Digital Economy Dispatch #131 -- What's the Point of Your Digital Transformation?

Digital Economy Dispatch #131 -- What's the Point of Your Digital Transformation?
14th May 2023

Another week, another digital strategy to review. Over the past few months, it seems that I am involved in many more discussions with companies asking for guidance on how to accelerate their digital technology adoption, drive digital change across their teams, and demonstrate tangible impact from investments in digital delivery efforts. All the evidence points to an increasing urgency to develop a meaningful response to the rapid advances in AI. Revising your digital strategy is now top of the agenda.

The conversations have a familiar flow to them. Following some initial opening comments about the need to move faster and update their solutions to take advantage of the latest of digital capabilities, a wide-ranging catalogue of actions and initiatives is described in great detail. Each of these justified within its own context. Key episodes from these adventures are highlighted, supported by whatever metrics and measures could be pulled together in each case. While the results may vary, they all point to some deep thinking, significant effort, and traceable effects of the work on stakeholders and clients.

Then comes a pause and a deep sigh. When viewed together, it is clear that these activities are not yielding the impact desired and lack any meaningful cohesion. So that what follows is a different kind of dialogue that bears more comparison to the whispered voices of a confessional than a technical exchange. This is when you start to discover what’s really going on. It involves a detailed walkthrough of the decision-making processes, personalities, organizational structures, office politics, and financial ins-and-outs that shape the progress of every organization regardless of its size or heritage. Adorned with revealing anecdotes, these details describe a varied series of barriers and blockers to faster progress. They tell the story of how individuals and teams operate to get work done in the complex environments that define every organization.

A Journey of a Thousand Miles

I am sure this scenario is familiar to many who bear the scars of having taken a few turns around this particular digital transformation block. Introducing meaningful, sustained change in an organization of any size and complexity is difficult. As in many areas of life, progress requires that we face the challenge of aligning a variety of different elements across multiple stakeholders. A juggling act that demands constant focus, energy, and coordination. These makes digital transformation hard to initiate, and even harder to sustain.

However, before being caught up in the cut-and-thrust of delivering digital transformation, I am more often than not finding myself facing a more fundamental concern that organizations seem reluctant to address:

What is the point of your digital transformation?

Quite bizarrely, in many cases this seems to be a question that has not received a great deal of attention. Or if it has, then the results of those investigations have been poorly communicated, widely misinterpreted, or been left behind by recent events and experiences.

Of course, in the abstract sense, the answer is easy: The obvious goals of “faster, cheaper, better” prevail. Yet, much more than this is required. With the adoption of digital technologies, traditional approaches must be augmented and replaced by new ways of working. This demands a perspective that optimizes value delivery, offers flexibility in light of fast-paced change, and supports integration of multi-disciplinary activities. How can this best be understood?

From my experience, the answer lies in placing a focus on the creation, management, and sharing of value. And a key to understanding value in many complex digital transformation scenarios is to take a service science approach.

A Services Science Perspective

Service Science is an interdisciplinary field that seeks to understand the design, delivery, and management of services as a means of generating value for customers, businesses, and society. The emergence of Service Science can be traced back to the late 1990’s, when industry leaders such as IBM recognized the increasing importance of services in the global economy.

A key characteristic of Service Science, as outlined in the seminal work by Stephen Vargo, is its focus on value generation through service provision. Service Science acknowledges that services are a significant source of value creation, and therefore seeks to identify and leverage the factors that contribute to customer satisfaction, loyalty, and engagement. This involves understanding the customer experience, identifying the key drivers of customer value, and developing strategies for delivering services that align with customer needs and preferences.

Another important aspect of Service Science is its relationship with digital transformation. The digital revolution has had a profound impact on the way that services are designed, delivered, and consumed, and Service Science seeks to leverage digital technologies to enhance the customer experience and generate value. This involves using digital tools such as data analytics, artificial intelligence, and machine learning to personalize services, optimize service delivery processes, and create new service offerings.

Overall, Service Science provides a theoretical and methodological foundation for understanding the value generation potential of services and for leveraging digital technologies to enhance service delivery and customer engagement. As such, Service Science is an important field of study for businesses seeking to innovate and compete in today’s digitally-driven service economy.

The Value Equation

Using this Service Science lens, the value delivery purpose of digital transformation becomes much clearer. It represents a framework for identifying the different stakeholders and their role in value creation and consumption, offers a basis for defining and measuring impact of activities taking place, and forms the context for prioritization and evaluation of investments.

I’d highly recommend you spend some time to deepen your understanding of value creation in a service economy. Take as your starting point an investigation of the many works by Stephen Vargo, Robert Lusch, Jim Spohrer, and Irene Ng. I am sure that you will learn a lot along the journey.

In my own investigations and conversations with colleagues on Service Science, there are two particular aspects of the work that have become particularly important to my thinking.

The first is to recognize the important difference in how digitally transformed businesses realize value, and the critical distinction between value-in-exchange and value-in-use. At the root of much discussion on business models is explicit consideration of the value of products and services. From the perspective of value-in-exchange, every product or service has a market value determined by what the consumer is willing to pay (or exchange) for it. This value is based on current market conditions, and affected by time and place of the exchange. In contrast, value-in-use is contextual and based on the consumer’s “satisfaction”. Value is defined in direct proportion to how well this is achieved. Aimed at maximizing the consumer’s outcome, it requires constant monitoring of where, how, and how often a product or service is used. This feedback is employed to redesign or refocus the product or service increase its value.

This distinction provides an important starting point for understanding digital transformation. A fundamental change occurs when organizations recognize that digitization is primarily aimed at increasing efficiency of value-in-exchange, while digital transformation enables new ways to serve customers by significantly expanding their ability to instrument value-in-use. Hence, digital technologies play a key role not only in creating new channels to market for products and services, but also in reshaping how value is determined by enabling new insights into product and service use

The second is a realization that, as this shift of value perspectives occurs, there are major implications for all aspects of the organization and its activities. In digital transformation, the priority is not simply minimizing the cost of production to lead to increased sales of a product or service. It is maximizing the adoption and use of that product or service to enhance the outcome by delivering more of what the customer sees as value. This has important implications. For instance, a close alignment is essential between the customer and product or service provider, with value considered to be co-created with a customer.

To illustrate the importance of this thinking, let’s describe a simple example. In domains such as healthcare, digital transformation is changing many aspects of how we look at the delivery of health services. Consider the distinct perspectives of digital transformation when adopting a value-in-exchange and value-in-use perspective.

Broadly speaking, much of today’s healthcare focus is on improving value-in-exchange to manage the costs and effectiveness of diagnostics and treatments. In contrast, a value-in-use approach to digital transformation uses digital technology to expand data gathering and analytics to optimize prediction and intervention. These represent 2 quite different ways to understand “value” in a healthcare setting. Crudely stated, the former can be seen as the use of digital technologies to “efficiently manage sickness”, while the latter is digital adoption to “ensure wellness”. Fundamentally distinct viewpoints and approaches to the role of digital technology adoption in healthcare with significant implications for healthcare systems and services.

Reach for the Stars

As organizations revise their digital strategies in light of the current technology advances, they must address a fundamental question: What’s the point of your digital transformation? To address this, I would recommend you consider a Service Science perspective. Service Science provides a theoretical and practical foundation for understanding how digital technologies enhance the customer experience and generate value. It places a focus on value generation through service provision, which involves understanding the customer experience, identifying the key drivers of customer value, and developing strategies for delivering services that align with customer needs and preferences. By adopting this perspective, businesses will gain a clearer view of the distinction between digitizing to optimize value-in-exchange and digitally transforming to maximize value-in-use. Such insights will help strengthen your digital strategy and accelerate impact from your digital technology adoption.