Digital transformation and innovation are often talked about together, and yet I’ve been reflecting lately on the interplay of the two terms.
Digital transformation invokes visions ranging from entire industries being disrupted and organisations rethinking their fundamental business model or place in the value chain, to companies lifting and shifting their analog processes to a digital format, to the more mundane of using it as a buzzword to sell the latest tool, widget or agile process.
Innovation, which is a much broader term, is the search for the new — it is less about efficiency and optimisation and more about the creative process of research, experimentation and discovery of unique offerings or approaches which offer a “blue ocean” — an uncontested market which allows for a new competitive advantage.
When we start to apply these two terms to existing businesses, the water gets murkier. A business transformation, digital or otherwise, usually entails a large scale program of change which is enterprise-wide and touches all parts of the business. In the past, this form of change has often gone through the phases of assessing current state, determining desired future state based on external and internal factors, developing and executing something like Lewin’s Change Management Model of unfreeze — change — refreeze to operations, to realign to the new strategy.
The challenge with this broad-based approach is that in today’s volatile, uncertain, complex and ambiguous (VUCA) world, these types of transformative change are often difficult to apply and sustain as the environment continues to shift, and more to the point, one never gets to “refreeze” systems to the new normal as you track to an ever-moving target.
Rather than go down the path of a massive transformative change, the alternative is to set up an innovation hub or team, charged with more rapid, disruptive change unfettered from the broader bureaucratic challenges of the organisation as a whole. A place where ideas, experimentation, and rapid prototyping can help unblock the logjam and get new models and solutions to market faster, either cannibalising core business or spreading virally within it to dislodge incumbent systems thinking.
Herein lies the rub — neither the broad business digital transformation approach nor the independent innovation cell is necessarily wrong. If anything, these days it is not an “either-or” but rather an “and”.
If you are to keep up with the pace of change to match speed with your customers and the evolving market, you will need to keep the experimentation up at the same time as progressing with your digital transformation. This enables you to continue to track towards that elusive future state and maintain alignment with your surrounding ecosystem.
And this is the crux of what to consider from a strategy and execution point of view: digital transformation is not a one-off event to change state — e.g. from analog to digital — it is about ongoing iterations or evolutionary change, with constant injections of new ideas and re-orientation based on the results of your innovative exploration, experimentation and useful discoveries.
Constant iteration needs to happen due to the pace of change in external environments. Your team as consumers are exposed daily to new ideas that you will want to harness and experiment with. Innovation is the fuel of the next evolution — how you are set up to capture ideas, test and introduce into your digital ecosystem and the pace that you can cycle through them and incorporate the useful ones will determine how fast you can evolve. The challenge is that with the increasing pace of change which some, such as Singularity University, consider exponential, is that you need to tighten and speed up these feedback loops to synchronise with your environment.
Failure to do so — as an organisation or a nation — means that you will fall behind faster, more attuned and responsive actors. For example, more needs to be done within Australia to maintain our innovative culture as a society and position within the Global Innovation Index relative to other nations if we are to hold a competitive position in the years to come.
I’ve written in the past around my views on developing the digital culture of a business, and how it requires the right mindset, toolset, behaviour and feedback loops to support this ongoing change.
I’m starting to think that the term digital transformation and innovation should really be called digital evolution, which emerges through continual experimentation and implementation of new discoveries.
The essence of the concept of digital evolution is that it requires an ongoing journey of digital transformation and innovation working in concert to continue to track to the evolving landscape. Dr Jason Fox in How to Lead a Quest writes eloquently around the need for pioneering leaders to use quests and experimentation to inform their strategy to avoid corporate decline (delightfully characterised as the “Kraken of Doom”). We can frame digital transformation in a similar way, where innovative quests incorporate new learnings into the transformational journey. This is reinforced by Eric Ries in The Startup Way who highlights that a modern company is founded on sustained impact via continuous innovation, and is focused on long-term results.
I think this is also perhaps why the discussion on both digital transformation and innovation are sometimes so esoteric and nebulous: digital transformation is often unique to an organisation given its position in the value chain, and the disruption arising from creative innovation discoveries is often unknown and unknowable on the quest until stumbled upon. It is why I am somewhat leery of formulaic frameworks that will guide your digital transformation — if it were truly that simple, we wouldn’t need the courage and fortitude of our digital leaders to make meaningful progress towards an uncertain future.
- Foster Innovation to Drive Digital Transformation via Gartner
- Digital transformation: Closing the gap between innovation and execution
- What is digital transformation? A necessary disruption via cio.com
- Singularity University Reinventing the Enterprise eBook
- 12 Different Ways for Companies to Innovate via MIT Sloan
- Develop a strategy for innovation from business.gov.au
- Digital Innovation: Australia’s $315b Opportunity by CSIRO’s Data61
- Moving With the Digital Evolution by T. Alaveras on Entrepreneur.com
- The 5 Pernicious Patterns Most Leaders Cannot See by Dr Jason Fox
- Read more on my thoughts on how an effective CEO COO partnership can help sustain the business whilst exploring uncertain futures.
- Explore Digital Transformation and Innovation courses via INSEAD and London Business School
How do you think that digital transformation and innovation relate? Do you like the concept of digital evolution? What challenges do you face in keeping up with your change journey? What’s your quest? I’d love to hear from you!