Digital Transformation, So Mom Can Understand
Over the past few years, I’ve enjoyed writing several letters to you to help answer many of the questions you have asked to better understand my data management career choice. I know many of my friends and colleagues in the data space also have parents, spouses, children and other family and friends that don’t work in this industry, and struggle to understand what we do and why it’s important.
So far, my letters to you have shared my thoughts on a variety of data-centric themes like Data management, Metadata, and Data Governance, as well as several industry trends like Big Data, the Internet of Things and Cloud computing. Today I’d like to share my thoughts on an important trend that’s receiving a lot of attention called Digital Transformation (also sometimes referred to as Digital Business Transformation or with a DX acronym – IDC did a nice job introducing this topic in their write-up).
Setting the stage for Digital Transformation
To describe what a Digital Transformation is, let’s first define “digital.” Sure, fundamentally digital is referring to those things made up of 0’s and 1’s. But more holistically we’re talking about data, information and computing in general. With Digital Transformation, we’re talking about how businesses replace, enhance or eliminate business processes that used to require a lot of paperwork or manual effort with predominantly data-driven (e.g., digital) and automated processes.
Why do businesses suddenly consider Digital Transformation to be such a big deal? You know from our past conversations that companies have been automating business processes with application and data management investments for years. But I could make an argument that the business case for many of those process improvements in the past have been internally focused – trying to improve employee productivity and reduce the costs of those processes to help the bottom line.
What’s new and different in this age of Digital Transformation is the “why”. In the old world, companies prioritized these investments for operational efficiencies. Those investments certainly delivered value, but for some it was optional. Digital Transformation is not optional; companies either drive it or react to it. And if they ignore it, they risk their business.
Everyone is facing a digital transformation
Many companies must invest in Digital Transformation to react to some external pressures. Some reactive business drivers include:
- Being disrupted by new competitors: Traditional industries must adapt their business models to remain competitive. For example, large insurance companies used to rely 100% on brokers as their primary points of
contact; the end customers weren’t the priority. If the brokers were happy, business was good. When you and dad used to run your own dental practice, you had a relationship with a local broker who for many years helped manage your office and staff insurance needs, and another who helped you with personal insurance. But with the emergence of self-service insurance sites like Esurance in the U.S. and many others, these traditional models were disrupted. To combat disrupters, insurance companies large and small prioritized data-centric customer-centricity strategies to build new and compelling direct engagement channels with both their business and consumer end customers. Similar disruptions are taking place in retail, travel, banking, and many other industries.
- Being disrupted by macroeconomic market trends: It’s one thing to have a creative competitor changing the rules on you, it’s another to have the very foundation of your industry in doubt. Some industries must adapt their entire business model to remain solvent. For example, whatever happened to that weekly Newsweek subscription that you loved receiving in the mail? That’s right, they stopped printing and now only have an online version of the magazine. What about Blockbuster video – when was the last time you rented a VHS or DVD there? That’s right, Netflix and other streaming services killed them. Even Netflix had to adapt, as we discussed in my Cloud letter. If they hadn’t shifted from physically mailing DVD’s back and forth to digitally streaming in real-time, they never would have survived.
- Managing massive market consolidation through mergers & acquisition (M&A): M&A occurs within a given market for many reasons, and at different stages of a market’s maturity. In emerging markets with high growth, there are tons of players competing for mindshare, but only a few can dominate – the others are usually M&A targets to capture IP or market share. In more mature industries with flattening or declining growth, many companies will merge to join forces and attempt to find economies of scale. Whether early or late in the market’s life cycle, companies must effectively manage market consolidation through M&A and internal business consolidation. What’s typically being acquired or merged is data. It’s customer data, product data, intellectual property data, supply chain data, etc – but it’s all about the data.
Those are examples of companies embracing digital transformation because they are being disrupted. Other companies act as the disrupters and proactively drive the digital transformation themselves. Some proactive drivers include:
- Being a market disruptor: In our new digital economy, inventing new business models and go to market strategies allow some innovative firms to stand alone in the market and require everyone else to catch up. Some commonly cited examples include companies like AirBnB ($30 bil market cap) in hospitality and Uber ($68 bil market cap) in the transportation space. AirBnB doesn’t own real estate and Uber doesn’t own any cars, so without those major expenses they have turned their respective industries upside down since all they manage is their apps and its data. Sure, they have other challenges around things like privacy and liability that their mature competitors have long ago solved, but that doesn’t mean those competitors are feeling very comfortable.
- Increasing business agility (Reactive to market pressure or “bleeding edge” Proactive): While traditional business process optimization (i.e., improving quote to cash or supply chain processes to reduce costs and increase productivity) are valuable, they aren’t necessarily considered part of a Digital Transformation. But that said, any wholesale transformation of legacy business processes into new world best practices certainly would. For example, a retailer that sells through three channels (e.g., in-store, call center and web) may optimize their go to market processes through those channels. That’s not a digital transformation. But if that same retailer shifts from three channels to hundreds of channels, that’s a massive, game-changing transformative effort.
As you can imagine, most businesses today face at least one – if not more than one – of these scenarios. Whether they’re the disruptor or the disrupted, this Digital Transformation train has already left the station.
Of course, it’s all about me!
Kidding – but circling back to what this all means to me and my career in data management, it’s very exciting. As you know well from my 25 years in this space, much of my history was spent trying to convince senior management that the data projects I managed were important to the business. But that was the rub – if I was hired to manage that data, how was it my senior executives didn’t already think it was important?
Thankfully, I feel we’ve turned a corner in the data management space. Data is no longer an IT topic only to be discussed by specialty technical professionals and publications. Data – and even metadata! – is on the cover of major business newspaper and publications (print and digital, of course) every day. Whether it’s Big Data analytics gone wrong (see U.S. pre-election polling models), customer data security breaches (see…everywhere), EU privacy regulations, and other topics – thinking strategically about data is the new normal. As it should be.
P.S Hybrid’s been a fun topic of late, would you like that to be the theme of my next letter?
P.P.S Tell Dad nice try, but no – I cannot “digitally transform” his Pokémon Go character to Level 40 – he’ll need to work on that himself.