcefully changes the way companies compete in a market. For example, future business models must be based on the smart use of technology and digital assets – rather than physical assets.
Digital Transformation is a blurry concept that is difficult to define. Most executives we have talked to have their own view of what Digital Transformation means for them. But, in most cases, it is not about the use of technology as a motivating principle, but rather the integration of digital technology with a business that alters the way it operates is governed and interacts with customers and its ecosystem. It is also a change in business culture and leadership that allows for experimentation and the ability to accept failure if it comes.
Figure 1: Purpose of Digital Transformation (Gillior, 2018)
Successful companies with digital transformation ambitions focus on all five quadrants in the model – not sub-optimising one area (for example process automation). Also, successful companies realise that culture and leadership (change management) play a pivotal role in the transformation process.
A recent survey that polled senior executives shows that digital transformation is their highest priority for 2019. In 2018, of the $1.3 trillion spent on digital transformation projects, $900 billion of that expense was wasted because it didn’t result in a positive return on investment. The International Data Corporation (IDC), forecasts that spending on digital transformation will reach 1.97 trillion dollars by 2022, which is a rate of growth of 16.7%. Additionally, by 2020, the IDC states that 30% of G2000 companies will put at least 10% of their revenue toward implementing a digital strategy.
In a recent survey with Chief Digital Officers byThe Goodwind Company, (2018) seven success factors for digital transformation are listed:
- A common vision and purpose in a dedicated leadership team.
- Finding a business model and capability mix that helps the organisation to generate revenues and reduce cost in the digital landscape – boosting the value proposition and customer expectations
- Preparing for the unpredictable – continuous change
- Seeing digital transformation as a cultural, leadership and governance challenge – beyond technology.
- Being able to inspire and motivate employees to feel a passion for digital and the new opportunities/innovation
- Doing their own analysis – trusting their own judgement
- The effective management of information
An analysis of the seven success factors show that digital transformation is not about a focus on technology, but how technology can boost employee engagement, business responsiveness, business models and competitiveness. It does put more responsibility on IT leaders within organisations. This is at the behest of business leaders who now see their IT departments as essential to digital integration and a company’s overall and continuing success. But implementing an effective digital transformation plan requires everyone in an organisation to be involved from the CEO to the employees in the Human Resources and Accounting departments.
Successful Digital Transformation, in boosting digital competitiveness, is a complex journey with many obstacles and challenges. But it requires an understanding of the mechanics of digitalisation and preparing an agile approach to planning that absorbs the increased unpredictability and market chaos. Digital Transformation is not the task of the Chief Digital Officer but needs to involve the whole company and all employees to create an atmosphere and culture where creativity, engagement and innovation grows. Approximately 70% of all transformation projects fail (mainly due to culture and leadership challenges) to generate digital sustainability and competitiveness.
A company’s decision to focus on a digital transformation project is an important decision. It can carry both negatives and positives. Executives need to look at both and see if it will, in the long run, be a lucrative decision. The influence of technology is becoming more important as the years progress for newer and older organisations. Those companies that wish to continue need to evaluate a digital plan sooner than later if they want to be part of the future business landscape.
Written by Hans Gillior and & Michael Kelley