Business leaders and technology executives are deluged by the rhetoric about disruptive digital technologies coming of age, companies and whole industries going digital.
Maturing and new technology tools, combined with rapidly changing technology usage patterns of businesses and consumers, are forcing a rethink, even a re-imagination of what companies can do. Obviously there are leaders and there are followers, with every success story probably preceded by unsung failures.
In this climate, a ravenous appetite for technology consumption is stoked by vendors and technology providers, driving business and technology leaders into a metaphorical corner – a corner characterised often by fear of competitive moves and doubts over the chosen strategy.
But before being swept away out to the sea of confusion and indecision, it may be wise to pause to get some contextual clarity on the what, why and how, of digital transformation.
What is the new wave of digital transformation?
Digital transformation is the building of new technology-enabled business models and solutions, to improve business results, enhance customer engagement, to drive operational excellence.
Digitalisation is forcing a rethink of business architecture, creating new players and even changing industry structures. It is an opportunity and a threat.
Digital disruption is not alien to businesses. In previous waves of digital computing, distributed computing, internet communications and commerce, it created opportunities and risks. The present wave of digital disruption is not dissimilar in its impact – it presents new opportunities and new risks.
Digital technology is impacting the landscape of many industries, demanding a rethink of business strategies, structures, leadership focus, operational efficiencies and investment priorities. Business solutions and customer experience which once seemed fanciful are standard expectations today. Organisations from all sectors, profit-driven businesses or public services, are finding technology-enabled ways to improve their competitiveness. The outcomes may take different shapes, such as increased operational effectiveness, improved cost efficiency, enhanced omnichannel customer experience, faster time to market compressing supply chains, or even new service offerings.
The convergence of new digital technologies is making it possible to envision end-to-end digital businesses, beyond aligning technology to meet current business needs to developing new business models. Undoubtedly this is no easy feat, particularly for mid to large organisations, which require a complex mix of factors to devise and succeed.
The ingredients for successful digital transformation are many and diverse. It is more a journey than a destination, certainly not a corner office technology-driven agenda. While several key factors are explored further, suffice it to say that usage of digital technology components such as social, mobile, analytics, cloud and sensors may well be necessary, but are not sufficient conditions for successful digital transformation.
In charting the way forward, business leaders rushing with a technology-led agenda may risk capital, time and opportunity, in addition to ignoring the required business strategy, defined by needs, priorities and changing business context.
Why is it different this time?
One could argue that the falling costs of computing, communications, and storage have been a long-term trend. So what has changed the trajectory?
This wave of digital transformation is powered by the confluence of technologies, each useful, but together more powerful. The pervasive technologies of cloud delivery, smart devices, ubiquitous connectivity, social media, sensor feeds and analytics, are powering opportunities erstwhile impossible. It is only in the past few years that the convergence of these digital technologies has created never-before possibilities.
- Pervasive connectivity through mobile phone subscriptions and use of smartphones.
- Omnipresent sensing, with internet-connected devices providing massive amount of data to decipher and use.
- Digital data explosion, doubling every two years – most of it digitised with half of it linked to an IP address.
- Cloud-driven speed, where software is the new hardware, not limited by physical obsolescence or capacity.
- Analytics, machine learning and artificial intelligence are seeking out insights, grinding through noisy data sets.
Now consider Uber, the popular taxi-hailing app on your phone. It is more than that. It is a digital business innovation with physical and technology-enabled operational layers. It is a network of drivers and cars, an online marketplace connecting mobile buyers and sellers, using a dynamic transparent pricing model and a reliable payment system. It is also a trading platform, with an intuitive front-end for buyers, while squeezing out overheads for free-agent sellers, who can reach buyers at the right time and place – all supported by a feedback mechanism, a robust, always available infrastructure operation. Some years ago this was not feasible, without the digital toolbox.
This digital toolbox is making the next stage of business transformation different. This wave is being dubbed as the most significant wave of digital disruption. It is having significant implications not only for business strategy but for the structures of industries and companies.
Organisations are seeking the first-mover advantage, leveraging the growing pervasiveness of the digital toolbox, improving digital fluency within their organisation, creating value throughout the enterprise, increasing consumer-facing digital offerings, accelerating data analysis and defining new business requirements.
The plethora of possibilities and the cumulative impact of these technological advances is nothing short of a digital-fuelled business revolution.
How is digitalisation being achieved?
Not all businesses are born in the cloud. So if you do not identify with the likes of Uber, Netflix, Facebook or Amazon, you are in the majority. But all businesses are technology enabled, and in present times unable to ignore the impact of the digital revolution upon us. So it is worth considering some of the common success factors of digital transformations.
Context is king, and will determine what works best in an organisation and industry – yet there are common threads of experiential learning that can help accelerate the journey.
1. Executive-level ownership of digital business strategy
It is recognised while technology is critical; the core strategy is about the business. An executive-led management structure takes overall ownership, driving the transformation – orchestrating, prioritising and coordinating – digital solutions across the business value chain. However this works when coupled with a digital mind-set, up and down the organisation, seeking new ways to improve, simplify and innovate to deliver better outcomes.
2. Reward innovation and speed
Minimising the organisational “fear of failure” by taking calculated risks, characterised by rapid prototyping, small-scale trials, developing on the learning, while writing off failures and scaling up success. This also means flexibility from traditional budgeting, monolithic projects and rigorous needs analysis models.
3. Cross-functional teams and capabilities
Successful digital transformation is being achieved only through a mix of process reinvention, mind-set shifts and deepening inter-disciplinary competency. Restructure, elevate roles, fine-tune, as needed, to break down departmental silos and drive improved collaboration and communication between multi-skilled cross-functional teams.
4. Drive improved customer experience
An integrated customer view involving capture and analysis of varied data streams of flowing from all customer touchpoints. The drive is to use this integrated view to monitor, adjust, anticipate and deliver real-time personalised responses, focusing on the customer journey and experience, using a mix of physical and digital assets to engage one-to-one, to deliver the most relevant, convenient and differentiated customer experience possible.
5. Technology decisions are not make or break
The transformation journey will have many milestones, operations and decisions; technology choices need to be seen in an overall programme perspective. While there may be a plethora of technology options, the difficulties in determining which digital products, services or capabilities to pursue are no different than the hurdles for any other product, service or capability.
What is the impact on IT & outsourcing?
IT and its partners are under pressure to innovate, develop and deliver solutions faster than ever before, while “keeping the lights on” efficiently.
IT needs to find investible savings in opex, resources, skills, time and focus, while delivering sustained value to the business.
Put another way, IT has challenges of business as usual, coupled with the need to be proactive in engaging with the business, to be agile in building new solutions, opportunities, efficiencies and value.
IT has a key role and responsibility is helping with the digital transformation journey. To meet the challenges, IT has to manage three areas of impact.
1. IT Operational Structure
This has implications on the way IT is structured, managed, budgeted and operated. This is largely because there is a need to take different approaches in managing IT delivery across applications, infrastructure, development and maintenance for “running the business” and “changing the business”. One way of looking at the dual split personality that IT needs is to consider the two moving parts of the IT operations:
2. Digital Foundation
Comprising teams charged with “running the business”; focused on reliability, efficiency, process discipline, adherence to policies and standards, responsible for stability, security and up-time, with rigorous testing and scrutiny. There is a compelling case that an effective and efficient digital foundation operation is more important than ever.
3. Digital Innovation
Comprising skilled experts, developers, analysts and business relationship managers focused on delivering innovative “change the business” solutions; charged with turning new requirements and functionality around at lightning speed, best served by an environment that facilitates agility, speed and flexibility.
In addition to structure, which may be dynamic, the teams are differentiated by more than skills and capabilities. The supporting management systems, vendors and providers, commercial and contractual mechanisms need to be fit for purpose.
The IT organisation which can successfully support the digital transformation journey needs both the teams and approaches. This allows it to raise the bar of expectations, with relative importance and size of the teams and budgets depending on the business priorities.
Even when such a structure is not formal, it can evolve informally. In either circumstance IT leadership has to ensure optimal contributions of each team, make certain of coordination, communication and highlighting the contribution of each team, while maintaining the holistic oversight of the service delivery model. Establish unique performance indicators for each team, while ensuring logical touch points between the two teams, to optimise innovation and ensuring stability.
Managing the two-team model within IT also has implications on the routine management systems, in terms of frequency, metrics and vendor performance management. It is critical for IT leadership to recognise the differences between the two teams, to establish boundaries, and to acknowledge the potential for strife, while at the same time realising the potential for magic to happen.
Capabilities and skills
In addition to IT structure and management, there are key skills areas to consider in getting equipped and setting up IT for digital transformation success:
- Enterprise architects to work in tandem with key business stakeholders, ensuring an adaptable IT architecture, which can remain robust but flex with changing business environment and needs.
- New skills development in data science, analytics, and visualisation to ensure meaningful analytics to guide decision-makers through a constant deluge of data.
- Process modellers to ensure that the complexity of the digital enterprise can be simplified with data-dependent efficient processes.
IT budgeting & digital innovation
In the early stages of digital transformation it is particularly daunting to identify clear budgets which can deliver on the digital innovation initiatives. There are constraints of the traditional IT budgeting model which can prove challenging if the organisation is not conscious of the pitfalls. Here is a list of issues and considerations when seeking to fund and support digital innovation initiatives pursuant to the strategy.
- Digital innovation is the key to delivering on the digital business strategy, and by its nature, this an ongoing journey impacted by changing opportunities and risks. Unlike a large monolithic solution development or technology project, the budgeting of digital innovation needs to be seen as an ongoing process of finding funding for many digital initiatives, some of which may fail.
- By its nature a digital initiative touches many parts of the organisation, requiring constructive collaboration and communication. While budgets in department silos are important for singular accountability, for digital transformation success this approach can be detrimental. Orchestration of budgets for digital initiatives should be the domain of the digital transformation executive leadership.
- IT has to make a contribution to the digital initiatives, not by simply working all hours or negotiating harder with its “run the business” providers but by finding efficiencies and optimisations in the digital foundations, through real-world comparisons of costs and performance, improving reliability through process discipline, tools for better service management and elastic infrastructure.
- Digital initiatives are particularly tough when it comes to defining and validating the project vision against the digital strategy and with the key stakeholders. A suggested way forward is to prefix the project with validation of expectation through prototyping or a Proof of Concept (POC) to demonstrate and gain concurrence.
- Innovation budgets to support core digital transformation projects, to run prototypes and POCs to test new ideas which can inform broader funding commitment. This may well be funded by efficiency savings from the digital foundations.
- Focus on defining digital projects in terms of business outcomes, rather than features and functionality. While this requires baselining the present state and contrasting it at various stages in the deployment of the digital initiative, it is critical to evince business value to continue to win favour with the digital strategy owners and key stakeholders.
- Operational processes for project managing digital initiatives may be agile, but vendor contracts tend to be based on principles of “run the business”. This can limit the ability to respond to changing needs, and discourage collaboration and innovation. New vendor engagement and management models need to be devised, which are supportive of innovation and collaboration.
- Headroom for changes can be particularly critical in digital initiatives which are subjected to rapid pace of external or internal change. Tight budgets, long review cycles and no evidence of value can impede project continuation and success.
- Digital innovation helps when it is deployed and adopted. It is wise to consider associated project costs like IT infrastructure, data migration, interfaces, compliance, security, on-boarding costs for internal or vendor staff, costs of process change, user training, and so on.
While this list of issues and cautions may be long, IT budgeting and funding is never easy, particularly when digital innovation breaks the mould from traditional entrenched management models.
What are you doing about it?
As with any meaningful transformation, it is a business approach to faster and better results, not a technology improvement program.
Several factors are impacting success, such as leadership focus, technology skills, structures, collaboration, management processes, speed of delivery (or failure), and – critically – funding.
Optimising the digital foundations is a crucial underpinning transformational digital innovation capability.
Outsourced IT partners are working towards re-skilling and re-inventing themselves to fine tune their capabilities and costs.
It is recommended that all business and technology executives engage with some urgency on the subject of evolving the organisation’s digital business strategy and digital transformation plans. The value of these discussions can be greatly enhanced with the participation of independent advisors, who may be helpful in challenging the present status and exploring creative solutions.
Be warned though that it can be wasteful aiming to organise a digital strategy around technology, skills, systems, and so on before seeking clear and coherent answers to the business strategy impact of digital on your business.
Some useful questions to seed the debate, with a view to defining a path to adding digital to your organisation’s competencies and capabilities, may include:
- Does digital technology change the businesses you should be in?
- What are your distinctive assets and capabilities and how could you create a new business by combining them with digital technology?
- Could digital technology help you expand your company’s boundaries in the value chain downstream or upstream of your current businesses?
- How could digital technology help improve key business processes?
- Can the supply chain be accelerated, made more reliable with the use of digital technologies?
- How could digital technology improve the way you add value to the businesses you are in?
- How could digital technology make your company better at how it helps individual businesses become more competitive in their markets?
- How could digital technology help you improve the cost and quality of the shared services you are providing to your businesses today?
- Could a marketplace approach bring the discipline of competitive markets to your corporate services?
- How could digital technology be used to improve your strategic planning, capital allocation, performance management, or other management processes?
- Could digital technology change your target customer? Is it eroding your target market or is it opening up new potential targets?
- Does digital technology affect the value proposition to your target customer?
- Instead of providing a product or service for a fee, could you promise an outcome?
- How could you use digital technology to enhance your physical products – say, by using virtual reality or add-on services which may increase demand for the real thing?
- How can digital technology enhance the enterprise capabilities that differentiate you from your competition?
- How can you use social media and big data and analytics to help you further differentiate it? What is the right level of investment in social media and big data for that purpose?
- Where will digital technology have the greatest impact on your value chain? How can you invest proactively to get ahead of the curve?
- How can you use technology to better understand customers and deliver what they want?
- Is leadership aligned and committed to the vision?
- Have you engaged the front line to both design and embed the digital strategy?
Not easy, but it is this type of constructive discussion and debate which can help focus attention ton adding the digital edge to your business strategy.
What is the best next step?
Taking an independent diagnostic approach to gain insights on the present state is an ideal next step, whether the journey has begun or yet to launch. In addition to benchmarking the digital foundations, to find optimisations and funding through savings, independent mentoring can go a long way in defining a pragmatic digital agenda, plotting the journey and tracking the progress.
In dispassionately reviewing the present state of the digital journey, a structured approach is necessary – but only sufficient unless it is sensitive to business context, strategy, structure, current performance, partners and operational management. A quick-fire survey of digital technology adoption can be tempting, but may not provide actionable insights that are business-impact focused.
Multiple management tools such as structured questionnaires, executive level interviews, voice of the customer surveys, process assessments, time and/or SWOT analysis need to be deployed to plot the journey after assessing the facts, the possibilities and the ambition. Independent assessments that can actually can lead to clear directions ask some difficult questions:
- Is there a digital business strategy agreed? Who owns the strategy? Is there a shared understanding of the strategy?
- Is there a mechanism to identify, prioritise and review digital initiatives? Are all parts of the organisation engaged in the digital transformation plans?
- How are digital innovation projects scoped and budgeted? How are they funded? Is the value expected from the projects defined and baselined?
- How is the IT organisation structured? Is there a focus on innovation, speed and agility? How are digital innovation projects managed?
- Is there a two-team structure in IT? What is the governance model for each?
- Are there suitable hands-offs between the two teams? Are there suitable commercial and contracting mechanisms in place?
- What are the key metrics for managing the two teams in IT? Are the metrics aligned to business expectations and SLAs?
- How is the business involved in digital innovation projects? Are there mechanisms for ongoing strategy reviews to ensure relevance?
Hopefully I have given you enough to think about when considering the best suited approach to moving ahead and to accelerate your business towards a sustained and successful digital transformation.