In contrast to industries like media and retail, where digital technology has been a significant disruptive force, process-oriented industries such as energy, transportation, industrial goods, and health care have not yet seen its full effects. (See Exhibit 1.) For management teams in these industries, it can be difficult to know how to start implementing digital technology—or even to see the need.
As a result, many companies have yet to take action to capitalize on digital. Some of these late adopters say they are hindered by legacy IT systems or don’t have the necessary capabilities in place. Others spend months studying the market and getting bogged down in large-scale strategic and conceptual considerations, believing—incorrectly—that they need to understand how and where the journey will end before they can take the first step. The development cycles of digital technology are extremely rapid—far faster than for most traditional products and services—and this deliberate (and outdated) approach means that these companies are essentially fighting yesterday’s battles.
Given the pervasiveness, low cost of entry, and potential impact of digital technology, it’s imperative that late adopters act today to launch new digital products and services and digitize internal processes. This means they must implement far more nimble development processes and become far more comfortable making decisions amid uncertainty. Rather than using a top-down, strategy-driven approach (which worked in the past), these companies need to innovate using build-assess-learn cycles, even when not entirely sure of the outcome. They need to focus on pilot tests and prototypes that can be developed and rolled out quickly, assessed for performance, and scaled up (or shut down) accordingly. They need to embrace the concept of “fail fast and fail cheap” and build up their digital capabilities through direct experience. And rather than making a single big, strategic bet, they need to manage multiple initiatives, trying out new business models with low sunken costs, killing off the losers, and scaling up the winners.
Our experience with companies in virtually all industries shows that success with this kind of trial-and-error approach requires a structured transformation methodology built around three steps: securing quick wins at the outset, scaling up successful initiatives, and leading and sustaining change. (See “Three Stages of a Digital Transformation.”) Together, these steps can help management teams determine where to start, how to manage the process, and how to generate sustainable progress with their digital transformations. (See Exhibit 2.)