THINK 17 took you through the first steps of the digital transformation journey, and throughout the four days of the conference, you heard many digital transformation success stories. But, as legendary journalist John Hersey said, “Learning starts with failure; the first failure is the beginning of education.” While there are many success stories, there are many failures and companies that didn’t achieve their transformation goals.
Linear and Exponential Digital Transformation
One reason failure may seem so prevalent is that two types of digital transformation exist: linear and exponential. Most companies want the results of exponential transformation but focus instead on linear transformation, which is easier to understand and implement.
So what’s the difference between linear and exponential transformation? Put simply, linear transformation works within the business to improve operations. Exponential transformation changes the business itself – potentially changing the core business model as part of the shift.
Linear transformation initiatives improve an organization’s ability to operate as it already does today. Linear transformation improves your competitiveness without changing how you essentially deliver value to your customers. Credit unions can use digital technology to deliver an improved branching, mobile and transaction experience. However, despite these transformations, the business model remains as is. These linear improvements are just the latest step since technology moved us from manual labor to steam power. The result is improvement in marginal cost, but the business’s basic unit of economics remains the same.
Exponential transformation initiatives fundamentally change an organization’s business model, shifting to new ways of delivering value to customers. These types of improvements often disrupt a company’s core ways of operating and require changes to leadership, people, products, processes, customers, channels, pricing, and more. For example, Uber has brought exponential transformation to both the taxi and automotive industries by changing the way that customers access transportation. Uber introduced a self-managing network that disrupted the taxi sector, and is also facilitating an access rather than ownership model. This is changing the way people relate to cars in general. While incumbent automotive firms have focused on producing better cars more cheaply – linear progress – Uber and other ridesharing and autonomous car companies bring exponential transformation. These transformations change the business models themselves, and therefore alter the underlying economic models.
Both types of digital transformation are important and necessary. Organizations have always needed linear transformation to improve efficiency and effectiveness. Digital technology is simply the latest wave. Although many leaders act like digital technology doesn’t apply to their industry, digital technology is essential regardless of sector or function. Today’s customers expect to be able to interact with a company online and through social media. Digital technology allows companies to do what they have always done, only better.
However, linear transformation is no longer sufficient to stay competitive. The pace of technological innovation is increasing at a speed that necessitates exponential transformation. Technology is now enabling new business models that are disrupting any legacy organization and the traditional delivery of products and services. Credit unions need to move towards exponential transformation to stay relevant. The challenge is that exponential transformation requires new ways of thinking, new values and a willingness to disrupt well-established patterns. At its core, exponential transformation is about disrupting yourself before someone else does.
How to get started
- Linear and exponential transformations require different teams with different skills and management styles. Unlike linear transformation, exponential transformation is ideally insulated from the rest of the organization. Google calls their initiative the “Moonshot Factory.” Many others choose names such as “Innovation Lab” or “Innovation Zone.”
- Both types of transformation require capital reallocation. However, exponential transformation also requires patience and risk tolerance.
- In the current environment both transformation styles are essential. Credit unions that invest in linear transformation only will find themselves standing still while more ambitious innovators run past them.
Follow us for the next few weeks as we help you develop your own digital strategy. And join us July 13 for the latest live webinar in our Digital Transformation webinar series: Craft Your Own Digital Playbook.