Data-driven flywheels, not digital transformations, define tomorrow’s winners. Unsplash+
Every decade in business brings a new buzzword. The 1980s had “re-engineering.” The 1990s, “synergy.” The 2000s, “disruption.” The 2010s gave us “digital transformation.” Today the phrase still lingers in boardrooms and consultant decks, often sprinkled with “AI-native” promises that legacy companies can somehow shed their industrial skin and reemerge as sleek digital enterprises.
It is a seductive image: the caterpillar of a traditional business cocooning itself in tech spend and emerging as a beautiful digital butterfly. But this metaphor is not just misleading; it is dangerously fatal. Digital transformation, as commonly understood, is a myth. And the myth is costing businesses in wasted capital, frustrated employees and a failure rate so high it borders on malpractice.
A meta-study from IMD Business School found that 87.5 percent of digital transformations fail to meet objectives. Put differently, a coin toss offers better odds.
The problem starts with the metaphor. Businesses are not organisms morphing into new species. A century-old manufacturer will not “transform” into the next Amazon, no matter how many apps or A.I. agents it builds. A bank with decades of legacy systems cannot suddenly replicate fintech DNA. Pretending otherwise sets leaders up for disappointment and employees up for burnout.
The truth is less glamorous but more powerful: companies don’t transform—they compound. Winning today is not about staging a one-time metamorphosis but about building systems of data-driven value creation that strengthen over time. The right image is not the butterfly, but the flywheel.
This matters because transformation narratives push executives to chase activity over outcomes. Digital departments run pilots, build dashboards, launch apps and experiment with A.I. and cloud tools. From the outside, the company looks modern. From the inside, little touches the customer or moves the P&L. The result is expensive theater, where activity is mistaken for progress. The customer doesn’t care how busy you look.
Instead, leaders must recognize the three paradigms of value creation.
In the industrial paradigm, value was scarcity-based and input-constrained. Every car or ton of steel required resources and labor, and customization was costly. Value was measured in static frameworks because margins were predictable. Scale, efficiency and reliability created advantage.
The digital paradigm bent that curve. With software, replication costs fell toward zero. Build the code once, replicate endlessly. But personalization still required engineering effort. Value creation became dynamic, as companies balanced scaling output with the drag of customization. Leaders thrived by building platforms, standardizing processes and managing selective personalization.
Now we are in the data-driven digital paradigm, where both replication and personalization approach zero marginal cost. Algorithms and models can serve millions in real time with negligible effort. Success is no longer measured by output but by acceleration—the slope of the curve. Winners leverage proprietary data to create compounding advantage, growing faster than peers while building moats competitors cannot copy.
This is why “transformation” language misleads. It implies an endpoint when reality is continuous compounding. The strongest companies turn unique assets into proprietary, data-driven flywheels. A Gulf logistics firm feeding route data into predictive models, compounding efficiency with every mile. A healthcare provider using decades of anonymized outcomes to power A.I.-driven wellness platforms. These are not transformations. They are compounding systems of advantage.
Take John Deere, once defined by steel and horsepower. Today, its machines are data-gathering nodes, capturing billions of points on soil, weather and crop performance. Each use feeds a proprietary dataset that powers A.I.-driven recommendations for all farmers in the network. Deere’s moat is no longer just the tractor; it is the slope of its data-driven learning curve, compounding value with every acre plowed.
The real challenge for leaders is not to build butterflies but moats. That requires moving beyond off-the-shelf tools and PR stunts. Buying the same SaaS as competitors will not save you. Launching a flashy A.I. chatbot may buy headlines, but not compounding advantage.
Instead, leaders must leverage what only they have: proprietary datasets, customer trust, regulatory positioning, geographic reach and legacy assets. They must align organizations around meaningful outcomes, cut noise and optimize for compounding returns—growing in ways only possible because of their unique strengths. This is not transformation. This is data-driven value creation.
Walmart shows how. By capturing billions of in-store and online transactions, it has turned everyday shopping into a proprietary dataset that powers Walmart+, its subscription service; Walmart Connect, its booming retail media arm under Chief Growth Officer Seth Dallaire; and Walmart Data Ventures, which sells insights to suppliers. The brilliance lies not in digitizing checkout, but in compounding data across touchpoints—building a moat Amazon cannot replicate without Walmart’s physical scale.
Ignoring this reality is dangerous. Companies pour millions into systems and pilots, only to watch margins erode as gains are competed away and businesses commoditized. The real winners are the vendors selling tools or the consumers enjoying lower prices. The company clinging to the myth of transformation ends up poorer, busier and weaker.
The pressure is highest in legacy industries desperate to look modern. Banks, manufacturers, insurers, retailers and even governments signal digital credentials. But signaling is not substance. If an investment does not build a moat or compound customer value, it is theater. And in an era of fierce competition and fast tech cycles, theater has a short shelf life.
The myth of digital transformation must be retired. Businesses are not caterpillars destined for butterfly wings. They are systems of people, processes and assets that must be disciplined into compounding proprietary, data-driven value creation. Winners will not be those with the flashiest “transformations” but those with the deepest moats and strongest flywheels of compounding advantage.
It is time to stop worshipping transformation and start embracing compounding. The future does not belong to butterflies. It belongs to the flywheels.
Ritavan is an entrepreneurial technology leader and the author of the internationally bestselling book Data Impact (Rethink Press, £33.99).
