How to make a success of digital transformation
- 7 min read
Introduction
The principles required to deliver a successful Digital transformation programs are relatively well understood. There are two key challenges: firstly, the challenge is to recognise the complexity that is hidden behind these ideas. The second challenge is to create an approach that addresses each principle and brings together the different actions into a coherent, compelling program.
In this article we summarise each of these principles, provide a short summary of the 'rationale' or best-practice thinking behind each one, and then highlight some typical challenges or 'watchouts'. In combination, this should help you sense check your approach to digitalisation.
Rationale
The rationale is that all elements of business are impacted by digital thinking, and the opportunities of digital transformation define an organisation's direction and approach; in short, their strategy. Digital transformation may modify the business model, lead to new product launches, require new organisation structure, enhance operational effectiveness campaigns and enhance the customer experience. Digital transformation requires different behaviours and ways of working - leading to culture change activity. All of this is, essentially, strategy.
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Not every business has a well-defined strategy, and not every business has experienced resources to pull on to develop and execute strategy. In this context, addressing the complexity of digital transformation may have a broader scope than anticipated. We have seen that this can be particularly challenging in companies that are founder-led or that have grown by acquisition.
Percentage of companies > 5 years old that have a business plan
Percentage of small businesses that have a business plan
Rationale
There are several reasons for wanting to leverage internal resources. Firstly, the biggest hurdle in any software development project is to get a handle on the requirements. It is not unusual for actual processes to differ from expected processes. It is more likely that internal managers will be able to get clarity on what is actually needed. Secondly, Digital transformation is change, and change requires advocates and commitment to work. Managers are well placed to lead on new ways of working. Finally, getting change to stick is always a priority - an when external resource leaves, there is too much opportunity for practices to 'revert to the norm'.
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It's not unusual to find that the total cost of using internal resource is under-budgeted and the resourcing challenges addressed too late. The managers who should lead are likely to be working at full capacity which will require some element of back-fill. They will also need a voice in the program from an early stage, and have the ability to influence outcomes - all of which will take time from current activities. Finally, investment will need to be made in their capability to underpin their success.
Percentage of digital transformations that fail - dominantly due to employee resistance
Percentage of change destinations reached when employees were included early in planning
Rationale
Digital Transformation programs may cover business model changes, process reengineering, and new customer experiences. They may require changes to structure, culture and necessitate collaboration across functional silos. They require experimentation, learning and flexibility. With all this change, a simple narrative is required to align the organisation and avoid confusion. The narrative needs to reveal clear quant. goals that cascade down to personal objectives and are seen as vital for the organisation's future.
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It tends to be easier to describe the vision of how the business will be different (activity based goals), rather than set out quantitative outcomes (outcome based objectives). Equally, for many projects within Digital Transformation, there will need to be learning and iterations. In this context, it can be challenging to define measurable objectives. Beyond this, setting targets makes 'failure' more visible. However, it is crucial that this is done - the measurable targets will enable simpler communication, improved collaboration, a better governance process and a faster route to value creation.
Percentage of digital transformations that have no success metric
Percentage of organisational change failures due to improperly defined objectives
Rationale
Digital transformation has such a significant impact on how to view an organisation's business model, proposition, operations and market, that getting to understand what it means cannot be delegated. Equally, to drive success, leaders need to encourage collaboration across functions and divisions, and effect changes to the way it approaches learning and risk. The amount of change will generate organisational push-back (not least from the initiative overload experienced in many companies). The duration of change risks momentum being lost to the next 'big thing'. Leadership alone has the ability to set an example and to address these challenges.
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In our experience, there are CEO's and exec board members who don't feel the need to develop digital competency, and don't feel they have the time to invest in their own development. They may have a 'mental block' around technology and are fearful of being seen unable to cope. At the same time, many executives have achieved their success through setting a clear direction for their teams, without a need to empower them - which is a way of working that not consistent with digital transformation. The right CIO or external coach may be required to enable the leadership team get fully engaged with the transformation program.
Percentage of Digital Transformations led by the CEO
Percentage of employees who faced challenges adapting to digital trends and new technologies.
Percentage of employees who found the most common obstacle for digital transformation was the CEO.
Rationale
The rise of agile is a recognition that you can't specify the end-to-end solution when you start an initiative. From changes to business processes to creation of customer propositions - you find out what works through iterative tests of working solutions, developed in cross functional, internal and external teams. In an agile way of working, a feedback loop emerges, as capability is developed and more data is captured, more insight is created - all of which feeds into opportunities for the program. It becomes essential to empower teams to collect and act on the data, and to provide them with the tools to make changes if you want to achieve Digital Transformation targets. With all this, there are changes to behaviours and ways of working required (loosely described as culture change). With a tension between business targets and agile flexibility, strong governance is essential to align activity, maintain focus and manage risk.
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We have seen the flexibility of agile taking precedence over the businesses governance particularly in businesses that are relatively new to agile. This generates issues. Governance needs to set clear expectations and metrics and reviews and initiate transparent and frequent communication within the organisation. Prioritisation of activity is crucial and needs to align to required outcomes. Typically, where projects include new ways of working across organisational units / functions there will be a need for senior management to demonstrate interest, monitor progress and manage internal challenges. As tools increasingly enable digital capability to be created at the point of use (for example with low-code solutions) and operate on a SAAS basis, the role of IT will need evolve to avoid becoming a constraint.
Percentage of change failures due to poor project management skills
Percentage of agile project failures due to cultures that conflict with agile values
Percentage of businesses that highlight 'resistance to change' as a top transformation challenge.
Conclusion
A recurring theme of failed business transformations - from business process re-engingeering (BPR) projects of the 1990's to CRM projects in the 2000s and ERP failures in the 2010s, is that if you fail to prioritise change management, you are likely to fail.
And so it is with Digital Transformation. Change management is key. Programs need to have a clear narrative (including a rationale for change, a vision and a set of goals and objectives). They need to be owned by the Board who need to sponsor the program and manage organisational stresses. The intention and progress need to be consistently communicated to the whole organisation, with as much transparency as possible. The culture needs to support collaborative working, and a shift to agile project management, as well as a reduction in risk-aversion. There needs to be a evaluation of governance processes to allow progress to be made, without breaking the core business. The business needs to invest in building digital capability of its people and its leadership team. Finally, progress should be made in small, regular phases - building momentum and demonstrating progress against the business goals.
In this article, we've highlighted the principles to be followed, and some common 'traps' that we've seen businesses fall into with their Digital Transformation. If you would like to discuss your Digital Transformation activity, please get in touch .