The Fourth Industrial Revolution

In the late 1700s, the introduction of the steam engine significantly changed the way business was conducted, from manufacturing and material sourcing to transportation and logistics.

The effects of the First Industrial Revolution lasted from 1760 through 1820, when electricity and automobiles took the stage. This Second Industrial revolution further altered the business landscape by allowing for faster and easier production and transportation.

With the introduction of computers and later the internet in the 1900s, the Third Industrial Revolution added the speed of computation and instantaneous communication. Technology has continued to evolve by leaps and bounds, and today we have reached the Fourth Industrial Revolution, which includes automation, autonomy, and artificial intelligence.

The latest industrial revolution differs from its older counterparts in that it incorporates not only the physical technology like the Internet of Things (IoT), but also biological technology such as genome sequencing, and social technology like Facebook and Twitter.

In short, it is the culmination of the evolution of all forms of technology into one digital body, and it is extremely disruptive. This digital disruption can be leveraged to create successful transformation. It isn’t simply an upgrade to a new form of software- it’s a complete rewiring of companies in order to help them succeed in a digital world.

Why Digital Transformations Fail

Digital transformations require innovation on a level that is not commonly accounted for in most companies. While some companies follow some version of Google’s 70-20-10 model of 70% Operation, 20% Process Improvement, 10% Innovation, most companies allocate little or nothing for innovation.

Typically, a company will come up with a new idea for digital change, and the project will start with enthusiasm. It may even make it through the testing period successfully, but eventually the enthusiasm decreases, and there is insufficient support or structure to continue the transformation.

How to Succeed With Digital Transformation

Fortunately, with the proper approach, digital transformation is possible for any organization. Tony has created a comprehensive 5-Stage Definition of Digital Transformation to help businesses navigate the complexities of the 4th Industrial Revolution.

Stage 1: Foundation

Stage 1 of the Digital Transformation entails the creation of a physical framework, including technology, procedures, and work processes that will be used to transform the organization. It requires committed and dedicated leadership that can not only enable innovation but provide the momentum for change from the top of the organization down.

Stage 2: Siloed

In Stage 2, an individual internal business unit or function within the organization will begin to apply the new technology separate from other parts of the company.

The focus here is on digital leverage factors – where can digital technology best be used within the company. In order for this stage to be successful, leadership must not only provide motivation and commitment to the transition, they must also empower other parts of the organization to innovate and experiment.

This is the stage in which the 70-20-10 model proves most effective. Although the percentages may differ between organizations, the important factor is to have some portion of the company’s capacity allocated specifically to innovation.

This seems to be particularly difficult with current corporate structures in which you often see capacity allocated to operations and continuous improvement. Without innovation, the organization cannot move forward with digital transformation.

Stage 3: Partially Synchronized

In Stage 3, other parts of the organization have begun to use the new technology in their own operations. For this stage to be successful, leaders must create a clear change management strategy, and that strategy must be sufficiently disruptive to transform the organization in its entirety.

Since 90% of the challenges of digital transformation are organizational, it is important to focus on the operational transition rather than the technology.

This is the stage where most companies fail. They are capable of successfully piloting new digital strategies in siloed departments, but fail to provide sufficient strategy to complete the transformation of the organization. The entire organization must be disrupted in order to effectively complete digital transformation.

Organize your strategy by creating an inclusive ecosystem of IT experts, middle managers in affected departments, and venture capital experts. With them, you can define comprehensive project and portfolio management methodologies that will help you organize your strategy for a successful transition.

Stage 4: Fully Synchronized

By Stage 4, the entire company has incorporated the changes into overall organization processes. This step takes the information learned from the partial integration in Stage 3 and applies it to the organization on a larger scale.

In this stage of digital reorganization, the IT department must go from being the fixer and doer to enabling the whole company to become digital. With the well-planned and executed strategy developed from Stage 3, you can complete the physical transition in your digital transformation.

Stage 5: Living DNA

In the final stage of digital transformation, the organization has been rebuilt and restructured to incorporate the changes, making the transformation a part of the living DNA of the organization. This requires an agile culture, which can be the most difficult aspect of the digital transition.

Similar to Step 3, the change must be managed strategically, but this change is to the cultural side of the business, rather than the operational.

As Martec’s Law states, “technology changes exponentially, yet organizations change logarithmically”. It is important that management strategically chooses which technological changes to embrace, but keep in mind that the longer you wait, the harder it will be to upgrade your organization to meet technological challenges.

Organizations often fail at digital reorganization simply because they believe that the change must happen to the people, but in reality it is the people who must bring the change.

Checklist to Move up the 5-Stage Transformation Model

Once you have a thorough understanding of the 5 stages of digital transformation, Tony has created an easy 10-step checklist to help you ensure that your organization has met the requirements of each stage before moving to the next.

1. Committed Ownership: Ensure that the strategy is owned and committed to by the highest levels of leadership. (Stage 1)
2. Iterative Execution: Allow iteration through numerous ideas and expand on those that work. (Stage 1)
3. Disruption Empowerment: Provide change leaders in siloed divisions sufficient mandate to enact the strategy. (Stage 2)
4. Leverage Points: Strategically choose areas that digital transformation will uniquely affect. (Stage 2)
5. Effective Change Model: Select the most effective change strategy and begin to apply for transformation across the whole organization (Stage 3)
6. Strategy Sufficiency: Test for digital strategy sufficiency to ensure effective systemic transformation. (Stage 3)
7. Digital Reorganization: Redesign the organization’s structure to allow digital capabilities to become a horizontal skill set. (Stage 4)
8. Staying Current: Facilitate and encourage leaders to stay abreast of evolving digital developments. (Stage 4)
9. Agile Culture: Create a culture that is receptive to constant change. (Stage 5)
10. Sensing Risk: Ensure continuous assessment and action against potential digital disruption threats. (Stage 5)