Everyone is talking about digital transformation these days, but I have to confess that I am a bit of a contrarian on this topic. I’ve spoken a lot about this in recent years, but the catalyst for writing this post was a session on digital transformation at a conference that I just attended.
I work with a lot of large companies around the world and I can guarantee that virtually every large company now has a “digital transformation” program. When I press executives for details about the program, I invariably find out that the focus of the program is to apply digital technology to do what the company has always done faster and cheaper, but the business and the company remain largely the same.
Is that really “transformation”? Definitions differ, but I use the metaphor of the caterpillar and the butterfly in assessing whether transformation is really occurring. If we’re just applying digital technology to help the caterpillar to walk faster, that may be helpful to the caterpillar, but please don’t call it “transformation” unless the result is a butterfly that would be unrecognizable relative to the caterpillar. In my experience, digital transformation programs are just helping caterpillars to walk faster.
Why does this matter? It matters, because in a rapidly changing world going through a “Big Shift,” there are exponentially expanding opportunities that can only be effectively addressed if companies and other institutions are prepared to undertake true transformation, asking the most basic questions of all: What business should we really be in? How can we expand our ability to deliver more and more value to our stakeholders? How can we motivate ourselves to take more risk?
Let’s look at three levels of transformation:
- Pursuing fundamentally different business opportunities
- Crafting fundamentally different institutional models
- Cultivating fundamentally different emotional drivers
Pursuing fundamentally different business opportunities
In a rapidly changing world, there’s a strong temptation to shrink time horizons and just focus on the business we have. The paradox is that this Big Shift world is creating exponentially expanding opportunities – we can create far more value with far less resources and far more quickly than ever before.
To see these opportunities, we need to be able to look ahead, far ahead, and anticipate significant emerging unmet needs that we could address. This requires a very different approach to strategy – a zoom out/zoom in approach to strategy, something that I have written about extensively, including here and here.
Zooming out requires us to look ahead 10 – 20 years and focus on trends that are reasonably predictable and that will give rise to opportunities far larger than anything we have addressed in the past. If we look ahead 10 – 20 years and believe we are still going to be in the same business that we are today, we don’t understand exponential change. It forces us out of our comfort zone to imagine becoming a fundamentally different business from the one we are today. We begin to see the butterfly.
As just one example of how different our businesses will become, I urge you to consider Unbundling the Corporation, a perspective that I first wrote about a couple of decades ago. We need to challenge ourselves to see how fundamentally businesses are changing and the opportunities that these changes create.
As a side note (worthy of an additional blog post), the best way to pursue this form of business transformation is by scaling the edge.
Crafting fundamentally different institutional models
As we look ahead and begin to see the magnitude of the opportunities that are emerging, we will begin to realize that our current institutional models are ill-equipped to help us on the journey to addressing those opportunities – in fact, they are becoming significant barriers.
What do I mean? I’m going to generalize, but over the past century, all large institutions around the world have embraced an institutional model that I describe as “scalable efficiency.” In that institutional model, the key to success is to become more and more efficient at scale, and the way to become more efficient is to tightly specify and highly standardize all activities in the institution so that they are done in the same efficient way everywhere.
Large and very successful institutions have emerged around the world using this institutional model. The challenge is that in a rapidly changing world this approach to efficiency is becoming less and less efficient. It also misses the key requirement for success in the future: scaling and accelerating learning.
To address the opportunities in the future, we will need to embrace a very different institutional model: scalable learning. I have written about this need for institutional innovation here.
And, let me be clear – when I talk about scalable learning, I’m not talking about learning in the form of training programs that focus on sharing existing knowledge. In a rapidly changing world, the most powerful and necessary form of learning is learning in the form of creating new knowledge. That doesn’t occur in training rooms, but requires all workers to learn through action in the workplace. It also requires coming together into impact groups and orchestrating larger and larger ecosystems of participants from many different backgrounds to learn faster together.
Scalable learning can help expand our focus beyond efficiency – doing the same things faster and cheaper – to see the potential to learn how to deliver far more value as well. When we unleash scalable learning, we have the potential to deliver exponentially expanding value to our customers and other stakeholders. We are constantly finding new ways to deliver more value in a rapidly changing world. Scalable learning can also accelerate our progress towards addressing the fundamentally different business opportunity that we see in the future.
Pursuing this kind of scalable learning requires us to re-think and redesign all aspects of how we organize and operate in our institutions. It requires us to explore what is needed to become a butterfly.
Rather than trying to transform the core of our existing institution, we will be much more likely to succeed if we scale the edge, viewing the edge as the cocoon that will give birth to the butterfly.
Cultivating fundamentally different emotional drivers
Transforming into a butterfly can be very scary. As I discuss in my new book, The Journey Beyond Fear, more and more people around the world are consumed by fear, given the mounting performance pressure that is being generated by the Big Shift in our global economy. While understandable, the emotion of fear can also be very limiting.
In this context, fear can increase our resistance to change. We simply want to hold on to what we have and continue to do what has made us successful in the past.
If we’re going to make the transformation journey, we need to add another level of transformation – emotional transformation. We need to find ways to cultivate emotions that will help us to move beyond our fear and achieve impact that is far more meaningful to us.
In this context, I believe the emotion that can help all of us to pursue the transformation we need is the passion of the explorer. It’s a very specific form of passion that I discovered when researching environments where sustained extreme performance improvement had been achieved. I have written about it extensively, including here and here. The passion of the explorer is a fundamentally different emotion from fear.
I believe we all have the potential to draw out the passion of the explorer within us – it’s not just something that is limited to the gifted few. The challenge is that we live and work in environments that are deeply suspicious of this form of passion and actively seek to suppress it. The good news is that the two other levels of transformation – business opportunities and institutional models – will help to foster environments that will help to draw out the passion of the explorer.
But if we’re serious about pursuing transformation, we need to find ways to draw out this emotion, even in environments that are still seeking to suppress it. External transformation will not succeed without internal transformation. We need to move on both fronts.
Pursuing genuine transformation requires evolving from the caterpillar into the butterfly. It can be hugely rewarding because it positions us to address the exponentially expanding opportunities that are created by the Big Shift. Of course, digital technology can play a significant role in helping us to address those opportunities, but the key is to focus the application of digital technology on true transformation.
But genuine transformation isn’t just an opportunity – it’s an imperative. In the Big Shift world, those who hold on to what made them successful in the past – or who simply focus on doing the same things faster and cheaper – will be increasingly marginalized. Transformation is an imperative.
Three levels of transformation need to be pursued in parallel, but we need to understand that emotional transformation is ultimately the foundation that will enable us to successfully pursue the other two levels of transformation. If we can find ways to move beyond our fear, we will soon discover the butterfly that is waiting to emerge from the cocoon and venture out to amazing new areas that have never been explored. And we will see that digital transformation is designed to limit us to the lives of caterpillars.