Digital survival: The transformation imperative

Digital transformation must extend beyond marketing to every part of your company. A world expert explains why and shares his advice on what to do.
Written by Michael Krigsman, Contributor

Many discussions of digital transformation focus on marketing metrics such as page views, clicks, and even mentions in the press. Although marketing is important, this limited and unsophisticated view ignores underlying issues such as improving business speed, agility, and responsiveness to customers.

Only by rethinking business models can we meaningfully gain benefit from digital transformation in departments across the company including operations, supply chain, manufacturing, and customer service. Even finance and accounting should evolve as an organization responds to the changing expectations of modern consumers.

Genuine digital transformation - not the veneer of marketing, but the real thing - has become a business imperative. Over 50 percent of the Fortune 500 have disappeared in the last 15 years or so years, demonstrating the need for organizations to evolve.

Even when companies commit to a program of digital transformation, the results are often disappointing. Despite large investments in digital transformation, 59 percent of respondents in one survey companies reported that "digital transformation has not delivered high business impact at their organization."

Against this backdrop of market confusion, I invited a digital transformation expert, practitioner, and author to participate as a guest on episode 208 of CXOTALK, a series of conversations with the world's leading innovators.

Anurag Harsh is a founding executive of Ziff Davis (no relation to ZDNet), one of the largest publishers of technology content in the world. He is a prolific author (of multiple books) and puts theory into practice as a senior executive at Ziff Davis.

The conversation with Anurag Harsh spans the practical to the philosophical; the cultural and psychological to the technological. Among the wide-ranging topics we discuss are strategies for digital transformation, each targeting a specific business situation. From the structural swivel to the inverse acquisition, Anurag offers a prescription for many digital transformation situations.

Watch the video conversation embedded above, but also read the complete transcript of our talk. Here are edited excerpts and highlights:

Why is digital transformation so important?

In the last fifteen or sixteen years, more than half of all Fortune 500 companies have become insolvent, been acquired by another company, or stopped doing business altogether. And if you just look at last year, 50% of Fortune 500 companies declared a loss. So, the stride of transformation has become a revolution. Rivalries have deepened, and business models have been dislocated. The only constant is the growing severity of digital disruption.

Because of disruption, there's despondency, and that's compelling companies to want these digital initiatives. And they are investing a lot of money, which mostly results in disappointment due to the absence of concrete strategy. As markets shift downward, many companies try to counter the spiral by initiating frantic investments and digital initiatives. Some of them are hiring Chief Digital Officers, and some of them are looking at their CIOs and CMOs to counter these disruptive effects.

Describe your model for digital transformation?

There are five things that companies need to think about. These are terms I use a:

  • Structural swivel
  • Inverse acquisition
  • Offshoot
  • Coattail rider
  • Oiling the hinges

I will describe the first three now.

Structural swivel. If you talk to any CTO or CIO they have all legacy systems and techniques that can impede their ability to execute. By altering the company's configuration to spotlight digital initiatives, executives can swiftly escalate the speed of transformation. It's tactic that requires earmarking funds, and human resources to digital initiatives and placing digital executives in command of existing business processes.

For example, a local bank has started to swivel actively. Remember, this is the structural swivel we're talking about.

It swiveled out of a conventional branch-driven model by venturing outside to recruit a CDO (Chief Digital Officer). The bank empowered this guy with complete corporate supervision, comprising all branches that were still the lion's share of the bank's income. All product, tech, sales outlets, and marketing units started reporting to the new CDO. To push for digital transformation, each regional division also hired a committed CDO at the same level as the local bank president. These changes were intended to assist the bank in obviously speeding and hastening its conversion to a soup-to-nuts digital enterprise and organizing a purely digital experience across all the business channels. That's what I call a structural swivel.

Inverse acquisition. There are a lot of businesses that have unearthed quick wins ─ quick triumphs ─ by placing boundaries on the digital products so they can function autonomously and uninhibited by traditional processes. Just put them in a corner somewhere. It's like, "Off you guys go!"

However, the moment a digital project shows its usefulness, shouldn't subsequent tasks follow suit? Persevering or preserving the project's autonomy restricts its influence on other businesses. So, one possibility is to absorb the traditional businesses into the new digital unit, spreading the transformation business-wide, and then compelling the rest of the company to abandon its archaic approaches. This is what I call "the inverse acquisition. "

This tactic requires hard work. It comprises the comprehensive moving and resettlement of technology manifestos, company structures, and processes, and ultimately consumers from the traditional business to the new model. You must be cautious to ensure the company doesn't collapse into disorder during the changeover.

I'll give you an example. The British retail store, John Lewis, acquired buy.com.uk in 2001. It inherited vital technology and talent that it used to erect its only e-commerce business quickly. John Lewis later commenced a gigantic undertaking to reconstruct its web and e-commerce framework, which involved assimilating over 30 existing tech systems. And then they launched an e-commerce site around 2013, fully connected with their supply chain, delivery conduits, and the physical stores. The 10-year long dedicated effort increased its online sales by close to 30%. So, inverse acquisition. That works.

Offshoot. It's unrealistic always to expect a new digital operation to absorb the traditional business, especially if the digital business is not yet developed sufficiently to absorb a larger unit. Also, it may focus on too dissimilar a fragment of the value chain.

In these cases, you can grow those ventures by segmenting the separate fragments into distinct businesses that can develop outside the principal line of business.

There's an example here as well. BBVA Compass, a Spanish bank, had a software development division called Globalnet that they used to fuel their technology initiatives for over a decade. A few years ago, Globalnet, this little software development division, transformed into a company called BEEVA, which is an offshoot for creating and marketing business web services.

Although BEEVA powered the base technology for BBBA ─ the Spanish bank's transition into digital banking ─ bank executives understood the software division's innate potential. As an independent services business, BEEVA helps other banks do what BBBA has done using BEEVA's groundbreaking cloud technology platform.

In this instance, a structural swivel or inverse acquisition would not have worked. Why? Because the bank was ultimately a financial services company and its software division BEEVA was a web services unit with functionality that was different from the bank's core business.

So, that's what I call "offshoot."

What is authenticity in digital transformation?

Consumers expect authenticity from corporations and individuals alike. As consumer psychology changes, digital and marketing must enter a new era where human needs -- values and connections -- define success and failure. This is a call to action for marketers and advertising executives to change their perspective towards consumers.

Companies can no longer see consumers as gullible moneybags or conquests. They must see consumers as community members, as human beings, who crave trust.

You see the theme here? We're talking about technology and digital, but what I'm getting at is connection. Consumers crave trust: predictability, transparency, respect. I call it the relationship era.

Your corporates value must resonate at every level of infrastructure. It has to emanate outwards to the company's employees, customers, suppliers, stakeholders, neighbors, and even your relationship towards Earth! Merely projecting an image is akin to falsity. Companies must steadfastly practice what they preach.

The public today cares not only about the cost and quality of products and services. People also care about the values and conduct of the providers. Trust, reliability, ethics often supersede quality and affordability.

Thank you to my colleague, Lisbeth Shaw, for assistance with this post.

CXOTALK brings you the world's most innovative business leaders, authors, and analysts for in-depth discussion unavailable anywhere else. Enjoy all our episodes.

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