Digital Transformation , Strategy — 08.02.2018

The 6 Profiles of Digital Transformation

Mike Reynolds, CEO

Digital transformation: two words that either excite you or strike fear in your heart… maybe a little bit of both. By now, most executives recognize that “tech” isn’t an industry, but rather a horizontal category affecting every vertical. Mega trends in consumer technology have forced mature corporations to change the way they view their business in the digital age. They either transform themselves to become a tech company or complement their core offering with technology. (Think: Encyclopedia Britannica or Chase’s QuickPay.)

But knowing your company needs to adapt its business model for a digital world and knowing how to do that are very different things. Corporations that are fairly new to technology innovate by developing a new tech product, improving an existing digital presence, or transforming their core business to be digital first.

Corporations fall into one of six innovation profiles. I could probably write an article about each (and maybe someday I will), but for now I’ll quickly cover what they look like, their benefits, and their drawbacks. Certain models work better in certain industries, and they’ve all got pitfalls you should look out for.

Figuring out your company’s digital transformation profile can help ensure you’re on the right track. Know thyself, as the philosopher says.

Take a look, and see if any of these sound familiar.

1. Status Quo

“We’ve always done things this way, and it always works out just fine.”

What It Looks Like: Focusing so intently on the current business plan that you don’t pay attention to how your industry and your customers are changing around you.

The Benefits: You’ll likely stay true to who you are and what has worked well for many years. Staying the course works well in the short-term, and is less stressful than rethinking your business model or taking new technology risks.

The Drawbacks: You can fail, or quite possibly not even exist in 5-10 years. Plenty of industries have been disrupted by a new player with a digital-first mentality, and there’s a potential of being blindsided (no one wants to be Blockbuster). I have concerns about this mentality and encourage leaders to be proactive about examining the digital transformation around them.

A Good Fit For: Admittedly there are industries that haven’t been digitally disrupted… yet. So this model actually isn’t a great fit for anyone. I encourage leadership teams to start paying attention to what’s out there, even outside your own industry. Some industries like media and entertainment (Netflix) or retail (Amazon) have already embraced the transformation, but others like transportation, legal, and agriculture are not too far behind.

2. IT Projects

“Hey, we need tech. Who are the most technical people in the building? IT. They can probably help us innovate, right?”

What It Looks Like: Handing the task off to your internal IT team and waiting for their recommendations.

The Benefits: Since this model doesn’t require much internal restructure, it likely won’t make your board of directors nervous. IT-led digital transformation is well-suited for fundamental tech plays like integration of existing tech in the market or building an internal dashboard, portal, or app.

The Drawbacks: It won’t reinvent your business. Historically, IT teams have been the recipients of change, rather than the catalysts. They tend to focus on implementation rather than innovation, and their mindset emphasizes risk management and proven ROIs. Often these teams come up with hundreds of reasons why not to do something before even beginning to weigh the benefits. Their strength is to think about internal systems first, not the market.

A Good Fit For: Expanding your company’s use of technology with internal apps, managing existing technology purchases, or fundamental tech plays like a customer portal or introductory e-commerce site.

3. Internal Innovation Team

“We need ideas. Let’s get our best minds in the same room.”

What It Looks Like: Gathering the best and the brightest from each department and asking them to generate ideas. Non-tech companies have borrowed this model from the tech realm, thanks to Google’s X lab and others who have made “innovation lab” a buzzword.

The Benefits: Innovation teams excel at creative thinking. They’re usually staffed with employees who’ve been knocking down their bosses’ doors with suggestions. The team already knows the industry, so they have no trouble coming up with a long list of ideas.

The Drawbacks: Unlike innovation labs, innovation teams are still part of the traditional corporate structure and don’t always have the latitude to implement change. Also, a lack of digital experience can make innovation difficult. Yes, internal teams can identify plenty of opportunities in the industry, but if tech isn’t a core competency, they may not be able to design, build and launch their ideas.

A Good Fit For: Corporations that just need to get the ball rolling. An innovation team can kickstart progress, but more steps must be taken to turn ideas into action. Otherwise the innovation is all talk. One word of caution: Many ideas generated by innovation teams are biased toward current customers and absent of an emerging market or fresh external perspective.

4. Internal Accelerator

“We’ve got to fast-track innovation, and we know this industry better than anyone else.”

What It Looks Like: Like internal innovation teams, internal accelerators exist solely to develop new ideas, with one big difference: structure. Accelerators don’t operate within the strict confines of a traditional corporation and have the autonomy and funds to pursue their ideas.

The Benefits: Funding means that accelerators can do exactly what their name suggests: accelerate progress. They don’t have to wade through the bureaucracy of approvals every time they need to make a purchase or move forward with an idea.

The Drawbacks: Similar to profile #3, this group may be organizationally set up to succeed, but often lack digital expertise. Companies that build internal accelerators should consider hiring a consultancy or building a technology team in-house.

A Good Fit For: B2B corporations or other complex businesses where domain knowledge is critical (think: pharma, manufacturing, or agriculture). If it would take an outside team a long time getting familiar with the industry, an internal accelerator can be a strong approach.

5. External Accelerator

“We need to move fast, but we don’t have the right expertise within our company.”

What It Looks Like: The line between internal and external accelerators can be blurry. Typically, an internal accelerator operates like a corporate division with special permissions, whereas an external accelerator operates almost like a startup. It may even be formed as a separate corporation under the same parent company.

The Benefits: External accelerators can be a great method for fast-tracking technology, and they come with the benefit of offering an outside perspective. In the best-case scenario, the parent company invests cash without expecting an immediate ROI. This gives the accelerator time and space to create meaningful innovation.

The Drawbacks: An external team doesn’t know the industry as well as an internal one. In the same way that an internal accelerator needs to add tech experts, an external accelerator needs to add industry experts.

A Good Fit For: B2C and B2B2C businesses (think: entertainment, retail, medical). Many companies can’t keep up with customers’ expectations or rapidly changing consumer technology. However, external partners can represent the consumers’ goals/needs and modern tech best practices. Plus, because consumer apps are less technical, outside partners can quickly learn the intricacies of a business and start innovating earlier.

6. Outside Innovation

“Yeah…we can’t tackle this on our own.”

What It Looks Like: Acquiring or partnering with a separate company without restructuring internally. I can cite dozens of acquisition-for-innovation examples, but many companies believe that digital innovation is not in their DNA. For select ideas, they’re keeping these companies separate so they don’t disrupt their core business.

The Benefits: An acquisition or partnership is a quick way to add the expertise your team lacks. Wal-Mart has been struggling to keep up with online retailers like Amazon, but was born into—and born out of—the digital era. Adding Jet’s e-commerce competence makes sense as a perfect complement to Wal-Mart’s brick-and-mortar history.

The Drawbacks: An idea needs to be thoroughly vetted before starting a new company or acquiring one that already exists. You also run the risk of starting a turf war when you bring two separate groups together. Bickering can stop innovation in its tracks—it’s important for both sides to understand each other and develop shared business goals.

A Good Fit For: Corporations seeking a different business model, either as a replacement for their current model or a complement to their core offering. This model allows a corporation to respond to the market and hire appropriate talent to bring a good idea to life, with minimal disruption.

One Size Does Not Fit All (and Other Disclaimers)

Don’t read this article as a ranking of inferior and superior approaches, or even as rigid categories. Instead, use it to inform your thinking and maximize your approach. Whether you’re innovating in-house or alongside external partners, there’s no perfect model of innovation that works across every industry or business unit.

Approach digital transformation with an open mind. You’ll be better equipped not only to identify good ideas, but to execute them. In doing so, you’ll secure your company’s future in a digital world.