The most effective responses to digital disruption don’t make use of technology at all.
In our present age of digital disruption, it makes intuitive sense that companies would want to “fight fire with fire,” employing the latest and greatest technology to gain competitive advantage in a digital world. This is flawed thinking.
Indeed, just because digital technologies are causing many of the challenges companies face, it doesn’t mean that technology is necessarily the solution to those problems.
One can be forgiven for the misconception that responding to digital disruption requires implementing or utilizing technology, because it’s an assumption inherent in many definitions of digital transformation. For example, Salesforce defines digital transformation as “the process of using digital technologies to create new — or modify existing — business processes, culture, and customer experiences to meet changing business and market requirements.” Citrix defines digital transformation as “the strategic adoption of digital technologies, such as a digital workspace, to improve processes and productivity, manage business risk, and improve customer service.”
While these technology-centric definitions may make sense for the companies that created them, the most effective responses to digital disruption often don’t make use of technology at all. It’s this fundamental misunderstanding that I and my coauthors (Anh Nguyen Phillips, Jonathan R. Copulsky, and Garth R. Andrus) address in our new book, The Technology Fallacy, which summarizes five years of research conducted in conjunction with MIT Sloan Management Review and Deloitte. Where do companies focus their transformation efforts if not on technology? They focus on their most valuable assets: their people.
Consider health insurer Cigna, which recognized that its employees needed new skills to compete in a digital environment. Instead of just hiring new employees with these skills, Cigna helped its existing employees develop new skills by rethinking its traditional tuition reimbursement program. The company identified 15 strategic skill sets that the organization would need in the foreseeable future. Employees who wanted to pursue degrees in one of these 15 areas could be reimbursed at three times the rate of the standard reimbursement program. Cigna worked with the Lumina Foundation and Accenture to determine that the program more than paid for itself, increased employee retention, and raised the wages of employees who participated — in addition to the company gaining the essential talent it needed for the future.
The auto retailer CarMax is another example. To become more agile and responsive to technological trends, the organization’s leaders realized that they needed to organize differently. The company turned to small, cross-functional teams as an important part of its digital strategy. While leadership provides clear direction regarding the teams’ objectives, the teams are given considerable autonomy over how to accomplish them. Teams present their progress toward those goals for 10 to 15 minutes in a biweekly open house format to provide updates, solicit feedback, and monitor their progress toward these goals. The small-team structure enables the type of strategic agility the company requires for a rapidly changing marketplace, while also allowing the company to experiment with and test different strategic moves before fully committing to them.
And then there is Best Buy, which developed a nontechnological business strategy to combat the digital threat posed by the omni-business behemoth Amazon. Best Buy began its strategic response with guaranteed price matching, eliminating a key advantage possessed by online retailers. It then leveraged its network of stores as an advantage against online-only competitors, offering its physical locations as an attractive shipping destination for online orders, as well as streamlining the in-store process for customers seeking to return online orders. Best Buy also developed closer relationships with its key suppliers, such as Microsoft and Samsung, allowing them greater control over sections of the stores that are dedicated to their products. It created a “store within a store” for suppliers that don’t have strong retail networks of their own. Other large (for example, Walmart) and small (independent bookstores) retailers have begun to borrow many of these elements of Best Buy’s strategic response to digital disruption and have done so successfully.
Effectively responding to technology doesn’t necessarily require technology.
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When legacy companies mistakenly believe that adopting new technology is itself the central strategy for adapting to a digital world, they miss the important organizational and strategic changes that are legitimately essential to survival and prosperity in a dramatically changing environment. Focusing first on the nontechnological changes required for adapting to a digital world — those involving talent, leadership, culture, organization structure, and strategy — helps companies better understand the problems they face and explore other changes that may be necessary before locking into a technological solution. Yes, these same companies may also need to invest — often substantially — in new technology, but when they do, those investments will be focused quite differently than if they had dived headlong into technology as the starting point.
In our book, we use the metaphor of the cyclone in The Wizard of Oz to describe the role of technology in digital transformation. We ask, “How much of the story of The Wizard of Oz is about the cyclone?” On the one hand, all of it is. We don’t have a story if Dorothy is not carried away to Oz. On the other hand, none of it is. We care more about how Dorothy makes her way through this strange new world than how she got there.
Likewise, the need for digital transformation is technically all about technology. Companies wouldn’t be faced with the needs for it if they didn’t recognize technology's destructive potential. But the more important issue is how companies, leaders, and employees make their way through this strange new world in which they find themselves — and technology is not the star of this story, humans are.