Digital transformation is about destroying things

October 28, 2020

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Jan Madsen

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There is a vast difference between digital transformation and digitalisation, and we tend to focus more on the latter. 

Digitalisation means adding some tech to the edge of existing systems or processes, whereas digital transformation is all about building new solutions with technology at the core. Adding Apple Carplay to a new VW Golf is digitalisation – yes, it is nice and smart, but not moving things other than on the surface. But then have a look at Tesla, which is a real digital transformation. A completely new way of thinking the concept of a “car”, with new technology at the core of this product. 

Digital transformation often requires destruction

The car example above also points at the core problem: “How do we even get started on this digital transformation journey, when we have all the old and existing stuff going on?” The car factories of the world have spent decades optimising the production of cars. They have the technology, the know-how, the organisation, the culture and not least their earnings from making cars this way. 

No matter how many gadgets or fancy “play” systems or screens they add to existing cars, it is not the real digital transformation, that profoundly changes how we transport ourselves. Therefore, in this industry, as in so many other examples, the real change comes from an outsider. Tesla has no history of making cars, and it is a tech company, not a car manufacturer. 

The lesson here is that for real change to happen, we often have to destroy (or ignore) the old and start all over again. 

Examples of this

The world is full of great examples of how starting from scratch can be a huge advantage. Back in 2017 the Danish tech TV show “So Ein Ding” went to Kenya in Africa to have a look at how internet services are changing things. And we are not talking only about large cities like Nairobi, but far out in the bush, where the TV team meet up with people using smartphones to handle their payments, trade goats and in general, run their business. 

Or closer to home we can go to Estonia, the first country in the EU to offer E-citizenship, and is generally considered one of the leading countries in digital transformation. 

Examples are plentiful, especially if you take a look at some of the former East European countries, which are now all EU member states. Or former so-called developing countries like Kenya. In these countries, the urge to “work on the edges” didn’t fit the bill, and therefore it was necessary to start entirely from scratch. They couldn’t just tamper a bit with the existing solutions; instead, they had to create entirely new solutions. They jumped over the many natural development steps that more developed countries typically have gone through. 

Look out for digitalisation disguised as digital transformation

Many big companies are keen on jumping on the digital transformation journey but lack the courage or stamina to go all the way. Instead, they “work on the edges” meaning they add some digitalisation to existing products or processes. This is the easy path, which doesn’t require significant and profound changes to the existing business. I’m not saying this is wrong. What I’m saying is that it isn’t digital transformation and more importantly, by only working on the edges, adding some digitalisation, these companies miss out on a huge opportunity to make my life as a consumer better. 

Why is my bank trying to sell me the idea that “we offer you smart banking services via our native smartphone app,” when a bank transfer still takes 72 hours to complete? In contrast, Transferwise, a new tech company, can do the same service more or less instantaneous. And the Transferwise fee for this service is, of course, attractive compared to the old banks. 

The banks, as most other large organisations, struggle to get it right on this journey. It is cumbersome to abandon or destroy old habits and processes, but often necessary to create a possible advantage for the consumer. Instead of embarking on this more difficult path, they often choose the easier road and add some technology on the edges.

Digitalisation disguised as digital transformation. 

An excellent place to start

As far as I can judge, we are in the very early days of this “digital transformation opportunity.” It is a fantastic time to be an entrepreneur or any other innovative person who aims at capturing some of the opportunities in front of us. If my thesis about the need for destroying the old is correct (which I firmly believe it is), then the following two questions are a great place to start. Consider any industry you are interested in (and know something about), and ask yourself the following:

  • What is the predominant business model or way of doing things today in this industry? In other words, what is the standard business in this specific industry today?
  • And then ask yourself: Taking the customer’s perspective and assuming I could start all over again – how would I design a business to serve this market today?

More often than not any new business is a replicate of something existing. Take the chance to rethink the business entirely: How could this be done instead, putting technology at the core of the venture?

Written by Jan Madsen,
founder of Enuda

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