The Digitalization Trap
The Digitalization Trap
Why so many struggle. Case study: The New York Times.
One of the most common mistakes I see companies make as they embark on a digital transformation is what I call “the digitalization trap.”
These companies see digital transformation (DX) solely as using new technology to upgrade their existing business. Digital is embraced as a means to cut costs, to optimize, and to add efficiency to the core.
But there is never any thought to use digital to pursue growth beyond the core.
In many ways, this is the inverse of a problem I wrote about before the holidays. In that post, I described “the distraction of technology” and the peril of falling in love with every shiny new thing.
The “digitalization trap” stems from an opposite mental mistake: to fall in love with your existing business model.
This leads you to see every new digital breakthrough through the lens of what you have done in the past.
Every Tool As the Same Hammer
I still remember how incumbents reacted to the arrival of the internet.
In its early days, each industry viewed the World Wide Web as a mirror image of itself: A new kind of television. A new kind of telephony. A new kind of magazine. A new kind of retail store.
There is an old saying that “To a boy with a hammer, everything looks like a nail.”
To which I would add: “To a leader with a legacy business, every technology looks like another hammer to keep hitting their same nail.”
Hence, I saw legacy TV networks and movie studios all respond to the arrival of YouTube by seeing it as just another distribution channel—like cable or satellite dishes—for their content.
The networks and studios failed to recognize the difference of YouTube’s business model, the radically different customer experience it offered, or how YouTube would dethrone gatekeepers, erase barriers to publishing, and spawn a “creator economy.”
Myopia & Complacency
Why do so many companies make this mistake?
It starts with a tendency of any business to develop a backward-looking view over time—what Ted Levitt famously called strategic “myopia.”
Levitt saw that most established companies fail during times of change. And they do so because of they focus on their existing products, rather than on the customer needs they have served.
The problem is only worsened by market success. Success breeds complacency, and an even greater tendency to define the future in terms of what worked for you in the past.
You’re Perfect, Don’t Change.
Another reason for the popularity of “digitalization” may be that it lets the organization off the hook.
The really hard part of digital transformation is the change it demands of your organization—your operating model, mindset, and culture.
If your only ambition is to optimize your existing business, you can leave digital transformation to the IT department.
Your digital efforts will be run by technology specialists, and the rest of your organization gets to continue its work unchanged.
Why Digitalization Is Too Risky
But digitalization is a trap.
And the reason why is because it is incredibly risky for any company that pursues it.
Companies that seek only to use technology to improve their existing business are consistently blindsided by disruptive threats to their core business, eroding its relevance or profitability.
They spend years striving to become the best department store, movie chain, or traditional retail bank… only to wake up and discover that the market has moved on to wanting something else.
Companies that seek only to digitalize are also blindsided by new entrants, who leverage new business models to capture opportunities for growth in their very own industry.
Whether automakers, book publishers, or hotel chains—these legacy incumbents have sat by as the Teslas, Amazons, and Airbnbs of the world launch wildly successful digital offerings that could have been their own.
Eventually, those who aim to digitalize all discover the same truth: simply optimizing the core is not enough to sustain a business amid the changes of the digital age.
Case Study: Digitalization at The New York Times
The New York Times, a media company over 170 years old, is a leading example of digital transformation today.
But when it began its digital journey, the Times fell into the same digitalization trap as so many other businesses.
The transformation of the Times Company began in 1996, in the early days of the digital revolution, with a mandate from its chief executive, Arthur Ochs Sulzberger Jr.
But Sulzberger and the Times’ leadership committed a fundamental mistake.
From the start, their vision of DX at the Times was all about digitalizing the core business—literally, taking the same articles produced every day for the print edition and using new technologies to deliver them to readers.
In exchanges with his newly hired digital talent, Sulzberger pledged to deliver the New York Times by website, CD-ROM, or any other new digital medium to come, promising:
“The internet? That’s fine with me. Hell, if someone would be kind enough to invent the technology, I’ll be pleased to beam it directly into your cerebral cortex.”
This thinking—seeing technology as just a new means of delivering the old product—persisted for years, defining the Times’s future in terms of its past business.
Focused on the Legacy Product
Everything done at the Times betrayed a devotion to the legacy product—the “daily news report” with its bundle of local, national, and international news stories.
The Times’s leadership clearly prioritized the print edition over any new digital media. Every new employee was invited to attend a daily “Page One Meeting” where senior editors chose articles to go on the front page of the physical paper.
The Times’s technology teams worked hard to build digital versions of the print newspaper, and they even digitized the archive of articles going back to 1851.
But they missed almost every opportunity to explore what else could be done with digital journalism.
As the Times embraced the Web, email, and digital distribution, it continued to publish digital articles only once a day, just like in print.
Leaders seemed to never ask, “Could we write different articles for digital? On a different time schedule? Even for a different audience?” New business models and new revenues remained unaddressed.
The Organization Unchanged
The Times established a separate division to house the its digital efforts, a subsidiary called the New York Times Electronic Media Company.
This unit undertook a range of prize–winning multimedia features. But such projects seemed to stand apart from the daily output of the paper.
Creating a separate division for digital initiatives established a pattern: a few people were tasked with all things digital, and the rest of the organization stuck to their old ways of working.
The Failure of Digitalization
In the end, the Times’ digitalization proved to be not nearly enough.
As the digital revolution continued, the paper’s best digital talent moved to other publishers. New digital-native publications surged past the Times in attracting young readers.
Most seriously, revenue from print advertising dropped precipitously, and digital advertising failed to deliver on its promise. The Times’ total revenue dropped every year from 2006 to 2013, declining 52 percent in just seven years.
The Times’ narrow digital efforts had failed to reckon with the fundamental shift in the economics of advertising wrought by the internet.
Escaping the Trap
The story of the Times does not end there.
Ultimately the company reached a point of crisis and recognition that its core business model could not survive unchanged.
After a critical event precipitated a shift, the Times’ leaders broke out of the digitalization mindset to focus on a true transformation of the entire organization.
This started with a shared vision that eventually led the Times to turn its business model upside down, and pursue new value proposition for subscribers, new markets to serve, and new revenue streams beyond the core news report.
But that turnaround is a story for another post.
A Better Path Forward
The questions The New York Times faced are the same ones facing every legacy business attempting to transform today.
Digital transformation cannot simply be an effort to “digitize” the legacy business—to upgrade existing technology, cut costs, and improve the customer experience of your current offerings.
The digital era demands deeper change.
Every business today must continually adapt to keep up with changing customer expectations, new digital competitors, and business models made possible by emerging technologies.
This means digital innovation within your core business—improving your customer experience, operations, and productivity. But it also means digital innovation beyond your core—testing new offerings in pursuit of new customers and new revenue models.
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