Contents

Digital transformation, so what?

Rethinking strategy for the digital age

Digital reality no. 1: Customer experience is value

How to catch a moving target

Digital partnership strategies revealed

What digital leadership does

Creating agility at scale

About the author

“Digital transformation is an inevitable future for today’s businesses. Stijn Viaene skillfully guides you in concrete and simple steps how to embrace the digital revolution. This book is a must-read for the successful business leaders of tomorrow.”

Johan Thijs, CEO at KBC Group

“If you’re wondering how to lead your company into the digital age, this book is a lucid and pragmatic best friend. How to unite strategy and digital transformation, people and technology, exploiting and exploring innovation, the established and the disruptive? It maps your route to leading transformation. A treasure hunt!”

Stephanie Hottenhuis, Chair of the Board of Management at KPMG in the Netherlands

“You cannot buy your way out of digital disruption. You need a willingness to discover, an ambitious strategy, the courage to let go and the audacity to connect in profoundly different ways. Stijn’s book is a powerful summary of the road we’ve travelled together, and which is far from over.”

Peter Oosterveer, CEO at Arcadis

“This book is your guide to remodelling your business into one that is ready to compete and thrive in the digital age. Using plain and simple language, illustrated with selected case studies, the book provides a clear road map in what to consider before taking on the transformation journey and the steps to take after you embark on it. Highly recommended!”

Frans Muller, President & CEO at Royal Ahold Delhaize NV

“Stijn Viaene pieced together a great work on digital transformation. He provides the essential inspiration for building a framework and common language to collaboratively change our ways of working. The book gives you the confidence and energy to contribute to a better future as opposed to becoming a victim of technology.”

Jean-Christophe Tellier, CEO at UCB

First edition: 2020

Published by

Uitgeverij Acco, Blijde Inkomststraat 22, 3000 Leuven, Belgium

Email: uitgeverij@acco.be – Website: www.acco.be

The Netherlands:

Acco Nederland, Westvlietweg 67 F, 2495 AA Den Haag, The Netherlands

Email: info@uitgeverijacco.nl – Website: www.accouitgeverij.nl

Cover design: XPair

Typesetting: Xpair

© 2020 by Acco (Academische Coöperatieve Vennootschap cvba), Leuven (Belgium)

No part of this book may be reproduced in any form, by mimeograph, film or any other means without permission in writing from the publisher. The publisher has made every attempt to trace all copyright holders. If there has been any oversight, please contact the publisher.

D/2020/0543/187

NUR 801

ISBN 978-94-6379-840-2

Preface

Over the period 2017 to 2019, I wrote several pieces on digital transformation for The European Business Review and Ivey Business Journal. I was on a mission to make “digital transformation”, i.e. a form of end-to-end, integrated business transformation where digital technologies play a dominant role, understandable to a broad business audience.

In the first article, I synthesised my views on digital transformation from several years of working with digital transformation practitioners and their organisations. I wanted to describe the leadership challenges involved in digital transformation, and I did so by bringing the notion of “organisational agility” into the mix – i.e. an organisation’s capacity to routinely explore and exploit opportunities faster than its rivals. The article was featured on The European Business Review’s cover in May 2017.

After that first article, I wrote several more. Each addressed digital transformation in more depth. Each started from a particular question, such as “How to rethink strategy for the digital age?” and “How to make sense of customer experience as the new normal for value creation?” After the final article about scaling agility was published, I felt that it would be worthwhile to release the contents of the articles as a bundle, which eventually gave rise to this book about digital transformation.

The idea of writing a book about digital transformation had been in my mind for a while. But I had convinced myself that I was not “a book author” … I was more of “an article man”. After all, writing articles is how I earned my spurs as an academic. Until this bundle of articles made sense. During the Summer of 2019, I felt the closure I was looking for. Drawing on several years of research and in-depth case studies, I had found a way to create a book that would get the job done:

Allow readers to speak about digital transformation with more understanding.

Help them frame digital transformation as a leadership challenge to create organisational agility.

Give them the confidence to get involved in digital transformation as actors, rather than as bystanders or victims.

What started out as a bundle of articles became so much more. I have significantly upgraded the original article content. I added even more examples and mini-cases, including experiences from banking, media, energy, bio-pharmaceuticals, construction, government and more. Most importantly, by rearranging the articles, I created a storyline that culminates in linking digital transformation, organisational agility and leadership, in a practical way. I added an introduction to address the “Digital transformation, so what?” question, before tackling the “Now what?” in the chapters that follow. Having a good grasp of the context that gives rise to the need for digital transformation helps to align the troops and overcome important barriers to change.

In 2014, Vlerick Business School (Belgium), where I have been a professor for more than 16 years, was one of the first European business schools to launch an open executive programme on digital transformation. We called it the Digital Leadership Summer School, an immersive five-day experience featuring lectures, cases, guests, games and discussions. When my colleagues and I conceived the Summer School, there were some competing programmes at other business schools, but very few dealt with transformation. Instead, most of them largely ignored the existing enterprise and concentrated on creating something completely new. However, for the organisations I was working with, taking this path usually seemed neither very practical nor very wise.

The position I took then and now still, is that organisations that haven’t grown up digitally aren’t automatically lost. In other words, rather than starting from scratch, there is a path to success that takes the existing enterprise as the starting point. Evolving your current business to win in the digital age puts you in the scenario of digital transformation – and that’s where most of my work on digital transformation has been ever since.

Alan Kay, American computer scientist and winner of the 2003 A.M. Turing Award, once noted: “Point of view is worth 80 IQ points.”1 I couldn’t agree more. A lack of perspective and a common language are primary reasons why so many people and organisations continue to struggle with digital transformation. This book offers a frame of reference to anyone who is looking for a grounded, practical perspective on making digital transformations work.

I wish you an interesting read.

Stijn Viaene

1 Quotation from Alan Kay, in Munro, A. (1984). “Alan Kay Thinks the Computer You Just Bought Is ‘No Big Deal’.” ST.Mac. April. https://yesterbits.com/media/pubs/STMac/st.mac-1984-apr-300dpi.pdf.

introduction

Digital transformation, so what?

In their book, The Second Machine Age,1 Erik Brynjolfsson and Andrew McAfee, argue that we are at an inflexion point in time, entering the second machine age. Digital technologies, i.e. those that work to turn information into the ones and zeroes that are the native language of computers and their kin, are transforming society and the economy. This new era is not just different. It is better, due to increased variety and volume of consumption, more choice and freedom, where abundance is the norm. Digital technologies have caused a paradigm shift.

The Industrial Revolution, a series of major developments in science, technology and mechanical engineering in the late 18th and early 19th centuries, was spurred by the invention and subsequent improvement of James Watt’s steam engine and ushered in the first machine age. Just as the steam engine enabled us to overcome the limitations of human and animal muscle power, in the second machine age, digital technology will help us to transcend the limitations of human brainpower.

It took several generations to perfect the steam engine to power the Industrial Revolution. It has taken time, though significantly less, to perfect digital technologies. For example, over the past years, 3D digital printing has taken off, ready to revolutionise the manufacturing process in a variety of industries, from healthcare to construction and transportation. In 2011, IBM’s computer system Watson illustrated that artificial intelligence (AI) can beat humans at their game.2 Today, AI – encompassing a set of disciplines including optimisation, speech and image recognition, natural language understanding, and more – provides machines with the capacity to imitate intelligent human behaviour. Humanoid robots and self-driving cars are now a reality.

Where we find ourselves, at this inflexion point, of a changing age may be too difficult for many people to comprehend. “When people look at the implications of ongoing exponential growth, it gets harder and harder [for them] to accept. So, you get people who really accept, yes, things are progressing exponentially, but they fall off the horse at some point because the implications are too fantastic”,3 according to famous futurist and inventor Ray Kurzweil. Kurzweil’s bestseller, The Singularity is Near,4 prompted Microsoft’s Bill Gates in 2005 to call him “the best person I know at predicting the future of AI”.5

This singularity refers to a hypothetical moment where technological progress is so rapid that it completely outstrips humans’ ability to comprehend it. It represents a future during which technological advance will be so fast, and its impact so deep, that human life will be irreversibly transformed and beyond which events may become unpredictable. That future is nearer than we think, says Kurzweil:6

“By the time we get to the 2040s, we’ll be able to multiply human intelligence a billionfold. That will be a profound change that’s singular in nature. Computers are going to keep getting smaller and smaller. Ultimately, they will go inside our bodies and brains and make us healthier, make us smarter.”

Kurzweil’s advocacy of an optimistic and transhumanist future continues to inspire innovators around the globe. Some are more cautious and point out the risks that we are facing. Pessimists like to paint a Terminatoresque picture of the apocalyptic moment when machines take over from humans. Generally, both optimists and pessimists make valid points. In essence, it is up to us to create a positive and voluntarist synthesis in a time of unprecedented opportunity and turbulence.

More digital turbulence ahead

It is widely acknowledged that the most critical challenge for companies today is dealing with their turbulent environments. This turbulence refers to the rapid and unpredictable changes in the business environment that affect a company’s ability to create value. Two factors affect turbulence: complexity (i.e. the number, strength and dissimilarity of external forces or pressures) and volatility (i.e. the predictability and rate of change of the external forces or pressures). The more turbulent the environment, the more difficult it becomes for decision-makers to make winning choices.

Turbulence is common to all eras. Think of, for example, how wars, depressions, or oil shocks have affected the lives of firms. Think of industrialisation and globalisation forces, or climate change.

Over the last decades, however, we’ve experienced entirely new forms of turbulence, catalysed by emergent digital technologies. Think, for example, of the innovation7 coming out of Silicon Valley, or of today’s exciting fintech8 competition. Think of effects on our economic and social systems of companies like Google, Facebook, Alibaba or Tencent. Think of privacy concerns, of fake news, of the war for talent, job creation and job loss in digital times. The effects of readily available digital technologies on complexity and volatility in social and business environments are very tangible.

Not all of this digital turbulence is bad. Some of its effects are amazing. Digital turbulence creates the context for inspirational developments, like decoding the human genome, self-driving cars, drones, augmented reality, etc. And yet, what we are experiencing today in terms of opportunities and threats is just the beginning. We shall see many more examples of digital turbulence over the coming decades; some good, some bad, and hopefully not too many ugly ones.

As this digital turbulence is the new normal, “old organisations” will need to get to grips with it. Or die. But how? Should they be afraid? Or should they be looking to the future with excitement?

Big bang disruptors don’t waste time

Disruption, i.e. new entrants overthrowing the power structure in established industries by introducing far superior business models,9 has been a recurring phenomenon since the dawn of the industrial age. Innovation and strategy expert Clayton Christensen from the Harvard Business School has devoted most of his career to answering the question why incumbents, established and respected companies, frequently miss out on new waves of innovation and are toppled by disruptors with superior designs for creating and capturing value.10 Why is that? Do these former winners, innovators of the past, not see it coming?

Researchers have put forward several hypotheses; some referring to stupidity, complacency or management arrogance, others to barriers to responding efficiently such as legacy culture, organisation or technology. Christensen, however, suggested competence, rather than incompetence, as a root cause of incumbents getting toppled. These companies do have access to the best and brightest professionals, to the newest technologies. They have ample resources. It is the nature of their resource allocation, however, not scarcity that holds them back. Incumbents are not focused on creating radically new growth. Their best customers are happy, their short-term profitability targets guaranteed. The safer option of continuing down the travelled path, getting even better at what they already do best, is more appealing to investors and management. Scenario’s for deeper, future-proof change and self-disruption are put in the fridge. They don’t see a burning platform. They think they have time.

Time, however, is a precious commodity in the digital age. That is the point Larry Downes and Paul Nunes make when describing the emergence of “big bang disruptors”.11 They refer to digital ventures like Coursera and Khan Academy in education, WeChat and WhatsApp in mobile communication, Uber and Didi Chuxing in transportation. These entrepreneurial ventures come with radically new solutions to customer problems by fully embracing the innovative power of digital technologies. They could pop up from nowhere and wipe out entire established businesses in no time, the authors argue. Disruption could come from anywhere, from far beyond the borders of what you consider to be your industry or business model.

In Downes and Nunes’ big bang world, incumbents no longer have the time, nor the capabilities, to rethink themselves. Established recipes for disciplined strategising, careful product marketing and innovation are utterly useless. An overstatement not entirely supported with the evidence produced by the authors, but Downes and Nunes’ big bang disruption hypothesis and vivid examples have the merit of making their readers acutely aware of the broader management challenge of dealing with digital turbulence. Digital disruption is coming your way too, and it’s probably going to be there faster than you expect.

Digital innovation is combinatorial

Big bang disruptors truly understand the pattern of innovation in the digital world. This pattern is rooted in the ubiquity of computing power and connectivity, and in information being able to flow freely. For sure, these ubiquities and free flows are not absolutes, but close enough to be workable hypotheses for digital innovation in many contexts.

The pattern of digital innovation roughly goes as follows:

Over time, sensors and computers become exponentially cheaper, and smaller, making it affordable to include them everywhere. Thanks to this ubiquity in computing, every knowledge domain gets expressed in the language native to computers.

Ubiquitous connectivity democratises access to knowledge domains; information is shared and reused at will.

Entrepreneur-developers combine information freely, generating innovative business models that are both cheaper and better than anything that exists. Smart combination, rather than invention, fuels innovation.

Industry boundaries do not matter. The status quo in existing industries is disrupted.

For example, digital disrupters Airbnb and Uber were born out of this pattern. They constitute powerful illustrations of significant new-value creation opportunities in a world where it has become economical to decouple information about physical resources from their physical carriers. Neither Airbnb nor Uber have a track record as brilliant technology inventors. Instead, they are masters at combining a diversity of readily available technology and information resources from a variety of sources to create new digital business models. Playing this combinatorial innovation game allows them to disrupt existing industries.12

Worldwide, the role of digital innovation hubs like Silicon Valley – i.e. vibrant and diverse actor communities or ecosystems that foster technological trends, collaborative innovation, and domain-specific insights – cannot be overstated in regard to the coming of age of this pattern of combinatorial digital innovation. The culture of generating winning combinations is what makes Silicon Valley so successful, according to leadership expert Rosabeth Moss Kanter of the Harvard Business School:13

“[The term] ‘ecosystem’ conveys the idea that all the pieces of an economy [including technology companies, financiers, talent, universities, government and more] come together in particular places, and that their strength and interactions determine prosperity and economic growth. In Silicon Valley there is a sense that you prosper only because you’re surrounded by lots of resources that make it possible to succeed, beyond what your own entity controls. Think of it as your garden, where you need fertile soil, seeds, and other ingredients to make things grow.”

Considering digital transformation

Here’s a timely question: If you are not a digital startup, a potential big bang disruptor, are you automatically lost?

You are not. Established companies are not lost by default. Evolving your current business to win in the digital age puts you in the scenario of digital transformation.

Big bang disruptors are inspirational as well as confrontational. They are crucial competitive benchmarks at the edge of the possible. Still, there is an alternative route to reinvent existing organisations that does not require you to throw the baby out with the bathwater. It’s the path that takes the existing enterprise as the starting point; strengthening existing capabilities and leveraging (possibly dormant) digital resources, rather than starting from scratch.

To succeed, however, you will have to accept that your established enterprise was not built to compete in a world that requires blending the physical and the digital seamlessly. You’ll need to open yourself to the digital space to rediscover the nature of value creation, the critical capabilities that need to be grown, and the new skills that need to be developed. You’ll have to integrate and internalise the new essential external complexity into your organisation as new patterns of working, and get rid of all the accidental complexity of the past; that was once essential but is now holding you back.

Finding new patterns of working which help you adapt to the digital environment and internalise its dynamics will be a learning process. There is no standard cookbook. What works for one organisation may not work for you, and vice versa. Starting from scratch implies a different trajectory than aiming to leverage your current enterprise. Transformation is path-dependent. You’ll have to figure out the new patterns for yourself from learning by doing.

Don’t be fooled by the label: Digital transformations are first and foremost business transformations. Where in the past information technology (IT) and process re-engineering programmes were often framed as cost, efficiency or productivity efforts, successful digital transformations are framed as business investments that target future-proof growth.

A digital transformation is a form of end-to-end, integrated business transformation where digital technologies play a dominant role. It is wise to discuss this definition up front. Make sure that all the stakeholders are on the same page about the nature of the change and the required decision making. Aside from reaching agreement on framing the business transformation for growth, also agree on its enterprise-wide nature. The forces of digital disruption will challenge the very fabric of your organisation. They will require synchronised interventions across the silos and impact all organisational design dimensions. Successful digital transformations are enterprise-wide by design.