Most business executives think – often reflected by who they bring to the room when you discuss the topic with a CEO – that Digital Transformation is about technology. It is not.

Certainly, top notch technology capabilities are a critical ingredient in all Digital Transformation success stories, but there is a lot more to it. This is the purpose and central theme of this blog: debunking the notion that technology is the most important factor in making a start-up or centuries old companies more competitive with digitally driven innovation, and expanding the field of view of executives to include the broader set ingredients that they will have to mix and match to lead their companies into the digital future.

Digital Before Transformation

Software is eating the world. In a now famous 2011 Wall Street Journal piece, technology entrepreneur and venture capitalist Marc Andreessen brilliantly made the case of why most companies were in the way of becoming software companies – across industries, from entertainment and banking to cars, retail and logistics.

“Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale” he wrote.

While banks still own branches, airlines fly planes and Amazon last year ordered 100,000 electric delivery trucks, technology is now in charge of engaging with customers, managing risk and fares, or deploying assets – and make companies winners or losers depending on how good their algorithms are.

Most of the underlying technology has been around for some time. But now its maturity, ubiquity, and affordability – and the ingenuity of the engineers, entrepreneurs and innovators deploying it – are giving it a dramatically more significant role in shaping business models and strategies. A Transformative role.

Time to Transform

Some industries and companies can be wholly reconfigured by technology – remember Blockbuster or Tower Records? – but not all. McKinsey puts is very well: “the number of companies that can operate as pure-play disrupters at global scale are few in number, and rarer still are ecosystem shapers that set de facto standards and gain command of the leverage created by hyperscaling digital platforms.”

But even in asset or activity-intense sectors that can’t be entirely switched to digital-only experiences, modern technology is driving major change, and visionary executives the world over have taken note and quietly started reshaping strategies, business models and organizations to exploit these new opportunities. They updated their leadership styles, cultures and platforms to design and deploy entirely new ways of doing things. They embarked in a Digital Transformation.

The Impact

Academics and consulting outfits have very carefully analyzed the advances in digitization and linked them with financial performance, and the relationship is undeniable.

A seminal two-year study by the MIT Sloan School of Management analyzed more than 400 large firms and found that digitally transformed businesses are 26% more profitable than their industry competitors, drive 9% more revenue through their employees and physical assets and are 12% more valuable than their peers.

The researchers developed a digital maturity model to show how different companies are reacting to technological opportunity, and cleverly analyzed how businesses invest in technology, but more importantly, how the true leaders create the leadership and change management capabilities necessary to drive innovation, which they called transformation management intensity.

They proved that the ability to modernize strategies, organizations and processes is as – or more – important than the technology itself in the quest to be a digital leader.

Another by McKinsey found that focusing on the right digital practices, B2B companies –currently trailing B2C companies in digital maturity – can create long-term value, with the most advanced in their transformation programs driving five times more revenue growth than their peers.

Digital Leadership

So, what is Digital Leadership about then?

It is about reinventing strategies, operating models, and processes. It is about putting the customer in the center of attention of the entire organization and designing their experience from the outside in. It is about fact driven decision making and agile change management.

It is about fostering a culture of nonstop innovation and fearless renewal, of mercilessly abandoning established ways of doing things and adopting digitally enabled models.

Technology allows all of this, from the advanced analytics platforms that support decision making and action to the omnichannel platforms that support seamless customer experiences. From process automation to remote collaboration. But despite the broad availability and growing affordability, technologies alone are useless without the leadership to drive change.

Transformation is more important than Digital. And Transformation is about Strategy, People, Innovation and disciplined Execution, the components of the framework proposed in this blog.

Originally written late 2017, updated December 2020.