CUTTER: The Digital Leader: Master of the Six Digital Transformations

Much has been said about innovation. The argument is twofold.

1. On the positive side, consider innovative companies like Facebook, Google, Apple, Amazon (hard-core IT innovation), or companies like Walmart, Dell, CEMEX (Mexican cement global leader), and Progressive Insurance (“regular” firms that use IT). We can easily see and appreciate how they invent new products, services, and ways to conduct business.
2. On the negative side, we have firms like Kodak (lost to the digital photo market), Nokia and BlackBerry (replaced by the smartphone), Microsoft (some say missed the tablet market), Borders (killed by Amazon Kindle), Tower Records (defeated by MP3 and iTunes), Blockbuster (lost to Netflix), and many more. These are firms that were once masters of their domain, yet killed by others through innovation, usually disruptive innovation (Christensen, Clayton M. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business Review Press, 1997.)

As it turns out, digital technologies have become the foundation of the new economic order. Understanding these technologies and managing them for the benefit of the firm is a daunting task. In the report, we offer a practical tool in the form of six digital transformations as a mental framework to master these changes.

Wherever we look, we see and use digital technologies: at work, at the mall, on the train, at the theater, in our pockets, while we learn, while we collaborate, and so forth. Almost every device today has embedded digital technology. Some products have become fully digital (e.g., music, books, maps, navigation tools), while others have been enhanced with digital technologies (e.g., cars, airplanes, TVs). Some services have been transformed into self-services powered by digital technologies, while other services are being delivered to customers over digital channels (e.g., call centers, websites, self-service kiosks).

Digital technologies completely change the business landscape, including the way businesses craft their strategies and envision their business models, how they create and implement competitive advantage, how they operate their value chains, how they engage and collaborate with all stakeholders (i.e., customers, employees, vendors, and business partners), how they structure and organize, how they divide work among business partners, and much more. In other words, digital technologies alter every aspect of the business environment.

To put it bluntly, organizations that do not recognize and act upon the digital transformations are destined to die. The death may be fast, or relatively slow, but likely to occur. In fact, due to the rate of transformation, opportunity grows quickly but so, too, does the danger. Lack of action causes a spiral of decline, a harbinger of demise. CIOs who do not innovate will be replaced, demoted, or simply lose their organizational relevancy.

The six digital-driven transformations are neither technologies nor business models per se; rather, they define the connecting tissue between digital technologies and business strategies. The first three are external transformations that describe how digital technologies are changing the market:

1. From atoms to bits. The first transformation involves converting physical products and services into digital products and services.
2. From places to spaces. The second transforms physical marketplaces into digital and virtual market spaces.
3. From products to services. The third transforms physical products into digital services.

The next three are internal transformations that describe how digital technologies have altered the models and tools we use for strategy and business model formulation:

1. From sustainable competitive advantage to transient competitive advantage. Organizations must understand the dynamics of the new environment. Indeed, they must become more agile and responsive and operate in a world of short-term/transient competitive advantage.
2. From disruptive innovation to “killer” innovation. When it comes to the digital landscape, the wellknown process of disruptive innovation, which in the past could sometimes take years to disrupt, has accelerated into a matter of months, or even weeks.
3. From classical business models to digital business models. Digital technologies have augmented the standard business model and transformed it into a digital business model.

These six transformations will provide CxOs a solid foundation to capture how digital technologies completely change the business environment. We assert that organizations and managers will have to devote considerable time and resources to evaluate how they will leverage these six transformations to create new value for their customers and new competitive advantage for their business — and, in parallel, thwart the threats and risks of digital technologies.

The six transformations present huge opportunities and challenges for business leaders. As such, all senior stakeholders from the board to the CEO, CIO, and all other CxOs must adapt and adopt new leadership skills and styles. The known CIO role, which by itself has changed several times over the years, is now undergoing a major transformation. CIOs must refocus and reshape their skills, mindset, and approach in order to embrace digital technologies. Due to the rapid pace of the digital age, these leaders can’t be passive; they must be proactive in leading their organizations to exploit digital opportunities, create new value for customers, and successfully deal with disruptive threats.

The report presents the turbulence created by digital technologies. Almost every aspect of the business is changing rapidly. Companies must understand the roots of this turbulence and ensure that they remain on the top of the tsunami waves. The six transformations described affect every facet of the modern business environment. Thus, organizations and their leaders must learn how to leverage the opportunities and, in parallel, avoid the threats. Remember, only the paranoid survive.

Sivan, Y. & Heiferman, R. (2014). The Digital Leader: Master of the Six Digital Transformations. Cutter Consortium Report: Business Technology Strategies (17) 2.