Blog post

Digital Transformation: No Pain, No Gain

By Augie Ray | October 05, 2018 | 8 Comments

MarketingCustomer Experience

Is there any business catchphrase more ubiquitous nowadays than “digital transformation”? Everyone craves the agility, innovation, relevance,  engagement, reputation, loyalty, and brand advocacy that digital transformation promises. But how many are willing to do what it takes to achieve the sort of digital transformation that matters? If your organization wants a meaningful digital transformation, then it must be willing to do enough to make it worthwhile; otherwise, you are just putting band-aids on a gaping wound.

What does “doing enough” mean? That depends on many factors, such as your category, legacy systems, culture, the frequency of acquisitions, disparate systems, centralization, global footprint, and other attributes, but the most important factors are your openness to risk and your willingness to invest what it takes. In short: No pain, no gain.

Today, many traditional organizations cast a desiring eye upon their upstart competition having “benefits” such as agility, private equity, and newer technology unburdened by legacy systems. (Few, however, would take the corresponding drawbacks of cashflow urgency, bootstrap mentality, and–ironically enough–the lack of legacy reputation, customer base, and institutional knowledge.) The difference is that startups are permitted (in fact, encouraged ) to take business risks, invest heavily in building the right tech stack, and take losses against future gains. Meanwhile, traditional public companies are beholden to Wall Street expectations for consistent quarterly results.

This is why the key to digital transformation isn’t going to be found in your IT department but in the C-suite. What risks are you willing to take? Can you put a portion of today’s business model at risk to create tomorrow’s? How much are you willing to invest? Can you tell your shareholders that transforming your company for success tomorrow will involve increased costs today?

I regularly speak with business leaders who tell me they want to emulate Amazon, but Amazon lost almost $3 billion before turning its first profit. And well after Amazon established itself, it continued to prioritize innovation and market share over margin. And Amazon took risks—significant risks. It launched Amazon Prime and AWS and won; and it lost on the Amazon Fire Phone, which Amazon pulled little more than a year after it debuted. Of course, few want to emulate Amazon’s losses, its purposeful reduced margin, its considerable R&D costs, and its risks. They want to be Amazon without doing Amazon.

Today, Amazon is one of the largest companies in the world and Sears is a penny stock. There was no reason Sears, with all its assets, brand equity, logistics, experience, and other advantages couldn’t have done what Amazon did — no reason other than its unwillingness to take risks and shift priorities from short-term profit to long-term relevance and brand health.

When making a digital transformation, the way to reduce risks and ensure your investments pay off more quickly is to start with the customer. Use effective customer experience processes to know and understand your customers’ wants, needs and expectations. By starting with the customer and switching your perspective from inside-out to outside-in, you ensure your digital investments are directed toward the sorts of efforts that build relationships, deliver loyalty, raise margin, and change perception.

Too many companies do the opposite, spraying and praying their digital investments will pay off, which is why the digital past of many firms is littered with unused mobile apps, forgotten microsites, abandoned Second Life islands, neglected Twitter accounts, and ignored Alexa skills. Build what customers want, will use, and drives their satisfaction, loyalty, and advocacy, and your digital transformation is more likely to quickly produce the results stakeholders expect.

Short-termism kills brands. It makes leaders focus on financial results rather than customers. It causes them to strive to eliminate risk rather than embrace and manage it. And, it leaves them saddled with aging legacy processes, tech, reward structures, and thinking. Companies too often assume they can take an incremental approach to solve their legacy issues, but like a person who knows the cost of everything and the value of nothing, they end up saving a little cash but miss the slow grinding loss of efficiency, agility, talent and customer trust, satisfaction, and preference.

No pain, no gain.

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  • You said, “When making a digital transformation, the way to reduce risks and ensure your investments pay off more quickly is to start with the customer.”

    You might think that the guidance to become customer-first is obvious, but many established companies tend to be product-centered. Why does this happen? Legacy companies will reward people who are known for ‘random acts of haste’ instead of thoughtful research-based commercial growth experiments.

    • Augie Ray says:

      I don’t think the guidance is at all obvious. It seems obvious, but I spend virtually every day helping clients understand how and why to be customer-first.

  • Having worked on both sides (large, cautious corporate vs. small, braver startup), I wholeheartedly agree that the perceived risk/reward ratio is the key to progress at the C-level.

    What do you think of the new breed of “Innovation Labs” hosted by Fortune 500 types, essentially a captive proving ground for startups?

    • Augie Ray says:

      I want to like the new innovation labs springing up like weeds these days, but I fear they are like a lot of other corporate “trends” that get hot–people focus on the easy stuff and check off a box rather than taking time to understand nuance and difficulty. I know companies that employe smart people in very expensive office space in places like SOMA and San Mateo, but all they do is churn out ideas no one wants and experiments that feed PR and not product development. An innovation lab in a company unwilling to take the risk of innovation is simply an exercise in public relations and leadership ego.

  • Eduardo Muniz says:

    Excellent article thanks. Nevertheless why does it have to be painful?
    You can learn from Amazon experience and do transformation righter and sustainable without being painful.

    Companies just to do an Organizations Readiness Assessment to proactively address any capability gaps to ensure Digital Transformation sustainable deployment.

    • Augie Ray says:

      I’m not sure if you read the article or just reacted to the headline. I think I make a pretty convincing case for how deep and meaningful digital transformation must go. Maybe “pain” is the wrong word (a bit of provocation for the headline,) but when you act like Amazon didn’t weather difficult waters, then I think you need to learn more about its history, years of losses, and difficult stock performance. It hit a high in 1999 and took another 10 years to recover. In the four years following May 2003, Amazon stock was flat and Sears was up 1200%, and I’m pretty sure that felt pretty damn painful to Amazon investors, at the time.