Breaking Down Digital Transformation With David L. Rogers [Lecture]

David L. Rogers, is an author, speaker, and consultant. He is the Faculty Director of the Digital Business Strategy and Leadership at Columbia Business School. And he is also the author of a fantastic book which is The Digital Transformation Playbook.

This is a must-read because it helps you to understand how the business world has changed. I asked David a few key questions to understand what digital transformation is really about!

How did you get into digital transformation?

David Rogers: I’ve been teaching at Columbia Business School for many years and been at Columbia for 20 years, in 2019. And for most of that time, I’ve been focusing on the impact of technology in markets and business, on brands and business models and organizations.

Now I tend to split my time between teaching executives because I teach at Columbia Business School executive education programs, and digital business strategy and digital business leadership.

Those are in-person programs — also, online programs and senior executive programs that combine them both. When I’m not teaching on campus, or in Silicon Valley, I am researching and writing books.

The third thing I spend time is speaking, supervising, and consulting firms around the world in different industries. So the book “Digital Transformation Playbook” really came out of that experience and how I saw companies grappling with and struggling with.

It was the first major book on the topic of digital transformation, so it’s out now in nine languages, with some more on the way. I’m actually starting work now on the sequel. And it’s a topic, which continues to evolve and deepen in terms of its importance to the business.

What are the myths surrounding digital transformation?

David Rogers: There are a lot. I would start with the number one, which is that digital transformation is a technology issue, a technology problem, and something you address by picking the right technology implementation.

The second myth, I think, is that a digital transformation is a project, and I hear this from CEOs. They say: “Okay, I believe this is important and we have to evolve, so how many years is this going to take me, is this a three-year project or is this a four-year project? And what’s the budget, what should I put aside for this?”

And digital transformation is really about evolving into a different way of operating as a business. So it’s not something that you run out of the project management office, with a sort of, three-year timeline.

Another myth is that a lot of people come to this and think it’s merely a matter of digitizing what they have already done.

Let’s take our existing business, that we know well, and simply make processes more automated, more digital, add machinery into it and so forth. That may be part of what you are doing, but you are missing a lot of the scope of transformation if that’s all you think about.

I guess the last myth depends on who you are talking to. If you spend time in Silicon Valley, in certain quarters, you may get the impression that digital transformation is impossible.

That these old companies will never change, that they are dinosaurs, and that ultimately, only the digital native businesses will survive. The Ubers, and Googles and Netflix of the world are the only ones who can succeed today, and I think that’s not true.

How can we define digital transformation? What is it really about?

David Rogers: I define digital transformation, really, as a question. And that question is: how does a business that started and grew to scale before the internet, how does that kind of business need to adapt in order to grow in the digital age? How does it need to evolve if it’s going to reach its next stage of growth in the digital economy?

Because these successive waves of technologies are now shaping every sector of the industry, that definition is quite a different question than, “how do I create a great start-up?”

In that case, all you are talking about is, “how do I understand the market, customer needs, changing technologies, new emerging possibilities, and how can I envision or imagine a new product or service or offering?”

And it’s a very different question, how do I take an existing enterprise, an organization that has certain advantages? It has customers; it has a brand reputation, it has, no doubt, talented employees, it has revenue.

But it also has a lot of things that make change very hard. They have organizational charts; they have distribution partners and channels; they have a brand reputation that they have to protect. There are a lot of complicating factors when you are talking about shifting existing organization.

The fundamental thesis of the book is that digital transformation is not about technology, but, at its heart, it is about strategy, leadership, and new ways of thinking. The hardest part is learning to reimagine what your business is and what its future will be.

How do you think the business strategy world has changed?

David Rogers: Organizations suffer from what I call strategic blind spots. They are making decisions and thinking out their business and making plans based on a set of rules and principles and strategy that are based on years and decades of prior experience of their own company, and their own organization.

Based on things that they were taught in business school, perhaps some years ago. And they don’t even recognize that this is guiding and shaping their assumptions that they are making.

And that a lot of these principles and sort of, rules of strategy have changed dramatically in the digital era. So that’s why I usually start my speaking or teaching executives or working with a company is, helping them to step back and learn to think differently about five essential domains of business strategy.

What are the five domains of business strategy in the digital era?

The five domains of digital transformation according to The Digital Transformation Playbook

The five domains of business strategy in the digital era are:

Customers
Competition
Data
Innovation
Value

Customers

The first domain is customers, and we have to learn to think differently about our relationship to customers, whatever kind of business or organization that you are in. This is fundamental in the digital era on a shift from customers to be treated as targets.

Customer Strategy and Marketing was all about identifying, segmenting and reaching, and distributing and messaging to customers; they were a passive target.

Now, we do much better to think about customers as networks, understanding the connections between them and us, much more dynamic, much more reciprocal, much more active roles that they can play in shaping and even helping to grow our business.

Competition

The second domain in the strategy we have to think differently about is competition. Traditionally competition was defined by industries, that was the basis of all the classic models of Michael Porter and others.

Including within your industry; against companies that look like you. And there is a very clear distinction between your competitors and partners. Today, all of those assumptions are outdated. Industry definitions are increasingly blurry, and you are competing across and outside of industries.

The distinction between who is a partner and competitor is also blurry as we are competing with our closest partners and partnering with our fiercest competitors.

And to succeed it’s really about the value, not necessarily that you create yourself entirely, but about the value that you can assemble or bring together, often with an ecosystem to deliver something unique and valuable to the marketplace.

Data

The third domain is data. It has always been part of businesses, but in the past data was really something we used to operate, to optimize. To manage our current business.

In the digital era if you treat data effectively, if you capture and bring together, data from across your company, and then you can start to even link it with other sorts of data, different sets from outside of your business.

And bring in structured and unstructured data. What happens is, the data becomes a strategic asset, becomes a source of new value creation.

Innovation

The fourth domain we have to rethink in the digital era is innovation. How do we manage innovation, and specifically, the risks of innovation? The traditional model that we taught, and the approach that we taught in business schools was, we manage the risks of innovation and doing something new, by planning.

You create detailed business plans, explaining everything that’s going to happen. We launch this new product or service, or business venture which we have never done before and no one has ever done in many cases. It was a popular form of business fiction writing.

But what we’ve learned in the digital era is that innovation demands much higher speed and it demands the ability to manage the risks of doing what has not been done before by managing innovation as a process of experimentation.

Innovation becomes continuous experimentation and learning of iterable discover to uncover which activities will actually be feasible, workable, scalable, and profitable for your business.

Value

And the last domain strategy that we have to think differently about in the digital era is value. What is your value proposition? Now traditionally, your value proposition was defined by your industry.

If you were a newspaper business, your value to the world was that you delivered the news on paper, and every week you would get out there and try to execute, and do the best job with the smartest reporters and the most talented editors, picking the right stories et cetera.

But today, newspapers have to ask much more fundamental questions: “What business am I in? What is the value I deliver to the world, and how can I best deliver it?” And that’s the kind of fundamental question every business has to be asking.

When you do this, you shift from looking at a digital change in the environment, from a defensive posture, thinking about how it impacts your existing business model. And instead, look at it from a growth mindset: how can I leverage these changes to create new value for the market that wasn’t possible before?

How have customers changed in the digital era?

David Rogers: The fundamental paradigm, is that we have implicitly thought of customers as mass markets, in the twentieth century. And in a mass market, any business, succeeded through economies of scale, on the firm side.

So it was about finding a repeatable model where you have a product or service you can sell to as many customers as possible. And you have a consistent message.

Up until the nineties we were teaching in business schools the mantra of Integrated Marketing Communications, always say the same thing to the customer. Every customer has to get the same message across every touch point because otherwise you would somehow confuse them or dilute your message.

That’s the complete opposite of how marketing works today and is practiced today. Today we understand it is not about economies of scale delivering and pushing out the same message through the same channels to as many people as possible.

It’s about looking at customers and their interactions and their dynamic behaviors. This is why I introduced in my prior book, the paradigm of thinking of customers as a network.

Thinking of them as in each customer, or potential customer is node looking at this very dynamic, connected environment that they are in and just how they learn and discover, purchase, influence others, establish relationships in businesses, create feedback links, co-create, spur innovation within companies.

And so businesses still need to be innovating and delivering products and managing their brand and all of these things, but they have to do it in a way where they see that relationship to customers as much more reciprocal.

And where they’re thinking about, they consciously, about how do they influence and shape this activity or network rather than merely pushing things out to it.

What are the customers’ core behaviors in the digital era?

David Rogers: This is based on research done for my prior book, The Network Is Your Customer. And what I looked at was hundreds of examples of different digital products, services, offerings and even marketing campaigns that had been highly successful in terms of attracting and engaging customers deeply, and over time in large numbers.

Across all different industries and across, really about fifteen years or so of the digital era. And what I found was that five common behaviors kept driving when and where customers would bring their attention and their energy and their investment and spend their money:

Access
Engage
Customize
Connect
Collaborate

Access

David Rogers: The first is we look for digital experiences that help us to access. That means they give us what we are looking for, service or product, or information. They simply give it to us simpler, quicker, easier, and on-demand or self-service.

And we have seen many businesses, from the original breakthrough of the Blackberry to ride share experiences like Uber and Lyft that are technically something that people already have, but simply making it more accessible.

Engage

The second behavior is that networks customers engage with content that is relevant, meaningful to them. Whether it’s interesting, informative, entertaining. Content has been a massive driver of customer behaviors in the digital world from the very beginning, whether it’s blogs, media streaming, video, social media, photos, now a virtual reality and other sorts of content.

But this has always been a critical driver, shaping customers.

Customize

The third is to customize their experiences. They aren’t all looking for the same content, the same information, the same services from companies.

We are drawn to digital experiences that give us more choice, we control more options, more variation, and more personalization. We see this from Netflix to Amazon, to the filters on your Snapchat profile.

Connect

The fourth behavior is that customers seek to connect. We are social animals, and it’s no surprise that at various stages from email through to the first social networks like Friendster and Myspace, through to today, whether it’s Facebook and Instagram, or WeChat and WhatsApp.

That digital tools that allow us to connect and communicate with the people we know, and share our experiences with them, are highly compelling.

Collaborate

The last behavior, and sometimes the hardest and most complex to tap into. That sometimes, customers want to do more than connect and express themselves; they actually want to collaborate.

And by collaborate, I mean that they are drawn to the chance to work together, contribute in some sense, in some kind shared project or goal.

And this can be quite involved like crowdsourcing, the Linux operating system or the birth of Wikipedia, as an open source information resource. Or something as simple as using Waze.

Where simply by driving with the app on you’re helping to feed a data engine, and most of us as we use it, will not just keep an eye out, but we will tap the screen to see all the other drivers, cars on the side of the road, a police speed trap, or foggy weather ahead.

To create the right mechanisms, customers, we are drawn to, we are creatures who have an intrinsic belief is reciprocality, and we like to be part of something bigger than ourselves as we know how to design and create the right experience.

What is the business model most suited for this digital era?

David Rogers: I talk in the book, in some detail, about Platform or Multisided Business Models. Now, there is no single business model that works in every case, but what is interesting is, the digital era has supercharged the power of this kind of business model (platform business model).

And when it works right, it can grow incredibly fast, and indeed, in my own research looking at companies that have been started since the birth of the world wide web, eight of the ten biggest companies from this era if you will, have a Platform Business Model at their core.

What does that mean? A Platform Business Model is one that facilitates, it’s a business that facilitates an exchange of value between two or more distinct types of customers.

And that can take different forms, from marketplaces like Airbnb, or Uber, or eBay, to PayPal based transaction systems, or Paytm in India. Advertising based business models, of which Google Search or Facebook have platforms.

Innovation platforms like the iPhone, and IOS, and Android. Each of these has the same principles, but they are bringing together different parties, different types of customers, they each play a different role.

And each of them is contributing much of the value. Some of the value comes from the platform business itself, it has to create the right experience, it has to orchestrate, it has to facilitate, make it seamless, and easy, and attract people to it.

But when you’re going on Airbnb or eBay or any of these platforms, most of the services you’re consuming, or the content you’re reading, or the value you’re getting from it is actually coming from some other party, through the platform rather than being generated by the business itself.

I actually have in the book, a tool called the Platform Business Model Map, it’s one of several strategic planning tools, and it’s the first business model canvas or map that was designed specifically for these kinds of multi-sided businesses.

Because it really is about understanding this flow of value through and across them, to ensure you can understand how do you create, how do you manage, and how do you grow a platform business model.

What are the fundamental principles for a successful digital strategy?

David Rogers: These are some of the essential best practices that I have been observing, that are part of what I’m going to be writing about in the next book. What makes an effective digital transformation effort, one that really has a significant impact on the business.

One, they are holistic, they’re not siloed, they’re not just looking at one part of the business, but they’re looking at the impact of digital across the organization.
Two, they are business-led, not led by IT. So they are starting from business strategy, business goals, and business meetings, and that’s defining the transformation.
Three, they are organized around experiments and strategic bets, knowing that you will not know to go in at the start, what is going to work. They have much of a less emphasis on planning and best practices and detailed charts of what’s happening for years ahead in the process, is, and what large organizations are used to.
Four, they are driven by a growth mindset, they are not simply focused on cutting costs and improving efficiencies. But they are thinking about, how do we actually drive new sources and growth in the business?
Five, these transformations have a variety of independent projects, activities going on, they’re independent but aligned. So not everything is being driven by one, sort of, a central planning committee, and yet there is an oversight. Rather than having to disperse our efforts, you have this balance, independence but also alignment and assessment of priorities. What resources go to the initiatives and efforts that are most strategically important.
Six, these efforts are being run, not just inside the traditional business units of the organization but also with new structures that may go across those business units and bring in outsider parties.
Seven, that these are organizations that work well with others. They are not trying to do it all themselves. They partner well with an ecosystem of startups, partners and technology, and innovation, and strategy.
And lastly, and this is critical. These organizations need a management model that can adapt, that can be flexible enough to pursue both low and high uncertainty challenges and opportunities. And that requires a very different, much more flexible kind of management than we have traditionally seen in large organizations. And I think that is going to be one of the most lasting changes in digital transformation across industries.

Key takeaways
Digital transformation is not just a project, that can be allocated based on a specific budget, but that is a mindset shift.
Business strategy has drastically changed. It isn’t based anymore on old logic, like Porter’s Five Forces. That’s because the logic of competition itself has changed.
Digital transformation is defined by five core domains: Customers, Competition, Data, Innovation, Value.
Digital transformation requires looking at customers and their interactions and their dynamic behaviors. Thus, customers need to be seen as a network seeking five key behaviors.
The five key customers behaviors are based on Access, Engage, Customize, Connect, Collaborate.
The digital era has supercharged the platform business model.

Conclusion

An effective digital transformation effort needs to be holistic, not siloed.

It needs to be business-led, not IT led.

It needs to be organized around experiments and strategic bets.

It needs to be driven by a growth mindset.

The effort must be independent but aligned.

It needs to work across business units and bring in outsider parties.

And it needs to align ecosystems, partners, technology, innovation, and strategy.

At the same time, it needs to have a flexible management model to deal with uncertainty and opportunity.

That is what digital transformation is really about!

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