One aspect of digital transformations that seems to be common-sense among people who are in or who help companies go through this process is that what is most difficult is not the digital and technology changes, but the cultural and mindset changes needed to make a successful transformation. In this article, I’ll go a bit deeper in these needed cultural and mindset changes in the hope that we can better understand and tackle the obstacles that hinders the journey through successful digital transformations.
I worked almost my entire career in tech companies, i.e., companies where technology was the product. My own company, back in the early 1990s, was an internet service provider. Then I worked at a data center called .comDominio which was eventually acquired by Equinix. After that, I worked at Locaweb, the biggest internet service provider in Brazil, and Conta Azul, an ERP platform that connects small business owners to their accountants and everything they need to run their business. I joined Gympass in 2018. Gympass sells a corporate benefit to companies, so they can offer to their employees access to a network of gyms and studios, and more recently other well-being services like meditation, nutrition, and mental health support. For Gympass, the technology is not the product, it is a tool to potentialize their core product. That got me thinking about the power of digital to substantially potentialize non-digital businesses. And that was my main motivation to join Lopes, the biggest real estate company in Brazil, a company founded in 1935 that made a follow-on offering in the stock market in late 2019 to raise funds to invest in their digital transformation. I’ve been working at Lopes since mid-2020 and I’ve been learning a lot in this digital transformation journey.
An interesting article on HBR about The Industries Plagued by the Most Uncertainty presents a chart where many industries are shown according to their technology uncertainty, measured by the industry’s research and development (R&D) spent as a percentage of revenue, and its demand uncertainty, measured as an equal weighting of industry revenue volatility, or change, over the past 10 years and percentage of firms in the industry that entered or exited during that same time period.
As we can see, in the top right region of the chart we can find Computer and Software industries, next to Pharma, Medical Equipment and Transportation industries. These are the industries where we have to invest the most in R&D and the demand is the most uncertain. Computers and Software are the newest ones. Pharma, Medical Equipment, and Transportation are more traditional ones, having Technology and Demand uncertainty similar to Computer and Software industries.
When we look into other more traditional industries, like Banking, Insurance, Retail, Entertainment, Real Estate, and Construction to cite a few examples, they present lower technology and demand uncertainties.
When a traditional company decides to enter the route of digital transformation, one thing that needs to be clear is that this route is more about transformation than it is about digital. The digital aspect is very important since technology is central in any digital transformation. However, it’s relatively easy to find knowledge and experts that can help understand and tackle the technical aspects of a digital transformation. On the other hand, the transformation aspect of any digital transformation requires business and cultural changes which are considerably more difficult to implement. And to make things even harder, there is not much knowledge available about this topic, so we tend to credit its difficulty to a somewhat generic cultural and mindset cause, which is correct, but insufficient to help us deal with the matter.
The demand and technology uncertainty chart can help us understand why the business and cultural changes in a digital transformation can be so difficult. The traditional company is normally used to a certain level of technology and demand uncertainties. However, when entering the digital world, the level of demand and technology uncertainties increases considerably:
The more distant an industry is from the Software Industry in the chart, the bigger the transformation change needed, i.e., the company needs to (1) understand that digital product development may not bring the desired results and (2) digital products take time to provide a return on the investment.
I’m talking here about companies going through digital transformation and the challenges theses companies face during this transformation but companies are made of people, so the digital transformation actually happens to people who need to understand the demand and technology uncertainties that charechterize a digital transformation.
This fact that people go through digital transformation seems obvious when we talk about traditional companies, specially the ones that have decades of existence like bank, retail, drugstore, bookstore, real estate, insurance, restaurant and so on.
However, besides traditional companies, there are also two other types of companies:
When we consider that digital transformation happens to people who are part of a company, it’s clear to see that born-digital traditional companies and even tech companies also face digital transformation. Many people who work in these companies probably came from more traditional industries with less demand and technology uncertainties and will have to adapt to a more uncertain context. For instance, to build Nubank, many of its employees, including C-level and founders, came from the banking industry like Cristina Junqueira who worked for Itaú prior to founding Nubank. Another interesting example is Google’s CFO Ruth Porat who worked at Morgan Stanley prior to joining Google.
Being able to understand the previous context of the people who are working on a digital transformation may help cope with the struggles and issues that we may face in a digital transformation, especially with its transformation aspect.
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