The Promise, Peril, and Necessity of Digital Transformation in Business

• This story was first published in LinkedIn on April 17, 2019 https://www.linkedin.com/pulse/promise-peril-necessity-digital-transformation-roberto-capodieci/

Right up front I want to say that, although this piece is more focused on digital transformation in the business world, I see the issue as a much more holistic one that spans business, government, and society as a whole. But, as businesses invest more aggressively in technology, employ real people, sell things to real people, and have sometimes-profound effects on the world, let’s start there.

There are all kinds of literature, surveys, and reports on the topic, and I encourage you to post comments, links, and more here — challenge me!

First comes an illuminating report by Brian Solis called, “The State of Digital Transformation”. It’s a great overview of the state of change in business, based on an extensive survey of industrial stakeholders. A few things that stand out.

Follow the $$$

Businesses are investing heavily in digital transformation, and that will only increase.

According to the survey, almost 80% of companies are spending at least one million dollars annually on digital transformation of some fashion. 44% are spending at least 15 million a year on it — most of it going to IT-based operations (more on this below). Numbers from the World Economic Forum back this up as a worthy investment. They say that there are hundreds of trillions of dollars of economic value to be gained from digital transformation across essentially every business sector.

It’s one thing to throw money at a problem, but it’s quite another to solve one. As the Solis report notes, the investment in technology is there, but the investment in the people who use it is still lagging.

This year, we also observed companies placing an increased importance on digital transformation initiatives around workplace dynamics, collaboration, communication, decision-making, employee experience, and organizational culture. Twenty-eight percent of organizations are funding transformation initiatives to improve operational agility and to modernize policies and processes so they can more rapidly adapt to change. Twenty-seven percent reported this is a long-term focus of theirs as well.

More telling, 25% (short-term) and 22% (long-term) of companies are using digital transformation to reorganize people and departments in order to optimize cross-functional collaboration and create efficiencies. As companies grow in digital transformation maturity, we expect these numbers to increase as they reorganize themselves to be more competitive and agile in the face of evolving markets.

These numbers are low, and that matters. The stark reality is borne out elsewhere in the report:

If we aren’t in the era of automation, we’re certainly on its doorstep. The effects on the very nature of what “work” means are already profound, and this will only accelerate over the next decade. For employers and business leaders — right now anyways — that means finding efficiencies in business units with easily-automated things like data processing, digital advertising, and some HR and finance functions.

But, as AI-based automation achieve scale, businesses are not prioritizing both the adaptation needs of its current workforce, nor what its future workforce looks like — look at the bottom items on the chart above. New business opportunities via technology are great, but such drastic change — and digital transformation is a serious, very consequential act — needs to be done with care and vision. More than that, you need capable people to do it.

What Comes Next

I’ve worked in the blockchain space for as long as it’s existed, and I’m something of an evangelist. But, I’m also a realist. I truly believe the technology has the potential to completely change the way we think about digital security and privacy, and it may well underpin the data management systems of the future.

But I’ll be the first to admit that most users just don’t really care about the technology behind any of the systems or services they are using. They want things to work. If it’s “AI-powered”, on a blockchain, algorithmic, etc etc…no one really cares (except some friends in the marketing industry, perhaps).

China wants rural areas to go completely cashless in the next year or so. The digital banking industry is growing exponentially in Indonesia (and across Asia, really). Industrial robot adoption is accelerating in both the east and the west. We’re making farms that don’t need people to harvest the bounty.

The opportunities for businesses in these four examples alone are vast and probably quite lucrative. But introducing new products, maintaining them, and generally running a business in the economy of the very near future will require a workforce with the skill sets to bring all of this together. All of this is happening in an environment where the average end user is ambivalent to how it all comes together.

The Regulatory Environment

On the policy side, regulators may mean well, and there are a handful who can talk intelligently about the technology that is fundamentally changing the nature of work, money, and more. But such cases are outliers.

Forget AI, machine learning, blockchain, and everything else. Just watch some of the clips from Mark Zuckerberg’s testimony in front of the U.S. Congress from August 2018. Facebook is not a terribly complex system, and it’s business model is extremely straightforward. Yet, sitting senators sounded like people who had barely heard of anything on the Internet beyond the large social media platforms, Google, and a handful of other players. CNET put together a video called “Mark Zuckerberg Explains the Internet” that would have been funny had it not been so sad.

https://www.youtube.com/watch?v=ncbb5B85sd0

It’s easy to laugh at, but it’s no laughing matter. Uncertain regulatory environments are a key factor driving lower (or, slower) investment in blockchain technology, for example — I hear it all the time, and not just from people in the crypto community.

The fact is that we need the people drafting regulations and legislation on issues like predictive policing, algorithmic securities trading, and broad AI applications, to know what they’re talking about. For me, in the blockchain community, there is an unavoidable contact layer with governments and regulators. So many of the pilot programs being run now with the technology are centered around proof of identity, provenance, and data ownership — but all of these require government buy-in.

It’s pretty pointless to have a robust proof-of-identity on your mobile phone if the person checking you at the gate doesn’t know what any of that means.

It’s Already Happening, Focus on People

Machines and robots may provide the means to higher productivity, but it’s still people who build, maintain, and use the end products. It’s still early days (which may seem odd to some, but it really is), but it’s becoming clear that people simply have too many tools to manage among systems that aren’t integrated, and companies are not investing nearly enough resources into the analog side of digital transformation.

There are, of course, numerous exceptions to this — firms that are growing with machines and humans working hand-in-….interface? The only way this works is with a workforce that fundamentally understands the technology.

Last November, PwC released a report on how companies are not doing enough to prepare for the future of work. This snippet is both shocking and completely understandable:

Although more than 60% of respondents say using data analytics in workforce decisions is important, only 27% actually use it. In addition, only 38% use data analytics to predict and monitor skills gaps in the workforce, while just 31% use sophisticated workforce planning and predictive analytics and only 28% use data analytics to help limit bias in hiring and to craft incentives tailored to individuals.

More to come on this, but my advice to business leaders working on digital transformation projects is to really take the time to understand the needs of your workforce and to invest in them. They are the people who will build your future business.