Transformation Management

Technology continues to amaze us doesn't it? This week I've been blown away experiencing Facebook's Oculus Quest virtual reality kit for the first time. Meanwhile Amazon's Alexa is already part of the furniture in my home. which brings me onto Conversational Artificial Intelligence (AI) and how we're on the cusp of an explosion in its adoption by transformational companies.

Voice as an interface liberates us from the toils of typing and reading. The way we currently interact with computers, other devices and the internet will soon become as antiquated as the idea now, of going to the library to find information.

Powered by artificial intelligence, voice solutions such as Amazon's Alexa are already providing the brain behind tens of millions of devices across the planet. And forward-thinking companies are already enabling their customers to control smart devices such as door locks, cameras, entertainment systems, thermostats, and lighting. This technology can enable companies to perform highly personalised interactions with colossal numbers of individual customers. 

While most AI-related innovation has been in consumer-grade technologies, the companies that become early adopters of conversational AI will be giving themselves a head-start over their competition. New voice applications and platforms are really set to fire up the AI revolution inside forward-thinking enterprises.

Amazon, Tencent, Google, IBM, Microsoft and others have been investing in and developing AI technologies for years, but they and innovative start-ups (some of which the big players acquire) are the innovators. And the rest of us are easily able to take advantage of the tremendous opportunities that these pioneers create for us.

Conversational AI can fundamentally transform an organisation. It provides more ways of communicating with customers while facilitating stronger interactions and greater engagement. While the term “conversational AI” might sound cool, ultimately it all boils down to how you're able to innovate and take advantage of it for your business, customers and workforce.

Conversational AI is a set of technologies that enable computers to simulate real conversations. It's a subfield of artificial intelligence focused on producing natural and seamless conversations between humans and computers. And it enables people to communicate with applications, websites and devices in every day, humanlike language.

For users, it allows fast interaction using their own words and terminology. And for enterprises, it offers a way to build a closer connection with customers through personalised interaction and receive rich business information in return. Conversational AI provides companies with a direct line to communicating with and understanding their customers.

With two of the world's digital economy pioneers powering this shift - namely Amazon and Google - smart people are acknowledging the potential of conversational AI for both their careers and the companies they work with, and they're learning about it fast. They're the early adopters, who in a few years from now, will be ahead of the crowd in one of the most powerful emerging technologies of our time.

With around 100 million smart speakers already in use, analysts at Canalys predict the market will more than double again to hit 225 million units by next year. They also suggest that Amazon devices make up 50 percent of the share, with Google having 30 percent, and Apple trailing behind with just 4 Percent.

But from the solo entrepreneur to large multi-nationals, the ability to connect products and services to customers using the solutions that Amazon Alexa, Google Home, and others make available, is both easy and affordable. It's another powerful way to increase customer awareness and engagement.

Millions of people are experimenting with speech-based assistants, which means that speech-based platforms are rapidly displacing traditional web and mobile apps to become the new medium for interactive conversations.

These days, many of us expect 24x7 access to online stores, along with personalised customer support available instantly and on-demand. Advances in Natural Language Understanding and other AI technologies like machine learning are creating digital transformation opportunities that enable us to do just that. 

Conversational AI enables organisations to build transformational voice-based solutions for customer service, digital commerce, and much more. You can lower costs of customer service, improve customer satisfaction and loyalty, and increase employee productivity and satisfaction. In short, with Conversational AI, you can boost your revenue streams, improve the customer experience on all sorts of devices and enhance operating margins across the enterprise.

This means being there for the user whenever they look for you, and that's the key! How can you be sure you’re there at all times and especially when it matters most to the customer?

Consumers are already using conversational AI platforms in place of email, phone calls and face-to-face communication to talk with family and friends. Younger people, in particular, tend to prefer messaging over other forms of communication. Messaging-based apps are the new mobile home page, particularly for millennials. And early adopter consumers are already using voice interfaces to make purchases. It’s easier, less intrusive and quicker than using older communication channels. 

For Business, Conversational AI will change every aspect of when, where and how you engage and communicate with your customers. You need to be able to hold seamless conversations with consumers across whatever channel they happen to be using at the time, no matter where they are. And those conversations could be short one-off requests or responses. Or they could be part of a longer and more elaborate engagement with the customer.

It's not just a chance for companies to differentiate themselves in a crowded marketplace, but it also provides an incredible opportunity to acquire valuable data about the voice of the customer. To understand what customers are looking for, to engage with them on any device or service, and to deliver a personalised service to every customer. Not just to high-value customers.

Customers will soon be managing a significant portion of their relationship enterprises without interacting with a human, and while many will be quick to point out that accuracy is currently a challenge in this space, let's not forget that all technology takes time to mature. As with all technology that's now widely adopted, Conversational AI will become an integral part of business in the not too distant future. At least for those businesses that'll still exist then.

Gartner has said; “Conversational AI-first” will supersede "cloud-first, mobile-first" as the most important, high-level imperative for the next 10 years.

While tech titans like Apple, Amazon, and Google are engaged in the conversational AI race, the opportunity for the majority of large and small businesses to take advantage of the brilliance of these titans is tremendous. And the only thing that stands in the way of that is the mindset of corporate decision-makers.

Of course, as with many technologies, data privacy and security are important considerations for conversational artificial intelligence. But that's now as commonly understood as the need to secure and insure the homes we live in. It goes without saying, although as with home security, some take it more seriously than others.

Let's consider some of the simple use cases that companies could take inspiration from, to dip their toe into the world of Conversational AI. To do that I'm going to talk about some of the opportunities that Amazon Alexa already makes available.

Meetings make up a lot of many peoples' working week, but from booking a meeting room to getting conferencing equipment to work, the experience can be frustrating and a time-waster for everyone. 

Alexa for Business simplifies meeting rooms for your employees and works with your existing conference room equipment. You can use Alexa to book a room by saying “Alexa, is this room free?”, and “Alexa, book this room”. You can instantly start your meetings by saying “Alexa, join my meeting”. And you can use Alexa devices instead of speakerphones in small conference rooms.

It'll make the way many people book meeting rooms and run meetings these days become an inconvenience of the past.

Alexa also lets your employees be more productive throughout their day. It can manage schedules, keep track of to-do lists, and set reminders. It can schedule one-to-one meetings between colleagues, move and cancel meetings, and dial into conference calls, so people can stay focused on more important tasks whether at home, at work, or on the go.

You can build custom skills that add a voice interface to applications such as Salesforce, ServiceNow, or any of your custom apps and services and create rich, personalised voice experiences that redefine the way employees get work done. 

And imagine giving Alexa access to your team's Jira application in projects. It can easily read out items due today, and items closed yesterday, etc. 

If you're in vendor management you’ll typically be working with different vendors on a day-to-day basis. With voice technology ordering supplies, setting up cleaning schedules, receiving or sending invoices, etc. could all be triggered by an effortless ‘Alexa, order 500 Nespresso capsules’.

This is really just scratching the surface. Within three to five years, advances in AI will make the conversational capabilities far more sophisticated, which will pave the way for new ways to transform how companies do business - both internally with their workforce and externally with customers. 

While many of Alexa's tens of thousands of skills are around fun and games, the possibilities of a voice interface attached to the free web allows the imagination to run wild. For innovators, it's one of the most exciting playgrounds of our time.

As professor Everett Rogers taught us in his "Diffusion of Innovations" theory, there are innovators, early adopters, the early majority, late majority and the laggards. Which group will you be part of for conversational artificial intelligence?

Enterprise architecture, business, technology, innovation leaders would be wise to prepare for Conversational AI and the significant new business opportunities and challenges it'll present. 

Ford has integrated Amazon Alexa in its newer cars, allowing drivers to do things like check tire pressure, and fuel levels from their homes.

Starbucks uses ‘My Starbucks Barista’ which allows customers to order and pay for their food and drinks by speaking.

And there are many other examples of how forward-thinking companies are already taking advantaging of Conversational AI.

Many companies are still struggling with cloud and mobile, and they'll find themselves falling even further behind if they fail to participate in Conversational AI, which is likely to be one of the most significant platform paradigm shifts of the decade.

So how can you integrate your products and services with conversational AI?

How can you exploit the data generated from conversational AI?

How can you improve operational excellence with conversational AI?

How can you enhance your workforce performance and satisfaction with conversational AI?

How can you satisfy your customers with conversational AI?

And how can you create new business models using conversational AI?

To implement conversational AI, you'll need to redesign your customer experiences around two-way natural language dialogue, which helps foster a better relationship with the user. And it'll typically involve a blend of technologies such as speech recognition, natural language processing, chatbots and artificial intelligence.

There's a lot to consider, with new ways of thinking and innovating. But adopting this Conversational AI is neither difficult or expensive. I've already done it myself.

PMI Ascent - Digital Business Transformation Management Course

A good deal of our business thinking is shaped by delusions, which are shaped by flawed judgments and errors of logic and that distort our understanding of the real reasons for an organisation's performance.

If you're up to speed on business books you'll know that back in 2007, Phil Rosenzweig revealed nine delusions that are commonly found in the corporate world. It's been over a decade since Phil wrote The Halo Effect which was republished with the addition of two new chapters in 2014.

The most pervasive of the nine delusions which Phil taught us about is the Halo Effect. This is when a company's sales and profits are up, people often conclude that it has a brilliant strategy, a visionary leader, capable employees, and a superb corporate culture.

When performance falters, they conclude that the strategy was wrong, the leader became arrogant, the people were complacent, and the culture was stagnant. In fact, little may have changed – company performance creates a Halo that shapes the way we perceive strategy, leadership, people, culture, and more. 

To illustrate how the Halo Effect is so widespread, Phil explores examples from the likes of IBM, Cisco, and Nokia, and undermines a few well-known business books too.

Some time ago I took the liberty of appending a 10th delusion to the list in one of my blog posts. But before I talk about number 10, let's have a quick reminder of the original nine delusions that Phil Rosenzweig wrote about.

#1: The Halo Effect

The tendency to look at a company’s overall performance and make attributions about its culture, leadership, values, and more. In fact, many things we commonly claim drive company performance are simply attributions based on prior performance.

#2: The Delusion of Correlation and Causality

Two things may be correlated, but we may not know which one causes which. Does employee satisfaction lead to high performance? The evidence suggests it’s mainly the other way around — company success has a stronger impact on employee satisfaction.

#3: The Delusion of Single Explanations

Many studies show that a particular factor — strong company culture or customer focus or great leadership — leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested.

#4: The Delusion of Connecting the Winning Dots

If we pick a number of successful companies and search for what they have in common, we’ll never isolate the reasons for their success, because we have no way of comparing them with less successful companies.

#5: The Delusion of Rigorous Research

If the data aren’t of good quality, it doesn’t matter how much we have gathered or how sophisticated our research methods appear to be.

#6: The Delusion of Lasting Success

Almost all high-performing companies regress over time. The promise of a blueprint for lasting success is attractive but not realistic.

#7: The Delusion of Absolute Performance

Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time.

#8: The Delusion of the Wrong End of the Stick

It may be true that successful companies often pursued a highly focused strategy, but that doesn’t mean highly focused strategies often lead to success.

#9: The Delusion of Organisational Physics

Company performance doesn’t obey immutable laws of nature and can’t be predicted with the accuracy of science — despite our desire for certainty and order.

New at #10 is The Delusion of Digital Transformation

And I describe this as “The tendency to label any project or programme involving digital technology as “Digital Transformation”. Those initiatives that will neither disrupt markets nor protect against disruption often lull firms into a false sense of security when executives are led to believe they are transforming their business.

The reality for many is that they are using new technologies to create a slightly better version of the past. A less misleading label for such initiatives would be; “digital change project or programme” – because transformation creates a new future, while change creates a better version of the past.”

This relates closely to another I coined in recent years, which is The great digital illusion, which is when managers and leaders lull themselves into a false sense of transformation security by dabbling with digital technologies, but doing nothing transformational with digital.

You can find another term along the same lines in the book Digital @ Scale. In the book, the authors - Jürgen Meffert and Anand Swaminathan from McKinsey - explained how digital sugar-coating is what companies are doing if they introduce social media campaigns, or perhaps the collection of data that doesn't get used, and believe that these activities mean they are transforming their business.

When Phil Rosenzweig originally wrote his book over a decade ago, most leaders weren't concerned about how technology can give rise to new business models. But now a new currency - namely digital - has entered the world of business, which can be likened to a two-sided coin. On the one side is tremendous opportunity, while on the other is unprecedented threat.

When used wisely, the new digital business currency has the ability to give rise to new business models that can render established business models antiquated and eventually obsolete.

Questions for all leaders to consider include:

1. Are we doing what it takes to drive the creation of such business models?

2. Are we allowing our firm to become the victim of new business models?

3. Are we victims of our own delusion of digital transformation?

In established firms, the nature of initiatives that either create or protect against such business models is described by some as “Digital Transformation”, by others as “Business Transformation” and also as “Digital Business Transformation”.

The fact is that the word “Digital” will eventually go out of fashion as it becomes an integral part of every business – leaving us with “Business Transformation”. But the single word to keep in mind is “Transformation”, along with the questions; “are we really doing it? – or are we simply deluding ourselves by only creating a better version of the past?”

Digital transformation delusions occur when companies believe they're undergoing transformation, simply because they're using digital technology to change something in their business. There's a huge tendency for people to call all these initiatives “Digital Transformation”. The reality is that many initiatives are only making small changes to something that already exists. For many, their initiatives are neither creating new business models nor protecting against new disruptive business models.

The confusion between transformation and change has been around for a number of years and MIT Professor George Westerman articulated this perfectly some years ago when he explained …

“When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.”

While several years have passed by since George said those words, they remain as relevant as ever, and even more companies are busy making fast caterpillars than ever before. So now there are thousands of managers and leaders informing their workforces and stakeholders that they are undergoing innovative digital transformation. This builds morale and excitement about how the firm is “so innovative, digital and transformational” when in reality, they're simply making faster caterpillars. I've even come across companies that categorise their staff using Twitter as "Digital Transformation".

When digital initiatives are only capable of creating fast caterpillars, the best a leadership team can look forward to is “change” such as reduced costs, increase efficiencies, and other small improvements. While this is good, some teams have convinced themselves that this is transformational. But if digital initiatives are not going to protect against disruption or disrupt, then at best they are digital change initiatives. No butterflies are being created, so responsible managers and leaders should consider whether they want to mislead others into believing otherwise.

When managers and leaders are deceived by the delusion of digital transformation, their lines of business often become immensely preoccupied with creating fast caterpillars. So preoccupied and consumed by it that no one is leading any legitimate transformation. As a result, firms like this become increasingly vulnerable. They're so busy tinkering with digital, that they're not addressing digital economy threats and opportunities with transformation.

Now there are thousands of so-called digital transformation initiatives that are deluding companies into believing they are transforming, when in fact they're not. To amplify this issue, when firms allocate their limited time, effort and resources to creating fast caterpillars, they have little if anything left to invest in legitimate transformation.

Digital change initiatives are vital components for how companies fix shortcomings, save some money, introduce efficiencies and make other improvements. But when they are not designed to truly transform the business, responsible managers and leaders should avoid fooling their workforces and stakeholders into believing otherwise. Because no one wants to be deceived by the 10th delusion of business.

PMI Ascent - Digital Business Transformation Management Course

Most companies know where they want to go. And some get it right, while others get it wrong. But regardless, the CEO has a direction, and hopefully, he or she has ensured the entire organisation understands what it is.

I hear most leaders say they want to be more effective, quicker and agile. They want to deliver great customer experiences, take advantage of new technologies to cut costs, improve quality and transparency, build value, and focus on culture.

I'd go so far as to say that, in the last few years, those aspirations have become quite cliché. They're all easily said, but much harder to get right in the complex environment of a large organisation - in any industry and in any country.

The problem is that while most companies are trying hard to get better, the good intentions often don't materialise because they're not approaching transformation holistically. 

Many leaders allow one-off initiatives in separate business units to exist in silos - not joined up with other initiatives across their enterprise. Their transformation journey is often mapped on separate roadmaps, many of which aren't integrated. They all take place in separate worlds.

After the CEO announces strategy, a target operating model and transformation roadmap needs to be agreed, to transform what matters, while building an agile, integrated and cross-functional approach.

Right now, there are countless benefits that digital transformation could create for any business, but digital for the sake of digital won't do that. Your company might feel digital, but that's about it. And this is known as digital sugar coating.

Thousands of organisations are now mindlessly implementing cool new technologies, but they're unable to demonstrate the business value or competitive advantage any of this achieves. First, because many transformations don't include value management as a discipline, and secondly because digital sugar coating will rarely create any business value that was worth the investment of time, money and people.

This happens in companies that have used the words digital and transformation in the same sentence because it's a popular trend, while the reality is that not all things digital are transformational. And in extreme cases, people are even using the word digital to replace what they once called IT or technology.

The mere implementation of technology does little in itself to alter the habits, culture and collaboration required for a genuine transformation to take place. Which downgrades the efforts of many companies wanting to undergo transformation to a series of projects which implement new technology but achieve nothing transformational for the business. And all this plays into creating the delusion of transformation.

Many leaders also communicate their strategy and then expect their management teams to set about executing upon that strategy without any consideration for the operating model - which is the bridge between strategy and operations. So instead of going from strategy to operating model to execution, they go from strategy to execution with an operating model that isn't set up to help them be successful.

For companies to build value and provide compelling customer experiences at a lower cost, they need to commit to a next-generation operating model. This operating model is a new way of running the organisation that combines digital technologies and operations capabilities in an integrated, well-sequenced way to achieve improvements in revenue, cost, and customer experience.

An operating model translates strategic intent into operational capabilities. It serves as the foundation for execution and provides a clear guide for enterprise leadership teams, line managers and operational teams. It articulates how an organisation delivers value to its customers or beneficiaries as well as how an organisation actually runs itself. So, in a way, it's a subset of the organisation's business model.

And the business model describes how an organisation creates, delivers and captures value and sustains itself in the process. So, the operating model focuses on the delivery element of the business model. And a company's operating model is often the single biggest barrier to realising its digital potential.

It's a fact that companies without an operating model run the risk of strategy not being realised. They experience ambiguity around accountabilities, roles and responsibilities, and operational inefficiencies as people invest their time on doing work that's not supporting strategic intent. There's often inadequate collaboration and integration between business units and functional areas, and staff not aligning to a common view of how the company is approaching transformation.

While digital technologies are rapidly changing the face of business, this change is happening at a pace that exceeds that of transformations in operating models. This means that technologies such as AI and advanced analytics will amount to little if any business value if they don't actually transform the way we and our organisations work.

And the truth is that many organisations are unlikely to experience any of the benefits they talk about because during what they call digital transformation, they've paid little in any attention to re-shaping their operating model.

But this is nothing new because for years we've seen countless organisations implement enterprise-wide technology solutions without considering their operating models. Installing new technology to automate an existing set of inefficient business process is sometimes as good as it gets.

Leaders are responsible for ensuring their organisation has the next-generation operating model required for it to be successful in the digital economy. It's a fundamental part of transformation which CEOs and senior business executives are responsible for. Because only these senior figures are positioned to create alignment required at all levels of the organisation.

Getting your operating model right is not an easy task, which is exactly why it should be firmly fixed to the agenda of the most senior management board on your company.

So, it's essential that leaders and their management teams take care of their organisation’s operating model when embarking on transformation. Because when an organisation attempts transformation with an out-of-date operating model, strategy and execution will fall increasingly out of sync with one other. And the best of intentions can fall flat on their face.

Your operating model is the vehicle that allows or prevents the translation of your strategic intent into operational capabilities and, ultimately, into reality.

In short, your operating model determines your organisation’s ability to execute what it intends to do. Which I hope you'll agree is really important.

A next-generation operating model is vital to drive a business forward in the digital economy. And how well that operating model is developed and implemented will be the difference between successfully transforming the business and just trying to do it with all sorts of digital solutions but failing.

The first step is to identify what it takes to succeed in the current and future market places, and then take a hard look at how the company’s current

operating model stacks up. It's vital to ensure investment gets targeted at areas that offer the greatest potential for competitive differentiation and return, while non-core areas could be outsourced.

If you take a structured approach to operating model design, you can get it right and realise solid benefits in company performance and employee engagement. But the harsh reality is that, while CEOs and their boards enjoy the strategy process, many ignore the operating model, so they skip a step and head straight into execution.

Senior leaders have a key role in getting the operating model right and one of their first jobs is to convince their peers that the next-generation operating model can break through organisational inertia and trigger legitimate business transformation.

The CEO or another senior executive needs to align the business on a few key journeys to tackle first. After that comes evaluation of the company’s capabilities to determine which levers can be pulled using internal resources and which will require external resources.

Finally, there's the work of actually implementing the new operating model. Transformation can't be a siloed effort. The full impact of the next-generation operating model comes from combining operational improvement efforts around customer-facing and internal journeys.

One of the simplest ways to visualise a next-generation operating model is to think of it as having two parts.

The first part is moving from running uncoordinated siloed initiatives to launching an integrated business transformation focused around customer journeys and internal journeys, which are the end-to-end processes inside the company.

And the second part is moving from using siloed technologies, capabilities, and approaches to applying them to journeys in combination, and in the right sequence.

Let's first consider part one.

Many organisations have multiple independent projects and programmes underway - all with aspirations to achieve different objectives, and they're often housed within separate organisational units. This can make it easier to deliver small incremental gains within individual units, but the overall impact for the business is sometimes underwhelming. I've often seen individual functions celebrating how they've achieved certain objectives, while customer satisfaction and overall business value and costs remain unchanged.

Instead of working on separate siloed initiatives, companies need to think holistically about how their operations can contribute to delivering incredible customer experiences. The best way to do this is to focus on customer journeys and the internal processes that support them, which cut right across organisational silos. This can involve many components ranging from governance through to values and culture.

Another big mistake is when companies fall into the trap of simply trying to improve existing processes - often during new technology implementations. They're making faster caterpillars instead of creating butterflies. Which is the difference between change and transformation.

Instead, they should be reinventing customer experiences, which in turn will expose opportunities to improve journeys and processes that can unlock massive value that no one had previously anticipated.

Now let's consider part two.

Companies can exploit a range of capabilities and approaches to shape their next-generation operating model, which underpin the customer and internal journeys I just mentioned.

Digitisation is the process of using tools and technology to improve journeys. Because digital tools have the capacity to transform customer-facing journeys in powerful ways, often by creating the potential for self-service. Digital can also reshape time-consuming tasks that are part of internal journeys.

Business process outsourcing uses resources outside of the main business to perform certain tasks or functions. This typically works best for processes that are manual, not primarily customer-facing, and which don't influence or reflect key strategic choices or value propositions. Tasks like back-office processing of documents.

Lean process redesign helps the company streamline processes, eliminate waste, and foster a culture of continuous improvement.

Advanced analytics enables companies to process data using sophisticated tools to uncover insights and make recommendations for better decision making. 

Intelligent process automation is an emerging set of new technologies that combines fundamental process redesign with robotic process automation and machine learning. It can replace human effort in processes that involve aggregating data from multiple systems or taking a piece of information from a written document and entering it as a standardised data input. 

Deploying any of these new technologies in non-innovative ways is unlikely to add much value to your business. It's probably not going to protect you from disruption and it certainly won't do much in the way of disrupting.

The companies that are starting pull ahead from the pack look beyond short-term tactical fixes. They're reinventing their business and operating models, and their definition of transformation is so much more than the empty promises of digital sugar coating.

The operating models of many companies aren't equipped to deal with the challenges of legitimate digital business transformation. But if you're ready to take a fresh look at what your company calls transformation, start by identifying what it takes to succeed in your current and future market places, and then take a good look at how your current operating model is set up to enable that to happen.

There are many different templates you can use to start re-inventing your operating model. From the Operating Model Canvas, through to the myriad of approaches that consulting firms concoct. But there is no silver bullet.

PMI Ascent - Digital Business Transformation Management Course

An increasing number of leaders know that to accelerate digital transformation their organisations should learn to flex their empathic muscle, while at the same time encode empathy in Artificial Intelligence.

Listen to Minter Dial, author of the book “Heartificial Empathy", elaborate on the role empathy plays in digital transformation, its importance for business executives, and how organisations can weave empathy into their fabric.

PMI Ascent - Digital Business Transformation Management Course

We know that many established companies are feeling the harmful effects of new digital businesses and that other incumbents are responding well to the new threats and opportunities of our era. 

This means that the old ways of doing business are slowly dying, and sooner or later, any company that hangs on to those old ways is likely to eventually die too.

While companies rely on people at all levels of the organisation to transform the business, if the CEO lacks an entrepreneurial and transformational mindset, it's possible that the innovative talent that exists throughout the company will be wasted on it.

This is because digital transformation isn't just about products and technology. Digital transformation should be an enabler for new business models because it's business models that are either enabling companies to thrive or dive these days.

New business models are at the heart of new disruptive companies we sit up and take notice of. And antiquated business models are at the heart of other companies that are on a downward trajectory. 

A business model is about delivering value and capturing a portion of that value in the form of revenues and profits. And while some business models have always existed, others are new, and more are waiting to be discovered or revealed to the world.

So, the question every board should be asking its CEO is, "Are we setting out to create the new normal in our industry or are we waiting for a known or unknown competitor to do it and erode our competitive edge, market share and profit?"

And, “Is our CEO thinking radically? Is he or she adjusting their governance rules for experimentation and creating an environment where innovation and new business models can thrive?”

We've seen a fundamental shift in how companies compete. The big success factor in business is no longer better quality or lower prices. It's all about having a superior business model.

And while a successful business model is dependent on the right operating model, and the right operating model is dependent on the right people, processes and technology, etc. Put simply, it's the business model that determines how a company creates value and makes money. And if that business model isn't effective in a digital world, then eventually the company will find itself in trouble.

The problem in many firms right now is that they're limited to digital sugar-coating projects and deluding uninformed executives that the company is transforming in an authentic way, simply because of its digital projects. Because the words digital and transformation are not the same, and the words often don't belong in the same sentence. And it's this delusional thinking that will steer many more companies to an early grave.

People often associate transformation with the adoption of new technology, and while technology is one of the important enablers of transformation, it doesn't transform a company or an industry on its own.

Put simply, too many companies are still relying on business models that were never designed to compete in the digital economy, because they were created in a very different era to the one we now live in. 

Yet some traditional managers and leaders are struggling to let go of their old beliefs, and if they fail to shift their mindset, then that could be a sign that those managers and leaders might well be past their sell-by date and nearing the end of their career as they know it.

And while many companies are doing their best to translate notions of digital transformation into a business reality, too many are relying on small improvements that only create a better version of the past. Their so-called digital transformation is often little more than a technology upgrade and a basic business change, which is often a world away from legitimate transformation.

When you think about where the new well-known new business models come from, it doesn't take long before you realise they come from entrepreneurial thinkers - who created their own business.

CEOs first need to embrace the idea of creating a new business model that's designed for the digital economy and not stay stuck with what worked well in the good old days. Because, like it or not, those good old days were part of another era. And while that might make for beautiful nostalgic stories of how it all used to be, it’s not the future.

Once CEOs are prepared to embrace an entrepreneurial and transformational mindset, they then need to do what it takes to ensure they have a senior leadership team which is aligned with that new way of thinking. Ad while that might not be easy or kind, it’s a job that needs to be done.

CEOs also need to ensure the company is equipped with leaders who know how to embed innovation into the organisation, who know how to nurture a digital economy workforce, and who know how to identify, acquire and get the most out of start-ups.

It's also important CEOs recognise that business model innovation doesn't need huge budgets and large teams. That's the antiquated R&D approach which some old-timers might be familiar with. But let's not forget that many of the new business models of our era are created by innovative entrepreneurs in start-ups with no money.

As Professor Thales Teixeira has explained, using innovative new business models, start-ups steal customers by breaking the links in how consumers discover, buy and use products and services. 

Instead of taking on the DHLs and Nikes of the world head-on, small businesses peel away a piece of the consumer purchasing process, and Thales calls this process Decoupling, which is identifying activity in the customer value chain that can be performed separately from the other activities.

So, while CEOs need to be clear about their offensive strategy and create new business models, they also need to protect their companies from this decoupling process by strengthening the weak links in their organisation.

Because the notion of transformation in traditional firms is quite a nebulous word for some people, let's look at a few examples.

A decade ago, the electronics retailer Best Buy was under immense pressure from Amazon, and it was fighting for its survival.

After Amazon’s arrival, the game changed and what were once Best Buy’s most important assets - location and scale - turned into liabilities. Customers did their window-shopping at Best Buy and did their shopping online at Amazon. Best Buy had become a showroom - as have many other brick and mortar retailers we’re familiar with.

Best Buy’s profits plunged, and many were predicting a slow and painful death for the company. Then in November 2012, Best Buy's chief executive Hubert Joly unveiled a new strategy to slow the decline.

His plan was called "Renew Blue” and back then, the five outcomes it was intended to achieve were to:

1. Reinvigorate the customer experience, which involved offering customers unique benefits and exclusive membership programs, while continuing to develop a multi-channel shopping experience.

2. Attract and grow "transformational leaders" and energise employees to deliver extraordinary results.

3. Work with vendors to innovate and drive value.

4. Increase the company's return on invested capital by growing revenue and efficiency.

5. Make the world a better place through recycling effort and providing teenagers with access to technology.

The Renew Blue transformation capitalised on Best Buys' two competitive advantages, which were scale and location.

They found ways to narrow the gap between online and in-store sales, stores became used as both warehouses and pick-up points and they expanded product offerings. This was a business strategy in which technology was one of the enablers.

The concept of stores-within-stores saw Samsung and Microsoft opening up in Best Buy stores, and in 2018 Google announced its new Shopping Actions partnerships with Best Buy. 

Shopping Actions is, of course, part of Google’s own transformation and the partnership with Best-Buy is a form of collective entrepreneurship. A business model which allows both parties to share the risks and rewards of getting closer to the customer.

Fast-forward to the 2019 Adobe Summit in Las Vegas, Chairman and CEO of Best Buy Hubert Joly said, “Ten years ago at Best Buy, we thought “Amazon will kill us.”

Seven years after the launch of their Renew Blue transformation, Best Buy is in much better shape and has even moved on to reinventing its future trajectory with a transformation they’ve called “Best Buy 2020: Building the New Blue.” Which involves developing and selling solutions instead of just products.

While Hubert Joly is at the helm, Best Buy will continue to transform and reinvent its future.

Then there's Daimler - another example of transformation. The company was already the world's leading smart city transportation service provider with its Car2go venture and it had partnered with software companies to create new smart mobilities solutions and services. 

Then Daimler joined forces with its neighbour BMW to bring their car-sharing services Car2Go and DriveNow under one roof. And many other traditional carmakers are following suit.

In the consulting space, McKinsey has unbundled its offerings to provide software and technology-based analytics that can be embedded in a client’s business. This new service includes pricing and promotion tools to improve the return on sales, organisational health indices and benchmarking solutions.

And on a much smaller scale, I've transformed my own business model. For two decades I provided my consulting expertise to a few customers at a time. Now I provide it to thousands of customers at a time via the CXO Transform platform and we've gone on to partner with several well-established global organisations, which results in a win for us and our partners.

The reinvention of business models can and should happen in every size and type of company if it wants to capitalise on the digital economy.

There's an abundance of innovative business transformations to get inspired by, and the staff and stakeholders of any company that isn’t on a journey of legitimate transformation should take steps to change that or face the inevitable. 

But the reality is, regardless of what they achieved in the past, not every CEO is cut out to lead in the digital economy, and that's something that every board needs to be mindful of.

Most established companies have a great deal of value. The challenge for the CEO is to move that value into a new form and build on that value in new and innovative ways.

This will inevitably mean leaving behind some elements of the old organisation, which could include products, processes, people and more.

And all this needs to be done while keeping the trusty old business in motion because the company depends on its traditional revenue and profits until it can rely on a new business model that's fit for a digital world. This is why it's critical companies allocate adequate resources to both their operations and their transformation because compromising on either could spell disaster.

Nostalgia is a pleasant indulgence, but it won't keep a company in business, and it needs to make way for foresight, re-invention, and a new future, which needs to focus on the value proposition and the capabilities required to create that new future.

Changing from one business model type to a more effective one to defend or regain a company’s competitive advantage means managing a deep strategic renewal process that includes a shift in the firm’s dominant logic and mind-set. 

Innovation must be at the very core of every business model transformation, and this requires entrepreneurial leadership which should be intensely focused on exploiting new opportunities. And while there's no magic formula to a successful business model, it's plain to see that two of the common characteristics in many of the most successful companies of our time are now Personalisation and Platform.

Even after a successful transformation, in the way that Best Buy and Daimler are doing, companies need to continue to rejuvenate their business models to remain competitive in a world that's now in a constant state of transformation.

Transformation is greater than the sum of its parts, and while almost every company has technology projects underway, let's understand what the real transformation for the company is, and how that will enable the company to thrive in the digital economy. Then we can appreciate the role different projects and parts play in the overall transformation.

The reality is that right now there are thousands of digital projects taking place, which are not contributing to an overarching strategic transformation of the business. And as cool as some of them might sound, many are nothing more than random acts of digital sugar coating. And while that might give some people immediate gratification, it does little for the long-term health of the company.

PMI Ascent - Digital Business Transformation Management Course