Over the last few years, the digital transformation trend has seen mixed results. At the peak of the movement, 90% of C-suite leaders felt underwhelmed by the outcomes. The impact on business productivity fell short of expectations.
Digital was not a mirage, but it was a misplaced priority. It should have been transformation first, digital second. But so many put the cart before the horse. It was so easy to make it all about digital-first - and forget about transformation entirely.
We are now at a new era of transformation. On one hand, companies are at risk of the same error. On the other hand, this new era is an opportunity to break old habits. As we watch AI transformations in the new intelligence revolution - will companies make it about AI first, or learn from the past and place transformation first?
The intelligence revolution is a system shock
The graveyard of companies who misread past systems shocks is littered with famous brands; KMart, Sears, Bed Bath & Beyond, and more that succumbed to the digital revolution. Amazon, Wal-Mart, and Target thrived.
Nassim Taleb would call these "fragile" and "antifragile" companies. The fragile companies broke down in response to the system shock. The antifragile companies like Walmart, Schwab, and Target, which thrive on disruption, used the change as fuel to transform into something new.
The intelligence revolution that is now upon us is yet another system shock. A keen observer may ask why since AI has been around for 30+ years. Companies have been harnessing data-driven intelligence for many years. Like much of digital transformation, these have resulted in incremental gains. GenAI is something different; it is going to change business operations at the genetic level.
Never before has every business competitor had AI at their fingertips. AI by itself will not disrupt businesses, but competitors wielding AI will. This new wave of artificial intelligence, however, is a system shock unlike any that has come before.
Who will thrive? If we have learned anything from the digital transformation era, it is that technology is not priority one. Even in the era of AI, winners will place transformation and mindset above technology. Transformation first, AI second.
The new mindset for antifragile enterprises
The intelligence revolution is so groundbreaking, that we need to operate with a whole new set of first principles. In this world, we rethink old frameworks and consider a new approach.
Since the 1960s, IT has used the famous People, Process, Technology (PPT) framework pioneered by Harold Leavitt. This new era breaks the mold by adding a fourth element: what I call digital brains (LLMs of different forms and shapes). Digital Brains, in many ways, need to be treated like employees. They bring unprecedented reach into unstructured data, and enormous potential to understanding and even making business decisions.
In the new era of work, human brains and digital brains will need to become intertwined and work in synchrony - in business operations, decision-making, and experience, AI and human intelligence will fuse together.
Contending with this new world requires a new mindset. In the recent book The New Automation Mindset, Vijay Tella writes "Much of the emphasis of business transformation initiatives has been on technology. We believe an organization's mindset around transformation was always important and will matter more in the future. It will dictate how we choose to apply AI." In a way, this makes organizational mindsets nearly as important as AI itself.
First principles for the AI era
The paradigm shift we are experiencing means businesses need to think anew and ask “why” of everything they have been doing to this moment. Does our existing process make sense in the era of AI? There are 3 profound ways that this intelligence revolution disrupts business operations - business & tech strategy unification is a must, digital brains become business co-pilots to operate, and business decision-making gets decentralized. To approach and address these disruptive changes in business, we need a fresh set of first principles in this era:
Reimagine with the growth mindset: In the old days, we built things to last. Today, change is the only constant. We need to be adaptable to change and even thrive on it, embracing GenAI requires a complete reimagining of the way business operations are conducted.
Rewire with the process mindset: If we visualize our end-to-end processes interconnecting key nodes across the company, the AI era requires that we completely rewire them. We should do this with a “process mindset” where we think of the entire process rather than the tasks alone.
Reinforce with the scale mindset: AI has unprecedented reach and capabilities. Automation grants great power to those who wield it. We should incorporate governance and guardrails, then be inclusive by partnering between IT and business teams to drive results at scale.
Because digital brains are making decisions - decentralized decisioning becomes the norm. Once that occurs - an entirely new kind of organization will arise.
The rise of the organic enterprise
Many years ago, professors Tom Burns and G.M. Stalker proposed a business theory comparing organic and mechanistic structures in organizations. Their 1961 seminal work noted, "One common approach to assessing organizations on the mechanistic–organic continuum is to assess such structural aspects of the organization as the average span of control, the degree of formalization of rules, and the degree of centralization." Mechanistic structures were centralized, rigid, hierarchical, and highly specialized. Organic structures, on the other hand, were more agile, flexible, and adaptable, with decentralized decision-making and flatter structures.
At the time, this point of view sounded like science fiction. Today, technology makes this ideal possible, where decisions are made by digital brains and human intelligence is intertwined with artificial intelligence. The possibilities are breathtaking.
As organizations add digital brains to their processes - the experience of work will completely change. Intelligence, judgment, and decision-making will take on a completely new form.
But if companies pursue this shiny new object without prioritizing transformation, its impact will not reach its full potential. With a new mindset and a return to the new first principles - companies can unlock a completely new scale of impact; one that will change their firm and their customers forever.
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