HDI’s SPOCcast is your single point of contact podcast for service management and support insights. For Episode 23, I interviewed Charles Araujo about the meaning of digital transformation and what’s next. Although I’m sure you will find these excerpts enlightening, do listen to the entire podcast when you can.
RA: Everybody's talking about digital transformation. Everywhere I look, every article I read—everybody's talking about digital transformation. But it seems to me that most people don't have a clear idea of what it is. Can you define what you mean when you talk about digital transformation?
CA: Yeah you know it's a great, a great question. To start with, because it's something that I've been talking about—digital transformation—long before it was cool. My journey with digital transformation actually started almost six years ago. I was on a speaking tour through New Zealand. I know there's a lot of service management type folks [in this audience]. I was speaking at about 5 different events in 10 days, and one of them was the itSMF event in New Zealand. But one of the other events I was speaking at was something called the Digital Disruption Conference, and…it was the first time I was talking to a non-IT audience. It was an event hosted by the Auckland University of Technology and the US Embassy and sort of their answer to TED Talks. It was about how to build new business development for the business community of Auckland in New Zealand and…it was academics, and CEOs, and tech startups. And so, at the time I'd written my first book called The Quantum Age of IT: Why Everything You Know About IT Is About to Change and my focus was really all about IT transformation.
And I realized that IT really wasn't a great topic for this audience and so it caused me to step back and ask how these forces that I've been researching and writing about and talking about are actually affecting this broader world outside of IT and so that's what led me to focus on digital transformation.
But you're right that people now use this term…to mean everything and anything, and frankly, sadly, maybe, mostly to sell software, mostly to sell technology. And from my standpoint, digital transformation is sort of a bad term. It's because it's not really about digital per se; it's really about business and organizational transformation. But even more than that, it's about the shift in power away from the organization, and to the customer, where the customer now becomes the center of everything that generates value for an organization versus the industrial age where it was really about this product in a supply chain and mass producing a mass product for a mass market. So, that to me is the essence of what digital transformation is; it's really about re-centering everything that the organization is doing around the customer and around delivering a differentiated customer experience.
RA: You wrote, “The tried and true rules of the industrial age, the rules that have guided virtually everything about how the world worked, have been thrown into a state of flux.” Can you elaborate on what those rules were, and what is throwing them into flux, and why?
CA: I think what's interesting is, as I went through this process after I gave that first talk, it launched me on this sort of journey of exploration where I was really trying to understand what was going on, what it really meant. And as I kept peeling that onion, what I came to really understand is that the industrial age was this massive movement that really shaped almost everything we know about how society works.
And what I mean by that is if you think about even our modern educational system, largely came out of the industrial age and largely came out of the needs of industrial age. They needed workers and you had to follow rules that were you show up reliably and do what they were told. We didn't have robots back then and so they had to create human workers and so that was this huge motion around that.
Likewise, everything we consider modern management theory is largely based on these Industrial Age concepts of how you build this hierarchical model so you could control these massive organizations producing these massive number of products with these massive number of customers. And so it really informed everything and that of course then led to some well-worn axioms like, you know, go to school, get an education, get a good job, you work there for years, you retire; that was all based on the sort of Industrial Age thinking. And so this whole idea, how we function, how we organize, how we operate, it's really rooted in these fundamental principles that guided how everything worked in the industrial age organization.
Somewhere around 2000–2005, somewhere in that range, we started to see this massive shift and we started talking about digital disruption. And that was the signal of when all of this started to change; all these rules are in fact changing. The things that we thought were true—that were always going to be true—everything from getting an education to how we structured and managed organizations is sort of all up for grabs.
And I'm not saying it's all going to get destroyed and certainly not going to get transformed overnight. But this is what's changing because the nature of how we are going to create value, and what generates market value just from a stock market perspective and that's going to drive decisions on how organizations are structured, managed, and led.
RA: Interesting. And so, what I'm thinking as you say all that, that transformation is what's happening and digital is part of the way it's happening.
CA: Yeah, so this is where the digital part is: it's not the goal, it's not the objective, and I think that's where a lot of people miss what digital transformation is about. But what it is, is it's enabling everything we just talked about, all of this transformation, the transformation that's been happening organizationally society whatever over the last 10 or 15 years would not have happened without technology. So, technology is the enabling factor underpinning all of this. It's just not the goal or objective.
So, for that, Charlie, I'm going to draw a parallel to IT service management, as a case in point, since that's a lot of the focus of this particular podcast. And what a lot of people in service management have been saying for a long time is that the technology is not the horse, it's the cart, and we should look at the processes practices and business goals before we start thinking about the specific technologies we're going to employ. Is that a fair comparison to what we were just saying?
CA: Yeah, absolutely. As you know, but maybe not everyone else does is I've been an ITSM guy for a long time. It's really my history, my foundation, and it's always been one of my great frustrations is that people would be about either the process or the technology and lose sight of the fact that in the end, the only reason we did any of this stuff is to help our organization function better, operate more smoothly.
Now I will say that there is a transition. I think even, you know service management and ITIL® and even the way organizations themselves are structured and operate, the way we created value was by what I call optimizing the core. So, you were producing a mass product for a mass market; you had to do that as efficiently as possible, and then the more efficiently you did it, the, the more value you would create, meaning every ounce of efficiency I could wring out of that system, that supply chain, those operating models, would literally drop right to the bottom line as profit.
And so, if you look at most of our technology systems and a lot of our practices including things like lean and ITIL, ITSM, what you find is they were focused on driving that level of efficiency. If we became more efficient, then we generated more value, and that was a large part of the value proposition that all of these practices, all these frameworks, brought to the table. I'm not suggesting that suddenly organizations don't need to be efficient or be optimized—they absolutely do—but I believe that's now the price of admission.
And so, the real question around service management, or any of these frameworks, is how do you take them to the next level? How do they become tools that drive changes and transformation of the experience of the things that are generating value in this digital era? And that's much more than just becoming more efficient. So now suddenly when we're talking about the right order of the cart and horse, we need to make sure we're focused on the right horse, right? That the horse that matters in this game for organizational differentiation and creating competitive value in this market is the horse that's going to allow us to create a differentiated customer experience that makes customers want to buy from us, when they are now in control of this entire game.
We want all the information, and so the simple question, if I'm putting my ITSM hat on, is what I'm doing going to help me as a customer, make this buying decision or enjoy this experience better, where I'm more inclined to continue operating or engaging with us as an organization. And if it's not, then you have to question where you're putting your energy.
So, this is something that, when I used to do a lot of work in change management, I would do a little sucker punch question where I'd ask people, “What's the objective of change management?” And they would often say, “To control change,” and I would say, “No. The objective of change management is to allow the organization to make as much change as possible as quickly as possible without incurring risk.”
Our objective was to enable adaptability and enable change and so it's the same thing with process. We have to shift our perspective. Being more efficient is not always what is better for business. We call a call center and it is “efficient,” but it creates a horrible customer experience where we don't want to call or we don't want to engage with that company. Then that process, while perhaps efficient, is bad for business because it's not encouraging the proper experience for the experience that's going to separate the organization in the marketplace and so that's the lens that I think we need to be bringing to all of these practices, no matter what they are.
RA: So, despite all the chatter and hype about artificial intelligence and automation and it's something that I talk about all the time and the skills, the skill levels that have to change and types of skills that people need to be focused on. You said that humane-ness will become the primary driver of personal and business value. Why do you think that's so and what are some of the elements of that humane-ness that we should be striving for as the world around us changes?
CA: So, everything we've been talking about right now is this idea of the customer experience being the driver of value and so I talked about two major trends that are going to dictate our future. And the first is what I call the primacy of the experience or the primacy of the customer experience. The second is the, the primacy of the algorithm. We have a long way to go with artificial intelligence, there's a lot of confusion and hype around it. But what I do believe is that this is coming and you know that my kind of catchphrase here is anything that we can reduce to an algorithm, we will automate in the very near future.
While technology will remain a competitive differentiator in the marketplace for quite some time, what we're going to find is it to a certain extent becomes completely normalized. We have all these big giant companies developing all this really cool technology, and if you're an organization you can go buy that technology.
And so it's going to become increasingly more and more difficult to create competitive differentiation in the market based on that technology, and so what we're going to actually find is it's going to be the human elements that are going to be the difference. I think what we're going to see over time is that the technology becomes more ubiquitous, more powerful, that it's going to become normalized where it's in fact going to be these very human elements—creativity, imagination, and empathy—are the three things that for the foreseeable future are going to create value both organizationally, as well as personally.
It's going to become increasingly difficult to create competitive differentiation in the market based on technology; it's going to be the human elements that are the difference.
RA: I'm sure that in your work with various businesses, you've seen false starts and pitfalls when they're approaching what is generally called digital transformation and—other than that “cart and horse” problem—can you describe some of those pitfalls and difficulties? And how do you avoid them?
CA: Oh, there are so many I could go on for hours on this. I think absolutely the first, the greatest, is that, people are putting the cart before the horse to focus on the technology. That is probably the biggest challenge around digital transformation initiatives. I won't name the company. [But] I remember I was at an event speaking for a bunch of executives and this guy walked up said, “Digital transformation, yeah, yeah so I'm right in the middle of that; I own the website.” What does that have to do with anything? Having a cool website is not digital transformation. It's not about the technology. The other issue there is that people think the customer experience is synonymous with the buying experience and also not true. Right? And so I think that one is as focused on the technology.
The other issue is this highly myopic focus on these little narrow bands. We're going to go in and refresh your ERP or Salesforce, or you know sales automation and that's digital transformation. You're doing some great stuff perhaps, but digital transformation in my mind only happens when we're focusing on the customer. And then as we focus on that experience it leads us to naturally recognize that we're going to have to transform our business models. And then once we do that, we recognize we're going to transform our operating models to support those business models, and that once we recognize that, then we soon realize that we're going to have to transform our management and our work models to support these new operating models. If you're not seeing that sort of holistic, across the board transformation, then, in my mind, this isn't going to be a real digital transformation.
I think those are probably the two biggest. But the other one that is sort of foundational is that, because people tend to equate digital transformation with technology transformation, they miss the human element—surprise, surprise—and the fact that most of the transformation that occurs within organizations is in fact not about either the structure of the technology, but it's about the culture and it's about the human element. And so the very first thing that has to happen is start to prepare people to shift their identities of how they create value and what generates their professional value in the organization? And it's not tied to any one specific technology, at least if they're doing this right.
RA: And just to just to kind of wrap this up in a neat way because people like to have something they can take away from a conversation like this: What is one thing that business leaders should be doing now to prepare their organizations and their people for a digital future?
CA: I think there's a couple of things in and partially depends on where you're at. If you're high up in an organization, then you need to be looking at this big view and starting to ask yourself how you are going to begin to shift this culture. And part of that is even recognizing where your customers are going and how do you “skate to where the puck is going” as opposed to waiting to be disrupted?
I think it's about helping people understand how to reset that identity, to not tie it to either a specific technology or even a specific role. I remember having come up through the ranks, people would see themselves as you know, “Well I am filling the blank role.” That's what you're doing right now, but that's not who you are; you can do so many other things. You can add value in so many different ways. So, resetting that sense of identity of what they anchor themselves to professionally.
I've had IT professionals in particular come up to me and say, “Charlie I don't know what to do. I feel like I have no control over this.” And I look at them and I say, “You have complete control over this.” Maybe you don't have control over whether or not your company fires you or changes your job or something. But you do have control over the skills you are bringing to the table…and your desire to drive change within an organization. Those are things I'd be focused on, because there are things that are going to be foundational and will allow you as an individual to adapt as all of this craziness continues to change around us.
About Charles Araujo
Charles Araujo, industry analyst, keynote speaker, and best-selling author of The Quantum Age of IT is the founder of The Institute for Digital Transformation, and believes that “what’s coming next represents as fundamental a change in how the world works as did the rise of the industrial age hundreds of years ago.” His email journal, Your Digital Future, is available on his website.
Roy Atkinson is one of the top influencers in the service and support industry. His blogs, presentations, research reports, white papers, keynotes, and webinars have gained him an international reputation. In his role as Group Principal Analyst, he acts as HDI's in-house subject matter expert, bringing his years of experience to the community. He holds a master’s certificate in advanced management strategy from Tulane University’s Freeman School of Business, and he is a certified HDI Support Center Manager. Follow him on Twitter @RoyAtkinson.