Digital transformation vs. optimization

Here's the dirty little secret: What many CIOs describe as a digital transformation actually isn't. Mobile apps, AI-based chatbots, analytics and other digital services are often used to augment existing services.

"In a nutshell, we reserve digital business transformation for companies pursuing net new revenue streams, products and services and business models," says Gartner analyst Hung LeHong, whose job includes assessing whether companies are conducting a "digital business transformation" or a "digital business optimization."

Digital business transformations can include the creation of new digital business units or digital acquisitions. Sometimes the new business models lead to ventures in adjacent markets or new industries.

General Electric, with its "digital twin" initiative to sell locomotive engines and jet turbines as a software service, is orchestrating a digital business transformation, LeHong says. Bold as GE's digital strategy is, it’s what a company does because it fears disruption or because it intends to disrupt its industry.

GE is among the 10 percent of companies Gartner has surveyed that is actually doing this form of transformation. The other 90 percent are conducting various forms of "digital business optimization." This entails using digital tools to "supercharge" productivity, bolster generation of existing revenue streams and boost customer experience.

For example, Shake Shack this year launched a mobile app that enables mobile ordering, ostensibly to reduce customer wait times. ServiceMaster has tapped a mobile platform to improve the way it connects contractors with customers. UPS partnered with startup Latch on an IoT-enabled smart delivery service that allows drivers to drop off packages in multi-family apartments in New York City. By themselves, these tools are not transformative.

LeHong says part of his job is to meet with CIOs and the business executives ultimately responsible for driving the strategy, such as a CEO, COO or CFO. Getting IT and business leaders together helps the companies "double click" on whether they are transforming or optimizing their businesses. Once they answer that question, they can appropriately tailor and set their expectations.