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Digital Transformation through the lens of complexity

Digital Transformation is one of the most overused phrases of the past decade. And just like the blind men trying to describe the elephant, we only describe the parts of it that are most apparent to us. I’m aware of the same mistake that I’d be making if I tried to define it holistically. So, to me, the most meaningful way to describe it, is in context of the rest of this series.

I’ve enjoyed complexity theory in the past few years after being introduced to the Cynefin framework by Dave Snowden. So I want to look at Digital Transformation from the lens of complexity theory. But for the uninitiated, here’s a quick representation of the Cynefin framework.

Dave stresses that this is NOT a 2×2 matrix. The idea of the Cynefin framework is to make sense of the kind of complexity you are dealing with. If you don’t know what you’re dealing with you are in the middle of the diagram… in “disorder”.

In the Simple domain the nature of what you are dealing with is well understood through past patterns. For example manufacturing a product that has already been designed and manufactured at least on a small scale. You have to repeat the fabrication and assembly steps exactly as laid down and you will get a high quality final product. So you are sensing the problem, categorizing it and then responding according to the category.

In the complicated domain, things are not quite as… well… simple. You need expertise in the problem domain to be able to solve it but it is still predictable. For example, taxes. For the most part, you will pay a predictable tax given your income and other demographics but you can’t make sense of all of it by yourself and need experts to look into it to guide you.

The complex domain is where things get interesting. The problems in these domains are not well understood at all. For example : organizational culture. You know it’s real. You know that there are interconnected parts in the ecosystem that affect each other. You might even have some hypothesis about what will work but you aren’t really sure. In that situation, you want to probe to validate the hypothesis and then respond based on the feedback that you get. However the results might still be unpredictable because of other parameters that you haven’t considered in the hypothesis.

The chaotic domain is devoid of any patterns at all. You have no idea how the elements are interconnected and there’s no way to even form a hypothesis. In such a situation you have to act first, probably based on pure intuition, and see what happens before you adjust your actions.

What is a business?

Any business is basically a plot

When you’re running a business you are trying to do something that no one else has done (at least in quite the same way). Very broadly your plot falls in two categories; blue ocean strategy and red ocean strategy. Blue ocean strategy is to do something completely different to avoid competition and solve a problem that hasn’t been solved before. Red ocean strategy involves repeating something that others are already doing but in a different way. So your plot might be to have a better dealer network, cheaper raw materials, more efficient manufacturing, etc.

Regardless of which strategy your business predominantly falls in, you need more than a little ingenuity to succeed in business.

Thinking back to the Cynefin framework, the Complex and Chaotic domains are the ones that a business will need to tackle to be successful (whether they are first movers OR fast followers).

Plots only exist in the complex / chaotic domains; at least the good ones.

Plots only exist in the complex / chaotic domains; at least the good ones. Differentiators come from these domains. If your differentiator was in the simple / complicated space, it would be that much easier to copy. So whether you are running a microbrewery or a consulting business, your strategy requires you to work in the complex domain. Business leaders have gotten quite good at solving all kinds of unsolved problems.

Traditional role of information technology

When Information Technology was nascent, business leaders used it to aid operations / execution. The idea was to leverage technology to ensure the execution was flawless. This took many shapes and forms like using systems as “source of truth” OR driving precise execution through machining / scheduling / resource planning. The attempt was to codify whatever was predictable so that people didn’t need to spend time on complicated, error prone tasks, but instead focus on complex tasks (like strategy).

In my view, the essence of digital transformation is to leverage technology to actually drive the strategy for your business. The most stark example of this in my mind was this company that was analyzing the applications on your phone to determine your credit rating. This is not a strategy that can be implemented through technology, this strategy exists because of technology.

The digital native gap

In the last 2 decades, technology has evolved substantially. The businesses that started in the last two decades, at least the more successful ones, use technology to actually “plot” their next move; to drive their business strategy. Successful traditional enterprises have a harder time doing this due to several factors including their past success becoming a barrier to their imagination of the future. In the upcoming series, I want to explore what digital work really is and the changes that a traditional business needs to go through in terms of talent and culture given this definition of digital transformation.

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