The Digital Transformation Playbook for Companies at Any Stage
David Rogers is a faculty member at Columbia Business School, where he serves as the faculty director of programs on Digital Business Leadership and Digital Business Strategy. Rogers is a globally-recognized thought leader, known for his pioneering work on digital transformation.
He is author of four books, including “The Network Is Your Customer,” and his new book, “The Digital Transformation Playbook: Rethink Your Business for the Digital Age”.
Rogers has appeared on CNN, ABC News, CNBC, Marketplace, Channel News Asia, and in The Financial Times, The Wall Street Journal, Forbes, and The Economist.
He has consulted for global companies in the finance, telecom, retail, automotive, hospitality, pharma, technology, media, and luxury industries, and he delivers keynotes at conferences worldwide on digital transformation, big data, and the impact of emerging technologies on business.
Many companies are stumped by the digital transformation challenge.
But in this Digital Trailblazer interview, Rogers provides a practical 5-step framework for capitalizing on the changes at the heart of the digital revolution. He also shows us that digital transformation is possible for businesses at any stage.
Read the full interview below.
Appian: Everybody’s talking about digital transformation. But not many companies are doing it well. Your latest book, “The Digital Transformation Playbook” provides a roadmap that every C-suite executive can use to rethink their business for the digital age. Can you give our readers an overview of the key takeaways from the book?
Rogers: Sure. I wrote the book because I saw digital transformation as a widespread challenge. I’ve heard from companies of all sizes, and in every industry, that they’re trying to figure out how to respond to the pace of change being driven by digital technology.
Rethinking Your Business for the Digital Age
Appian: So, digital transformation is more than just a buzzword?
“It can seem like a buzzword. It’s become the topic at every conference and in every business conversation, but rarely does anyone try to define it. I define digital transformation as a question. And that question is: ‘How does a business that started before the digital era adapt and evolve, to continue to grow in such a radically different environment—in our digital economy?’”
Appian: Sounds like you’re talking about traditional companies. But there’s a tendency to think of digital transformation in the context of tech firms and digital startups.
Rogers: And my view is that digital transformation is a different challenge than: “How do you start a great digital business today.” It’s not about creating a great startup. It’s about how do I take a business that grew under completely different circumstances—established its distribution channels, partnerships, customer base, capabilities, org structure, all in a pre-digital environment—how do you change a company like that to compete in the digital economy?
Appian: What’s the biggest challenge for traditional companies that want to remain relevant in the age of digital transformation?
“Traditional companies do have certain advantages: they have resources, they have talent, they have customers and a brand. But they also have certain barriers. For example, they have to overcome inertia. They have to move a lot more things organizationally to take advantage of digital opportunities. But I think the biggest challenge is that they may be blind to what they don’t know.”
The Rules of the Game Have Changed
Appian: And what are some examples of these blind spots?
Rogers: These companies may be operating on the assumption of business model constraints that have just vanished. They may not recognize that the strategy rule book that they’ve been playing by has changed.
Appian: Can you speak to the existential aspect of digital transformation, in light of the growing pervasiveness of digital disruption?
Rogers: Yes, we’re seeing new business models emerge and a breakdown in traditional models of competition. It used to be that you existed as a business within a defined industry. And if you had certain structural competitive advantages, you could sustain a predictable profit margin, despite poor management (laughter). You just had a durable competitive advantage.
What’s happening now is that because there is so much change, and the pace of change is accelerating so fast, even the most durable competitive advantages can vanish very rapidly. We saw this very early on with media companies like the newspaper industry, where the competitive advantage was barriers to entry like the cost of distribution.
“In the digital age, these kinds of competitive barriers can vanish overnight. So, companies can’t afford to just double down on their original winning business models. You have to be prepared to operate under greater uncertainty, and with multiple time horizons. Developing new strategies to run your business today, to grow your business in the near term, and to survive for the next 10 years or more.”
The 5 Domains of Strategy
Appian: What are some of the other takeaways for C-suite execs at traditional companies?
Rogers: So, the big picture takeaway is that digital transformation is actually not about technology. The hardest part—and the key to digital transformation—is not the technology choices you make. It’s actually strategy. It’s about leadership. And it’s about developing new ways of thinking about your business and about your markets.
That’s actually the hardest part. Technology is what’s driving the need for digital transformation, and technology will enable any strategy that you develop. But you won’t complete the digital transformation journey, if you get lost in the weeds of the technology.
Appian: In your book, you talk about five domains of strategy. Would you break down this concept for our readers?
Rogers: Yes. The focus of the book is on how to go about rethinking your business for the digital age. What I argue is that CEOs need to learn to think very differently about five core domains of strategy.
The first of these domains is customers. Start thinking of customers as networks, and how you engage and interact with them. Understand and observe and participate in the interactions that happen between and amongst your customers. Also, learn how to create value with them.
The second dimension I talk about is competition. This is about shifting away from thinking about competition as a contest of peers, where we’re trying to outperform companies that look like us.
— David Rogers (@David_Rogers) May 30, 2017
Competition Without Boundaries
Appian: So, the notion of competition is not just confined to the companies in your specific industry anymore?
Rogers: Exactly. There’s no longer any industry definition, in terms of where competition comes from. Your biggest competitor may be one of your biggest financial partners as well. And your biggest supply chain partner could also be your biggest competitive threat.
“So, we need to rethink the definitions and boundaries, from symmetric competition—where you’re competing against firms that look just like you—to asymmetric competition, where you’re competing for influence with different parties to your business model and those that might replace them.”
Data is the third domain to rethink. We need to shift from thinking about data as something used to operate our businesses and learn to think of data as a strategic asset—an intangible asset that we build and leverage over time to create value in our current products, and add value to future offerings we bring to market.
Appian: You mentioned future offerings, which makes me think about innovation. Where does innovation fit into these digital transformation domains?
Rogers: Innovation is the fourth domain. We need to shift away from thinking about innovation as a planning-driven process with low uncertainty. We have to learn how to manage innovation through a process of rapid experimentation—where you accept that you’re dealing with great uncertainty. The thing is to focus on options value, not just the net present value, of your investments.
Turn Disruption into Customer Value
You should also be focusing on innovation to maximize learning and upside potential, and to minimize downside risk. So, the goal is not to avoid failure. But to fail in ways that minimize costs and maximize learning.
“Which brings us to the fifth domain—value. Business leaders need to shift from thinking about how to defend their current value proposition and their position in the marketplace. They should think, instead, about how to adapt and offer more value to customers and stay ahead of the disruption curve.”
In other words, you should look at each new disruptive shift, not as a threat, but as a stepping stone to create value for your customers and generate future growth for your business.
Appian: Talking about creating value for customers, what are some good examples of traditional companies that are rethinking how to create value for digital consumers?
Rogers: Walmart is a very traditional company that’s thinking about how it can leverage its huge physical assets and infrastructure to create an omnichannel experience for customers, around mobile and online shopping.
The New York Times, after getting off to a slow start with its legacy culture, is really rethinking how it connects with audiences, how it creates value with them. And they’re communicating with customers and rethinking journalism in very different ways than they did just a couple of years ago.
Disrupt Yourself Before Somebody Else Does
Automakers are another good example. Car companies are starting to focus now on rethinking what their business is going to be, as we go on this journey of autonomy which is transforming the industry. The timing for this kind of transformation is incredibly important and incredibly hard to predict.
But the direction is clear. And the impacts that will come from shifting from ownership to access, from cars that last on the road for 10 years, to cars that last for two years, with shortened product cycles. How is that going to transform the automotive industry? This is something the automakers are heavily focusing on right now.
“We had NASDAQ up at Columbia last week. We’re seeing incumbent financial service brands like them looking at machine learning, blockchain, and other technologies to see how they can use them to disrupt themselves before somebody else does.”
I’m hopeful. I’m not one of those cynics that says traditional companies are dinosaurs (laughter). Yes, digital transformation is a hard challenge to overcome. Some companies have failed at it. But there are great opportunities for traditional companies to transform.
Appian: So, it sounds like there’s hope for traditional companies in the age of digital transformation.
Roger: That’s the whole point of my book: Don’t write off traditional companies. That’s my thesis.
Appian: What about the emerging technologies of robotic process automation, and artificial intelligence. What do you make of the explosion we’re seeing in the adoption of these technologies? And what’s the best way for traditional companies to take advantage of it.
The Next Digital Wave
Rogers: The importance is clearly that these are the technologies that are the next digital wave transforming existing business and industry. They are removing traditional barriers and constraints, which defined the ways companies were organized in the past, and the way that value flowed to market.
These technologies will evaporate old business models and give rise to new ones. So you have to be paying attention to them. The thing is not to get overly focused on the technology.
What I argue is that companies need to start by developing a theory of the future—what I call a future-facing view of your industry. And that requires an intimate knowledge of what’s happening with technology.
“It’s not just about watching the explosion of artificial intelligence or blockchain. It’s about understanding what blockchain and AI have to do with your industry, and how they will impact it. You start with that. Then, you need to come up with a vision for where you see your business going, and a strategy to ensure that your company will still be relevant in this new world.”
Transformation Starts with Business Strategy
And to get there—if you’re looking at the CEO level—you may need multiple strategies. So, you want to focus on growth strategies across different time horizons, in which you think your industry is going to be transformed. You need strategies for each of those.
And once you know what your strategies are, that’s when you go back to the technology and say: “alright, here’s our suite of growth strategies for our business, where does machine learning fit into one or more of these strategies? Where does cloud computing fit in? Where do open APIs and platform business models provide an opportunity for us?
You don’t want to start with: “Oh, we need an Internet of Things, or chatbots,” or “what’s our artificial intelligence strategy?” There’s no such thing as an artificial intelligence strategy. There’s a business strategy. That’s what you need. And then you need to figure out which technologies—under the broad rubric of artificial intelligence—are going to enable that strategy for your particular business.
Appian: So, technology should be the enabler of business strategy, not the other way around.
Incumbents Still in the Game
Appian: Finally, I’m not asking for predictions. But as you look ahead, what are your expectations for digital transformation in 2018 and beyond?
Rogers: I guess I would argue that in the next two to three years, we will witness the return of the incumbents. And we’re going to see some titans of industry—that were built on old business models—come back with strategies that will gain them traction and increased relevance in the digital era.
And we’ll probably see the impact of this in some stock market valuations. We may see some of the digital high-flyers taken down a peg, as they have trouble reaching their next stage of profitability.
“But I think we’re going to see some companies that have been undervalued—because they’ve been seen as old and stodgy—show that they are able to adapt and deliver new revenue streams, new offerings that customers find compelling, and new partnerships with digital players.”
In short, traditional companies are not out of the digital transformation game.
About this series
This interview is part of our ongoing Digital Trailblazer series. Join the conversation as we talk with innovators and big thinkers on all things digital transformation. Click on the banner below to read the full series.