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Businesses Should Remain Cautious About Digital Transformation

In any line of business, you’re bound to hear people reference the coming of the Fourth Industrial Revolution, or ‘Industry 4.0.’ Recent years have seen thought leaders proclaiming the imminence of this new age and calling on organizations to adapt.

Is this just another buzzword being promoted by those with a vested interest in new forms of technology? Or is the hype and the need to change real?

Defining revolutions

History books usually reference the British Industrial Revolution: a period that began with dramatic changes in British manufacturing. These included the harnessing of steam power and a shift from hand labor to mechanical systems.

Because these adaptations led to British dominance in global commerce, it’s easy to overlook the fact that this revolution also took place in other countries at different times. Everyone had a different experience, leading to varying outcomes.

Thus, an industrial revolution can’t be separated from its underlying technology, nor from its context: the response of the people and institutions that undergo transformation.

The idea that we’ve actually witnessed four industrial revolutions can be attributed to Klaus Schwab, founder of the World Economic Forum. The Second Revolution began with the application of science to mass production and the widespread use of electricity. The advent of computers and the Internet marked the Third Revolution.

Pandemic as an accelerant

Schwab writes that we’re already commencing the Fourth Revolution. It features the convergence of digital, biological, and physical innovations into cyber-physical systems. AI enables machines to operate autonomously, and data-driven operations allow workers to maximize their human skills.

At the heart of this phenomenon lies digital transformation: how an organization integrates digital technologies into all aspects of its operations.

The technological components are already in place. Companies have access to Big Data, IoT-enabled devices, AI and machine learning, cloud computing, and the like. Yet companies have proven hesitant to embrace this change. Highly digital organizations remain in the minority.

The pandemic has helped to speed up developments along these lines. Companies were reluctant to accommodate remote working, but the threat of Covid-19 made such arrangements mainstream. Even as the new normal emerges, people will still need virtual training to learn how to telecommute effectively, or at least collaborate with those who prefer working from home.

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Reason for pause

What’s striking is that we already had all these productivity, video conferencing, and collaboration tools before the pandemic. In hindsight, it seems clear that technology was ready for such challenges, and organizations can only blame themselves for not making changes sooner.

The pandemic’s lesson seems to be that we should no longer be held back by organizational inertia. It’s in every company’s best interest to go full speed ahead with digital transformation.

But we’d be wise to retain an element of caution in our approach to this massive change.

Recently, there have been many examples to warn us of the perils of digital transformation done wrong.

The EU, for instance, belatedly realized that its response to Covid-19 was dependent on major digital platforms owned by American or Chinese operators. This left their citizens’ data vulnerable to misuse, such as profiling, targeting, or manipulation through orchestrated misinformation campaigns.

Many organizations, including the WHO itself, were also targeted by a surge of cyber-attacks in the wake of the pandemic. Those who rushed to digitalize without ensuring sufficient cybersecurity measures were always bound to suffer.

And even before the pandemic, you could try to contact a random company’s customer service team for a personal taste of digital transformation’s pitfalls. When businesses drive towards cheap, efficient automation in this area, the customer experience gets shortchanged.

Manage trade-offs with care

None of this goes to say that Industry 4.0 isn’t the future or that companies should forsake efforts to go digital. We can’t turn back the clock. We’re too far into the digital age for organizations to even consider that without losing their competitive edge.

But we mustn’t go about digital transformation in a hurry, trying to overcompensate for lost time or adopting technology based on analogy instead of first principles.

As you’ll recall from history, industrial revolutions are never entirely about their distinctive technological disruptions. We must always factor in the human context.

There is a social cost to digital transformation, and it drives the human resistance to change, even if you could present a good business case for the technology.

Employees need to be trained in the use of new tools and in managing data and security risks. They will also require some degree of reassurance that digitalization won’t be rendering them obsolete. Likewise, customer experiences must be designed to balance potential trade-offs.

Business leadership must be strategic in this domain. No silver bullets or single-step processes will make your company fully digitalized. Exercise caution, and don’t rush to emulate success stories that can be one-off, or adopt the latest buzz-worthy tech craze.

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