The Five Stages of Digital Transformation

We’re in the fourth industrial revolution now — and it’s wrought plenty of casualties. Consider the retail apocalypse: countless iconic chains are facing bankruptcy or simply going under, including Sears, Mattress Factory, Brookstone, Rockport, Nine West, Toys “R” Us, and more. Investopedia called 2018 the year of retail bankruptcies, but digital disruption is happening in every industry. And the reality is that no matter what field, companies will either adapt or perish.

Digital transformation may start with automation or digitalized platforms, but it’s far more complex and all encompassing. It fuses the physical, biological, chemical, and information worlds, creating massive new opportunities in every area valued by society. But 70 percent of digital transformations fail, and one key reason is that organizations don’t define and execute the right steps to take off and stay ahead. To make a successful digital transformation, companies need a clear roadmap to progress through five distinct stages. Only then candigital become the “living DNA” of your enterprise.

Knowledge is power. Here are the five stages of digital transformation. Use them to chart what phase of the digital evolution your company has reached — and plot the course for what needs to happen next:

Stage 1. Foundation.
At the Foundation stage, enterprises are actively automating internal processes, such as selling, manufacturing, or finance — using SAP, Oracle, Salesforce, or similar platforms. This is more automation (also called digitalization) than transformation, but it provides the digitalized foundation necessary for future evolution. Automating processes using digital platforms is necessary to convert manual effort into data. But again, it’s not transforming:the company does not have any digitally disruptive products, customer relations, or operations.

Stage 2: Siloed.
At the Siloed stage, individual functions or sections may start to use disruptive technologies to create new business models. As an example, the manufacturing function may have made progress on using the Internet of things to drive major changes in the way they manufacture or manage logistics. Or the finance manager may have heard about blockchain, and transformed the way they do intercompany accounting across countries. Alternatively, a business unit within the enterprise may have used technology to create a completely new business model, such as selling direct to consumer as opposed to via retailers. But these efforts are siloed: there is no overall company strategy driving transformation.

Stage 3: Partially Synchronized.
During the Partially Synchronized phase of transformation, the enterprise leader, owner, or CEO has recognized the disruptive power of digital technologies and defined a digital future state, and the organization itself has started rowing in the same direction. But the enterprise has not completed transforming to a digital backbone or new business models, nor has the agile, innovative culture become sustainable. A good example of this is GE’s digital transformation, which ultimately stalled at this stage. CEO Jeff Immelt defined his vision for a digital industrial future, and the entire firm started to move toward a single digital strategy. But the new digital business model never matured enough to develop strong roots. Still depending on a mix of old and new business models, companies aren’t fully invested in a complete digital transformation — and are therefore incapable of fending off more nimble, digitally native competitors.

Stage 4: Fully Synchronized.
Stage 4 marks the point where an enterprise-wide digital platform or new business model has fully taken root. But this is a one-time transformation. The company is still just one technology (or business model) change away from being disrupted. The only way to survive continuous disruption threats is to make digital capabilities and an agile innovative culture an ongoing, integral part of the enterprise, not a momentary shift. It’s not enough to be digitally optimized for the moment.

Stage 5: Living DNA.
At the Living DNA stage, the transformation becomes fully synchronized and ongoing. The company maintains ongoing industry trend leadership because it is disciplined in constantly innovating and setting industry trends. It’s not just a market leader; it’s a disciplined innovator that is constantly leveraging digital: operating fully digitally, with a digitally savvy workforce, the ability to provide hugely personalized creative value to customers, and the most innovative business model in the market. This is when digital becomes part of the enterprise’s DNA.

Digital transformation is the modern-day fight to survive the existential threat of digital disruption caused by the Fourth Industrial Revolution. Half the companies on the Fortune 500 list will turn over in the next decade — and the average lifespan of an S&P 500 company has plummeted from sixty years in the 1950s to twenty years today. The stakes could not be higher — which is why so many entrepreneurs, boards, executives, and public organizations are actively consumed by this issue. But companies that know the roadmap can embark on a disciplined journey, and attain true digital transformation.

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