How to Turn the Potential of Digital Transformation into an Innovative Reality

In recent years, one of the dominant models of innovation has been digital transformation—the notion that businesses need to take advantage of new technologies, from the internet, smart phones, and social media to artificial intelligence (AI), machine learning, and the metaverse, as a source of innovative concepts. In fact, when people hear that I am an expert on innovation, they sometimes assume that most of my work centers on digital transformation.

Of course, readers of this blog as well as of my book Built to Innovate know that I define innovation much more broadly than that. Innovation can and should happen in every corner of your company, and it may involve traditional technologies or no technology at all.

There’s no denying that the new world of digital tools that has emerged in recent decades offers an abundance of opportunities for innovative activities. Yet many of the business people I teach and work with struggle to find smart ways to use these tools to drive profitable innovations.

For example, when I recently invited an expert in AI to address a class of mine at INSEAD, the executives in the class spent most of the session asking him detailed questions about how to gather, analyze, and use customer data. This is an interesting and important topic. But focusing on this—the “solution to the problem”—as the first step is putting the cart before the horse. The executives in the class should have started the conversation by focusing on the customers themselves.

The pursuit of innovation—whether digital or not—always begins with the question, “What new problem can we solve for the customer?” This question, in turn, breaks down into three, more specific questions: “Is there a customer pain point we can eliminate or reduce? Is there a customer like we can enhance or amplify? Is there a customer dream we can fulfill?” The answers to these questions help us define new forms of value that we can create for customers (and for our organization). And, yes, in some cases, digital tools like AI can play an important role in creating these new forms of value.

When we look at companies that have successfully used digital tools to transform their business models, we see that they have found new problems to solve for the customer, and focused, laser-like, on value creation rather than on implementing digital tools for their own sake.

An example from my book is the San Jose Sharks, the National Hockey League team that is often cited as one of the most innovative sports franchises in the world. During the COVID-19 pandemic, when professional sports were shut down because of health restrictions, the Sharks found their entire business model threatened. How could they create value for their fans and keep them engaged when the games they love had been cancelled?

Like many businesses, the Sharks turned to digital tools as way of grappling with the COVID challenge and the big problem it created for their fans. The Sharks’ club president, Jonathan Becher, likes to define his company’s mission as “the business of making memories.” So solving the problem of the pandemic-driven sports lockdown required that the Sharks find a new way of “making memories” for their fans.

Here is where digital technology played a key role. Among other approaches, the Sharks began using a video-game simulation platform to create and broadcast “fantasy” hockey games for fans to watch. The team used software that combines statistical analysis of real-life hockey games with randomized play-by-play events to show what might happen in a simulated game. Then they selected video clips of their players to make the action look almost real. The TV ratings for these simulated games didn’t match those of the real sport, but they weren’t bad.

But the Sharks didn’t stop there. Delving deeply into the question, “Is there a dream that our customers have that we can fulfill?” they found ways to turn the fan experience of the simulated games into something truly special. For example, they worked with their software experts to create a way for Sharks fans—selected by lottery—to be transformed into digital avatars who could participate in simulated Sharks games. One fan had the thrill of having his digital avatar score the game-winning goal during an overtime game and celebrating on the ice with his excited teammates. He took to social media to declare it “the best experience of his life.”

Delighted by the fan response, the Sharks went on to introduce further innovations to the simulated hockey experience. They began inserting simulated versions of popular Sharks players from past eras into the games, making possible the kinds of the fantasy matchups across history that sports fans have always loved to dream and argue about. They also engaged the team’s popular radio play-by-play announcer, Dan Rusanowsky, to narrate the action of the simulated games, lending them a realism and an excitement that the fans relished.

As the threat from COVID-19 receded, the Sharks were able to return to the ice in person. But the team continues to use digital technologies to find innovative ways of “making memories” for their fans—for example, by using Zoom interviews to bring beloved hockey stars from the past back into the arena during the team’s 30th anniversary celebration in 2021.

The Sharks' digital transformation has been working so well because the Sharks are not thinking about digital technology as an end in itself. Instead, they are focused on the customer experience—in this case, on the fun and excitement of being an avid hockey fan—and applying imagination to discover ways that technology can bring new value to that experience. It’s a lesson every business on the path of digital transformation needs to consider.