Transformation is the art of changing something from status A to status B, given a significantly big scale of change. In an enterprise context single projects would not be seen as delivering “change” but not “transformation”, but a group of interconnected projects bundled in a program would usually be expected to result in “transformation”. There is no clear border that separates “change” from “transformation”, but anyone in possession of wisdom and humility would only make scarce use of the label “transformation”.
The object of a business transformation is a company. A company can be broken down – using a simplified version of McKinsey’s 7S Framework – in people, organization, processes and systems. An important view of the company, as all 4 aspects will be transformed by digitalization.
Digitalization itself can be broken down into 5 forces:
- Use of Information Technology
- Customer Centricity
- Big data
- More empowered work organizations
- A set of cultural values (more or less derived from silicon valleys famous frontrunners)
What separates traditional transformation from digital transformation is the importance attached to these 5 forces of digitalization. These forces are mutually interconnected and grow in strength by acting together. They act like a perfect storm, causing the business revolution which has been hyped in internet bubble until 2001 and which is finally here to stay.
The five forces of digitalization come in such a combination and strength, that existing business models are destroyed and new ones are created. These forces change the competitive position a company is in. A company will likely go into decline with competitors overtaking them, if failing to transform into something new.
A “competitive position” is – according to corporate strategy guru Michael E. Porter Michael E. Porter – determined by 5 competitive forces: Threat of new market entries, buyer power, threat of product substitution, supplier power and competitive rivalry with other companies. If any of these “competitive forces” change in strength or direction, a company needs to react.
Porters 5 competitive forces have been around basically since people have been trading flint stones. What is really new is that the IT revolution has now reached such a scale to impact culture massively. This can be measured by market capitalization of companies created the last 20 years vs. the “old economy”, the ubiquitous nature of IT in everyones daily life and last not least the broad public acceptance of the existence of an IT revolution even by not technology minded people.
The accepted game changer in competitive strategy is now the use of IT technology, but not in its bare form, e.g. “lets replace paper”, but in the form of “Digitalization”. And “Digitalization” in turn is nothing else than a combination of the 5 Digitalization forces listed. Forces which have been unleashed by a revolution in Information Technology are now revolutionizing work organizations and cultural values – not only in companies, but in human culture overall.
Lets have a look at the five forces of digitalization of businesses one after the other – starting with the “root” force: Information Technology.