A Model for Intentional Digital Transformation

I'm always on the lookout for valuable frameworks, especially those related to innovation and digital transformation. I've found them to be priceless when talking to customers. I've been a fan of the revise Horizon Model from McKinsey and I've started digging into the Four Pathways from MIT and using the two to provide customers with a more refined approach.

Three Horizons Model

Here's my take on the Three Horizon model by McKinsey.

• Horizon 1 is about: Optimizing existing capabilities for existing markets

• Horizon 2 is about: Infusing new capabilities into existing markets

• Horizon 3 is about: Generating new capabilities for new business lines

MIT Four Pathways

Here’s a concise explanation of the MIT Four Pathways to Digital Business Transformation for context. These pathways help companies become “Future Ready,” enabling them to outperform their industry peers. Here they are:

1. Industrialize: This pathway focuses on operational efficiency. Companies following this route leverage technology to streamline processes, reduce costs, and enhance productivity. They prioritize automation, standardization, and optimization of existing operations.

2. Delight Customers First: Alternatively, some companies prioritize customer experience right from the start. They invest in technologies that enhance customer interactions, improve service quality, and create delightful experiences. Customer-centricity drives their digital transformation efforts.

3. Alternate the Focus: A balanced approach involves alternating between operational efficiency and customer experience. These companies recognize that both aspects are critical for success. They optimize operations while simultaneously delivering exceptional customer value.

4. Create a New Unit: Some organizations establish a separate unit or business entity dedicated to digital innovation. This unit operates independently, experimenting with new technologies, business models, and customer engagement strategies. It allows for agility and disruptive thinking.

Four Pathways Key Takeaways

• Explosions: Regardless of the pathway, all companies face significant disruptions or “explosions” during their digital transformation journey. These explosions include changes in leadership, organizational structures, and cultural norms.

• Becoming Future Ready: The ultimate goal is to become a future-ready company—ambidextrous, customer-centric, and cost-efficient. Future-ready organizations excel at both innovation and operational excellence.

Why This is so Powerful

Most customers don’t really know where to start. It's overwhelming to think about transforming even a mid-sized organization. Frameworks such as these allow customers to ground themselves in an intentional journey from a current state to a desired future state. The 3 horizons model from McKinsey allows customers to pick innovation initiatives that make sense based on their desired impact while the four pathways help them determine the best path to take on that journey.

For example, many defense vendors are looking at ways to adopt a Model Based Systems Engineering (MBSE) approach across their design and manufacturing functions. I see this as a Horizon 2 effort because its adding new capabilities to existing markets. Now, one vendor may choose pathway 1 because their primary, short-term goal, is to reduce costs and increase operational efficiency. Another vendor may be more customer focused and choose pathway 2 while yet a third vendor may take a long -term view and choose to stand up an entirely new division, thus opting for pathway 4.

Conclusion

Frameworks are powerful tools in any innovators toolbelt. By combining frameworks innovators can often achieve results magnitudes beyond what can be gained from a single framework or approach. The intersection of these frameworks provides customers with a more tailored, and intentional approach their specific transformation needs.