The Real Meaning of Digital Transformation

Tuesday Oct 31st 2017 by Carl Weinschenk
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The bottom line is that digital transformation is a human, not technical, challenge. In many cases, it is scary.

Digital transformation is a very vague and inaccurate phrase. The second word implies a complete makeover. Things that are transformed start as one thing and end up as another. The first word implies that that change will be technical.

Digital transformation, of course, actually refers to leveraging the massive amounts of data generated by the Internet of Things (IoT) and related technologies to fundamentally shift – i.e, transform – the processes upon which a business rests. It doesn’t make these processes better; it changes what they do.

The bad name is more than a semantic issue. Companies are doing well with digitization. But they aren’t necessarily doing well at digital transformation, which is much harder. For instance, global enterprise applications firm IFS recently released a survey that found only 16 percent of 200 IoT decision makers at industrial companies in North America use IoT data in enterprise resource planning (ERP) software.

Industry in general seems to be at an inflection point. Executives, observers say, must think strategically about the business processes that the IoT and related technologies will make possible. “Like any…new technology, there is a hype curve that we go through,” said Chuck Rathmann, IFS’s senior marketing communications analyst. “[The next step] is to learn what really works….A lot of people think the difficult part of IoT is the tech itself. What is more difficult are the cultural changes that come along with that.”

Thus, the real meaning of the phrase, and the process that it stands for, is far more complex than installing new equipment. “Digital transformation is a mindset that enterprises need to adopt,” wrote Christopher Davis, NTT Communications’ senior director of Marketing for Americas, in response to emailed questions from IT Business Edge. “They need to acknowledge that they will be breaking the old way they were performing certain tasks or processes and replacing them with new ways, often to the benefit of cost and time savings as well as improved end user/customer experience.”

Progress Being Made

Phil Skipper, head of Business Development for Vodafone Internet of Things, referred to The 2017-2018 Vodafone IoT Barometer as evidence that some companies are paying attention to digital transformation. “IoT is really changing how organizations are looking at specific processes and the way they leverage technology,” Skipper wrote. “The IoT has played a larger role in changing the way organizations operate efficiently, as 55 percent of companies using IoT adopted the technology to increase efficiency. Meanwhile, it’s also being used to change the way organizations manage risk and reduce costs across the business (49 percent).”

Fifty-one percent of respondents reported increased revenues and new revenue streams from the IoT worldwide. In the Americas, 64 percent report significant ROI on IoT investments -- 11 percent more than the rest of the world – and 42 percent report an increase in revenue.

Percentages tell part of the story. Examples create a landscape that is also valuable. Consider the situation on the factory floor of the imaginary Jones Company. The firm relies on several machines and will have a crisis if one of them goes down. In the days before digital transformation, there may have been an obvious enough sign that one of those mission-critical machines was in trouble long enough before an actual breakdown to enable something to be done. More likely, though, the machine’s breakdown would be an expensive surprise.

That scenario is completely changed in a digitally transformed organization. Sensors placed on the machine measure attributes such as vibration patterns and electricity use. An alarm is sent if the machine starts to operate outside those parameters and the crisis is averted. Putting such a system in place is a bit of a no-brainer. Full ROI may be achieved if one disaster is averted.

The complicating factor is that the change does not happen in a vacuum. The new approach means deeply engrained patterns will change. The reduction in downtime will affect staffing, the amount spent on backup equipment and other capex and opex elements that are related to but go beyond the actual operation of the machine. This kind of long-tail effect is an important feature, not a small benefit, of digital transformation. In short, digital transformation means massive change. And change, even for the better, is threatening and hard.

The Hardest Changes Aren’t Technical

The real meaning of digital transformation is not technical, nor is it aimed at engineers. Digital transformation is the acceptance of the basic changes to businesses processes and corporate planning that the explosion of technology makes possible. A better phrase (but one that would be nixed immediately by the marketing department) would be “fundamental structural changes made possible by the massive influx of timely data.”

Ed Abbo, the president of C3 IoT, said the ingredients of digital transformation include the IoT, the falling price of computing, and highly innovative self-tuning algorithms such as AI and machine learning/deep learning. He suggests that the change has to come from the top. The idea is that such changes, even if they are all for the good, simply won’t happen unless C-suite executives are fully committed. “It requires changes in what workforces do, how they are compensated, how they are incented,” Abbo said. “Without sponsorship from the CEO, these initiatives fall short.”

Last month, C3 IoT and West Monroe Partners announced a partnership to promote digital transformation. West Monroe will provide system integration, application development and other assets to companies deploying the C3 IoT Platform. Through their combined efforts, customers will gain access to intuitive approaches to the harnessing of Big Data, predictive analysis, AI and the IoT, according to the press release.

One piece of advice is not to move too quickly. “It’s quite a change involving technology that is not always well understood,” said Rick Veague, the North American CTO for IFS. “Often cloud-based technologies, though having nothing to do with the IoT per se, bring in another level of changes and things that are different. Things get organizationally complex even though the technology itself is not that complex…What I tell my customers is to start small. I think with anything that requires organizational change or learning, if people bite off more than they can chew too early, it’s likely to fail.”

The bottom line is that digital transformation is a human, not technical, challenge. In many cases, it is scary. “It’s a one-way street,” said Tom Hulsebosch, West Monroe’s senior managing director. “You are changing technology, business practices. You’ve got to retrain people. It’s a pretty radical redesign of how you do things. When a transformation goes bad, you are in a world of hurt.”

Carl Weinschenk covers telecom for IT Business Edge. He writes about wireless technology, disaster recovery/business continuity, cellular services, the Internet of Things, machine-to-machine communications and other emerging technologies and platforms. He also covers net neutrality and related regulatory issues. Weinschenk has written about the phone companies, cable operators and related companies for decades and is senior editor of Broadband Technology Report. He can be reached at cweinsch@optonline.net and via twitter at @DailyMusicBrk.

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