With a few exceptions, the majority of executives I speak with recognize the digital disruption that is upon us and are willing to invest in the transformation necessary to compete in the digital age, yet few have seen tangible value as a result of digital initiatives.

McKinsey recently reported that companies are underestimating both the scope and speed of the transformation that is occurring across the world. The evidence of the inability for large established firms is clear. Market capitalization for U.S. companies is increasing while the number of public companies is decreasing. What’s going on?

The problem is not with technology. The technologies involved in digital include analytics, IoT, cloud, social, AI, mobile and others. Most of these are mature (enough) technologies to support transformation. The challenge for executives is understanding how to leverage them not only to change but also to transform their businesses.

Successful CEOs will say, and rightly so, that they are constantly evolving. They have entered into diverse product and service offerings to spread risk. They have gone through major IT projects, including ERP modernization and PLM implementations.  They are now involved in omnichannel marketing and are selling their products across multiple platforms. Digital is just another part of the journey.

The problem is that digital transformation must be approached differently from any change they have been through before.  Early in 2016, I worked with a large automobile firm in Germany that had started down the digital transformation path but eventually stalled. After reviewing their activities surrounding the program, it was clear that the focus was almost exclusively on technology innovation in their cars. This was no different than their existing strategy of continuously enhancing their existing offerings. We redirected their focus from technology to the customer by asking them to reimagine how customers might interact with them via the technology in the vehicles. The obsession with customer engagement must drive the transformation strategy, not the technology.

The challenge for the automaker (and most likely a lot of firms embarking on the digital journey) was the willingness to let go of the analog or legacy systems, strategies and processes. This type of change is painful, disruptive and involves very different approaches than most of us were taught in business school.

How do you know when your digital strategy is going down the wrong path?

Rationalization