It's time to digitize! Although companies have been talking about digitization since the 1980s, the term has again risen from the ashes. Maybe we didn't get it right when the mainframe arrived; or when PCs were installed in every office; or when we connected companies to the internet; or when the entire world's population got a mobile supercomputer in their pocket. But now that AI has reached peek hype, we're ready!
But what is digital transformation, really?
According to Gartner, digitization (in the private sector) is the use of digital technology to change a business model with the aim of creating futher value from new revenue streams and opportunities. New technology creates opportunities to rethink and innovate over how products and services are developed, how they are distributed and sold, which markets they can reach and how they are commercialized. Done right, the return on invested capital will increase and it will be attractive to invest more.
There is definitely nothing new about this. It's a direct parallel to the industrialization that started in the Western world in the mid-18th century and led to a huge increase in productivity, living standards and prosperity (but also to huge social unrest, revolutions and world wars). It also brought about a total upheaval in how goods were created, distributed and sold. Industrialization wouldn't be called a “revolution” if every seamstress got her own steam-powered loom to serve her village. It wasn't the technology itself that created the revolution, it was new business models that opened up.
Digitalization is a tool. It is an opportunity to create change. It is a means, but not an end in itself.
Where does it all go wrong?
While the last two decades have been marked by disruptive digital unicorns that have revolutionized certain sectors, there are plenty of publications showing that in many sectors, industries and companies, the impact of digitalization has been disappointing. Why is that? It's hard to use technology to improve and innovate across business processes and value chains, and it's hard to change an “analog” company culture.
Of course, digitalization is not just a capitalist tool. I've spent most of my professional life working on digitalization in the education sector. Value creation in this context revolves around the learning outcomes that each individual pupil or student is left with after completing their education. The challenges faced by the education system (not just in Norway) are much the same as those faced by businesses, and the results are often equally disappointing. Why do so many businesses fail with digitalization?
Here are my top eight reasons, not necessarily in order of priority:
1. "Electrification" of old business models and processes
Lack of innovation (or imagination) is perhaps the biggest challenge faced by organizations going digital. They are stuck in existing mindsets and processes, and have a hard time imagining how they can be improved with new technology. But it's easy to imagine how new technology can be incorporated into an existing business process. The result is often to digitalize the way you've “always done it”.
In education, there is no shortage of examples where people are trying to "electrify" old teaching processes. If your way of teaching is centered around the blackboard, the obvious choice is to buy a digital whiteboard. But you forget that the blackboard comes from an era where there were books and other materials where in short supply, and in a century with little evidenced-based learning theory available.
2. The IT department is driving digitalization, but does not understand how the business works
In many companies, it's the IT department that is put in charge of driving digitalization. It doesn't have to be wrong, but ask yourself the following: Is this the right department to drive change in your business model? Is this the team that best understands how to drive innovation and change management? Most likely, the answer is “no”.
The same problem exists everywhere in the education sector. The IT department has decided that teachers should use Teams, you say? While Teams has many good qualities that can be applied to teaching, it's not exactly a tool designed to support teachers' assessment work and classroom management.
3. You "transform" to improve efficiency
Many executives equate digitalization with cost savings. Can we trim staff by implementing an automated customer support system? Well, yes. But what are you going to do with that saving? Has it increased value creation in the company?
Streamlining can be an important part of a digitalization strategy, if the purpose is to free up resources that can be used to invest in the new strategy. But the savings in themselves do not make the company more productive. The acid test may be whether the owners want to re-invest the savings in the company, or just pocket the profits to invest in other companies that perform better.
To draw a parallel with the education sector: It's easy to imagine that technology can save teachers a lot of analog, administrative work. But in itself, it does not increase the learning outcome for the individual student. You have to use the saved time for activities that best improve student learning, something that is much harder to achieve than it sounds.
4. The delusion that more or better infrastructure leads to “digital transformation”
When school politicians are challenged on the lack of digitalization in schools, the answer is often “more computers for everyone”! When CTOs in many companies face the same challenge, the answer is “increase the ICT budget”! But what should all these screens be filled with? What should the increased IT spend be used for?
ICT budgets or PC density is a very poor measure of how far a company has come with digitization. A high IT budget can be an indication that investments are being made in technological innovation, but it can also indicate decades of underinvestment. Few things are as expensive on the IT side as “legacy” - keeping old systems alive because no one would take on the cost of replacing them.
5. Your organisation is not in sync
In many European countries, including Norway, teachers have a strong degree of authonomy in determining what they deem to be the most appropriate teaching method. A teacher is not a cog in the machine, but a craftsman who has a great deal of freedom to choose the approach that best suits their student group.
But when Many school leaders misunderstand the term and think it means that teachers should be able to choose their own work processes or digital tools, causing havoc in efforts put into digital transformation.
Will my homework be on paper or in Google Classroom, or should I find it in the math tool? Is my latest assessment in SAS? Ah, no, it was send in a message.”
Great organisations understand the value of autonomous employees and that decisions are being made as close to the grassroots as possible. BUT they also understand that the business needs to move at the same pace, in the same direction, at the same time. When everyone plays by the same rules, we raise the level of the game collectively.
6. No budget for change management
If you're going to transform your business, you can't just spend time on what you are changing to , but also where you change from. The road between “from” and “to” is often a daunting and confusing journey for your employees, and here you need both guides and well-marked paths. Otherwise, you often end up somewhere in the middle.
It's not just employees who need to understand the change you're embarking on. Just as often, it's managers who need to change so that new processes are actually embedded in the organization. “Yes, I know we've implemented dashboards in PowerBI, but can't you just send me an overview in Excel by email?”
7. No budget for professional development
Which brings us to the next pitfall, professional development! What, train our employees in using digital tools? But all our employees are digital natives, right?
20 years ago, you felt dumb if you didn't understand your software. Today, it is the software is stupid if you don't intuitively understand how to use it - immediately. Don't get me wrong, the rise of great software design and the maturation of UX as a discipline is fantastic. But it's also made many so-called digital natives illiterate in the face of technology designed to solve complex problems. And large parts of the workforce in many companies struggles to effectively use simple tools to improve their own productivity.
Training is not about “how the tool works”. It's about employees understanding how to solve their assignments and workflows in the new tool. Training should open their eyes to possible innovations related to business processes or, in the school context, learning processes.
8. Too much is spent on the solution, too little on the problem
Why? Why should it be digitized? Why should we introduce a new ERP system? Why should we invest in new websites?
It's a funny thing about technology. We seem to instinctively want to go straight to the solution, without taking the time to fully understand and explore the problem. In the education sector, there have been calls in recent years for technical solutions to identify texts written by AI (something that is unlikely to be technically possible - although many claim it is). But is that really the problem? Or is the problem in the way we conduct tests and exams?
Organizations that skip the insight work are unlikely to be the ones to chisel out a great digitalization strategy. They haven't got to the bottom of the most important question of all. Why?
How many companies has in the past year launched AI as an answer, without understanding what the question is?
If your productivity sucks, “digital transformation” is unlikely to help you
Can we make a mediocre school better with digitalization? Can a poorly run business boost its bottom line with technology? Probably not.
Productive businesses are often characterized by the fact that they have established a clear strategy and are good at implementing changes in the organization. They have established well functioning management systems for their business and, while there is a clear division of responsibilities between managers, everyone works towards common goals. They have established well-run, scalable business processes (or learning processes), and although they have competent employees, the organization is robust enough to withstand the loss of key personell, and they have good routines for recruiting new employees.
Such businesses are well placed to succeed with digitalization. They know that they need to start with a strategy that is firmly understood by their organization. They see not only what they need to change to, but also what they need to change from. This is a prerequisite for good change management. They understand that to succeed with digitization, you need to invest in the skills of your employees.
Less productive companies most likely lack the DNA to implement a successful digital transformation strategy. Digitization gets little foothold in the organization, creates additional work for employees who, in addition to doing everything they did before, have to deal with new systems they don't know, and poorly thought-out workflows and processes.