The myth and lies that is ‘Moving to Digital’ and Digital Transformation…

Back in 2016 I delivered a keynote to the Chief Digital Officers event in London, where they were discussing the revelations that was the next big thing — Digital Transformation…and I couldn’t believe the complete tosh I was hearing. And it’s getting worse.

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It was certainly a case of ‘the emperors new clothes’ as the so called CDOs espoused the benefits of going digital and that digital transformation was the answer to future organisational success, although couldn’t give any examples where it had worked.

I have never been shy so I explained to the audience — why Digital Transformation is a myth and can never work… The audience was already dazzled in the headlights of the potential to make money, to fool management and shareholders and charge large fees, on the back of selling ‘digital transformation’ -without knowing what this really means. The creation of another fad the consulting and tech industry do well. A constant flow of apparent new innovations, a new product or version that promises much, yet delivers at most small incremental improvements in performance, that if difficult to measure. They weren’t listening as they were working out how to charge a lot for doing not much…

The term digital I generally struggle with. What does it actually mean in the context of business?

Maybe it’s an age thing, as I have been in tech since 1970’s, yet most of the room at this CDO event where under 40 — most had no background in technology, organisational behaviour and little knowledge of recent history as it relates to the things that make commerce work. A new job the — Chief Digital Officer had arrived and yet nobody understood what they did, there were no examples of the benefits and qualifications for doing the job, seemed to cover everyone and anyone.

What is digital anyway?

I ask many in the room what digital transformation meant? What it was? And bar non they all seem to think it involve digitising things, going online, removing paper, and creating self service platforms for customers and staff. It was a shocking revelation of how little these CDOs understood about how businesses function and why, in a historical context.

The term digital refers to the type of communications that packages and carries our information as it is sent across a network. Created as part of the move from analogue signals at the time used for voice calls. It was Dr Donald Davies that worked alongside Alan Turin at NPL that first created the ‘packet switched network’ concept, that allows data to be set across a network, decomposed at the send end into digital packets of information, to be reconstituted at receive end. Latterly catering for the additions of encryption to be part of protecting the message.

The shift was taking place, with old documents scanned, new ones created in digital formats anyway. Messages compiled compressed in different formats stored and sent as digital packets of information. It was this that heralding the arrival of the digital age, but this was the 1960’s and 1970’s, so it’s hardly new.

So when someone says we are ‘going digital’ please ask them what they mean? Do they know? Do they realise everything is already digital? It seems not.

So why is Digital Transformation impossible?

For any form of real change and transformation to work the starting point is always new, not to overlay. Why? What does change and transformation mean? Is it a case of adjusting the operating model for competitive advantage? For efficiency and productivity to do more with fewer resources and costs? What is the goal? The outcome?

The short answer is management will never place their current revenues at risk, and you cannot change engrained behaviours of the people. The average age of larger businesses back office is 45+, do you really think this generation will, can and are likely to change? Of course the deeper you go you soon realise ‘change’ itself is the issue, and the true path is to start afresh.

Broadly speaking the engrained organisational model will always kill any attempt to adjust it. The current systems and processes won’t allow it. You end up with spending a lot of money for an unachievable outcome. But it sounds good to mention in the Annual Report “were embarking on a digital transformation” and therefore makes management feel like they are doing something.

It’s all nonsense and a waste of time and money.

The longer answer relates to the nature of the organisation itself, the theory of management, the hardcoded way commerce works born from a post industrialised revolution. The use of standard cost, the nature of internal transactions that can be measured and recorded, and business processes that are engineered for a manufacturing that all businesses copied. All of which were designed for a different purpose, at a different time, that hasn’t really changed since its inception.

The nature of the organisation was created in a post industrial world where for the first time businesses needed to operate at scale. Early mass production techniques required lots of people and the work to be done was packaged so that it could cater for lots of people, but mostly so it could be measured, certainly not to be enjoyed, for satisfaction or broader efficiency. The very nature of corporate roles and jobs in terms of how they are defined is a nonsense. Makes no sense and is killing peoples value, self esteem and mental health. It is ridiculous to create roles that cut across business processes, isolating outcomes and polarising the people who perform them. Remember it is likely your job role was created to be measured at a time before computers, before airlines, when the class systems was the only system in the western world. What nonsense…

Rationale at the time…

Processes were designed end to end in layers, each with standard cost models to control things and manage profits in a pre-computerised era — standard time. As we hit the 1950’s as computers came out of academia into the commercial world, some bright spark decided to get engrain and hardwire to old hierarchal business approaches, coding ‘standard cost accounting’ as the backbone function for an organisation, where power and decision making decimated top down were replicated onto the large mainframe systems. A centralised command and control structure, mirrored how businesses of the time functioned, and where the concept of the ‘manual transaction’ soon to become electronic (digital) was born.

Mainframe applications and more recently apps like SAP and Oracle operate as transaction monitors that report on the end to end transaction, not fair efficiency, but for end of year accounts and audits, for monthly P&Ls to see if we made money. Their founders messers Ellison, Hopp and Platnner were 1960’s programmers who replicated the old ways, the old organisational and transaction models into these systems that are impossible to move away from. Designed to create software dependency not choice.

These systems have done nothing more than held back commerce, while costing far too much, but then everyone falls for the enterprise software ‘gold rush’, the next big thing like CRM until you discover you no longer control your sales and clients data? Or Cloud computing, yes getting rid of your data-centre sounds great, until you realise there is no way back, your are a slave to the centralised data-centre sitting on the other side of a vulnerable network. So here we go again, so lets go digital…!

Hence forth when your transformational idea touches people roles and description, the accounting system and challenges or cuts across someones power model for decision making and approvals — it will die. It will be killed off. Another reason why real change never happens and why the average life of a corporation is so short. Entirely new models arrive that changes the fundamentals of the business model, the dinosaurs cannot respond to…its called progress. Covid has been the accelerator and every industry model has revealed cracks and opportunities, and some have simple collapsed.

Technology isn’t value for money…never has been

Be under no illusion the current technologies don’t really deliver anything more than tiny incremental improvements. Replacing people with tech was short lived. Offshoring relied on more people doign the job for lower wages. Both never delivered transformation or change. Largely because they are an overlay on an old tired operating model, outdated management behaviours that harbour — friction, time and cost. The fundamentals don’t change, yet management expect great things from their new shiny tech…

When examined closely the incumbent technology actually prevents transformation, hinders change and allows the vendors to squeeze you each year for upgrades and new versions — that promise efficiencies that cannot be delivered or measured. And why big tech firms are bigger and more valuable than all their customers, which isn’t how its meant to work.

Bottom line is technology has engrained old fashioned business models and thinking from a different age on us all. Along comes some consultants who invented ‘Digital Transformation’ as it sounds like an answer, sounds cool. Let’s build a ‘digital garage’ sounds good, but it is indeed meaningless. Window dressing. It feels like a solution but it’s not.

Digital Transformation is like putting ‘lipstick on a pig’…it is a paper thin veneer, a sticking plaster that falls off, does nothing in particular and doesn’t delivery any measurable improvement in business performance. And what is shown as profitability in one area, is simply moving cost buckets and loading the loss from somewhere else.

Can transformation work?

The only way to create real business transformation (lets not fall into the trap of calling it digital, as we are already operating in a digital age), is to separate the proposed solution from the current organisational model, thinking and business requirements. In other words start a fresh business and business model unencumbered by the constraints, old ways, the old thinking.

In some respects the answer is no. Transforming something that has all the inherent issues, protections, vested interests is unlikely to ever deliver. Far better to create a competitor outside the mothership, cut it loose and leave alone, with the mandate the challenge the parent company and look to outcompete it at every level.

Conventional business operating models now struggle in today’s business environment. Suffering from a centralisation effect where all industries operate through layers that again adds friction time and cost. The hand offs, the trading of corporate and customer data, the duplication of effort and costs, which the end product or service expects the client to pay for. Most industries are lazy cash cows and they are doomed!

New business models can collapse entire industry models, gain significant cost advantages and control the deployment of products and the customer experience. Without the layers and the middle. Decentralised business models using Blockchain can outperform centralised equivalents and can scale at pace. Platform models that become the aggregator of products and services are winning. New direct to customer technologies that can converge the offline, the physical and the online into a new set of experiences are winning.

Income many ways it is time to forget business rules, forget formality and compliance, break free from the shackles of tired functions — Human Resources, Procurement, Compliance and yes traditional Finance that dictate to the company through draconian lines of authority, rather than deliver a valuable service to it. They are not needed and will be replace anyway by AI.

New levels of automation are here. New branches of computer science create means of accessing and gaining insight from huge amounts of data, from a sensory world where performance is measured differently. The gig economy, the new generations coming through, access to and the nurturing of talent, working flexibility, healthcare and wellness, remote working and social impact are the new items that matter, that becomes part of the new operating model design…

Forget digital anything. Close down your transformation projects. Don’t buy the latest technology expecting it to make a difference. It is time to take a hard look at how business and commerce functions in a world that was focus on globalisation, extended supply chains and free and loose capital. As we enter a new era of ‘slowbalisation’ the rules f the game have already changed.

Author: Nick Ayton © 2021

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