The digital transformation playbook
We are in 2023 and digital transformation is not a new concept. Businesses have been quick to recognize the benefits of technology. As early as the mid-1970s, the idea of pulling mainframes out of research labs to automate internal processes such as accounting closing was gaining momentum. The advent of the internet during this period helped to accelerate the use of technology in corporate affairs.
For those of us who are technology enthusiasts, digital transformation seems to be a given. Having spent a significant amount of time with top executives and high-level technology managers, I can attest that the process of incorporating technology into business practices is a generally understood concept. Businesses turn to technology when they want to:
- become more agile;
- spend less on their process;
- outgrow their competition;
- align their dealings with new industry rules.
Obviously, there are situations where technology can “rescue” businesses to help them meet their goals. The two are now so intertwined that new words, such as fintech and proptech, have entered the business world with fanfare. Technology can not only help existing businesses but also create new business models and possibilities. In some instances, technology is even perceived as a silver bullet that will propel a company to new heights. What strikes me most, however, is how unprepared some businesses are when they embark on this transformational journey. This journey will inevitably challenge and change their corporate culture, disrupt their social organization, and often be perceived as a threat by their workforce. It also sends shivers down the spine of their CFO when looking at the ever-increasing sums required to invest in the hope of reaping the expected fruits of digitalization.
Information technology spending forecast worldwide from 2012 to 2023, by segment (in billion U.S. dollars)(1)
Over the years, companies all over the globe have spent relentlessly to keep their technology stacks up-to-date or to innovate. And if we accept the premise that the best predictor of future performance is the historical track record, there no reason whatsoever to believe that the trends in IT spending will cool off anytime soon. The frequent emergence (or rather resurgence) of new trends will not help either. The next big thing in tech is just around the corner.
Transformation programs are rushed for many reasons:
- time-to-market: beating the competition by being the very first to put a new technology-based product on the market or create a new tech-backed process for internal purposes is undeniably what every business should aimed for, most of the time.
- the hype for a “new” an hot technology: the resurgence of generative models has renewed the interest for businesses in artificial intelligence and Data technologies. Data is the great winner — in terms of investments — at the moment. According to Morgan Stanley, we are living in the decade of Data and artificial intelligence (see char 1, below). But VCs and PE funds should think twice and do their due diligence before hastily pouring money on Data or AI start ups. According to a survey from London venture capital firm MMC, in 2019, “40% of European startups that are classified as AI companies don’t actually use artificial intelligence in a way that is ‘material’ to their businesses”.
Computing Growth Drivers Over Time, 1960–2030E(2)
- the most surprising reasoning I have witnessed for rushing a digital transformation program was to “consume the budget before it expires”. Projects started have little chance to create tangible results. I have developed a sure-fire test to detect those projects:
- they are launched by the end of the fiscal or commercial cycle of the company;
- they don’t survive the test of a diligently conducted ZBB;
- key indicators do not exist; if they do, they tend to be unrelated from any framework in place in the company (i.e., removed from the company strategy and OKRs);
- they are not ambitious. In other words, they will not turn the tides for the company.
An ill-planned project will not only fail to deliver on the expected benefits but also have reverse effects on businesses :
- bad allocation of resources which could have helped create value to the business — instead of destroying it.
- strategic distraction: some execs become so starstruck by the prospects of a “successful” program that all they see is the benefit it could have at their individual level and for the company.
- lack of trust towards technology from business leaders.
To increase the likelihood of success and reap the benefits of these projects, the company should ensure that it possesses the elements described in the following paragraphs.
It all starts with a sustainable corporate culture.
- Is the top management working towards a culture of innovation, encouraging experimentation and seeing failures as part of the process? A company where success is the only message audible to the top management will inevitably stifle innovation and indecision will grip the middle and lower management. If exploration is not allowed, processes will be difficult to transform and innovation will be an alien concept. Granted, some industries have critical processes that cannot change overnight, but with deregulation happening in many industries (e.g., financial sector), incumbent companies who rest on their laurels are at risk of being dislodged by new, agile, and fast-moving competition.
- Are the communication channels within the company top-down and also bottom-up? Open communication means the top management is receptive to messages coming from below. It also means hard truths can be exposed without fear of reprimand.
- Are successes celebrated or considered the expected outcome of any project? Highlighting milestones shows support and recognition for the efforts made by the teams. It also communicates to frontline workers and lower management that higher-ups are engaged in the success of the company as a whole.
Then business strategy comes into play. Companies that are on the lookout for the next big thing often jump on the bandwagon without a clear strategy guiding their investment decisions for the foreseeable future. They believe they are at the forefront of innovation, only to realize later that expected returns do not always materialize or are not easy to achieve. Admittedly, a company that ignores new tech opportunities (e.g., by being trapped in strategic rigidity on the grounds that the business strategy “did not envision this transformation”) exposes itself to being outpaced by a more agile competitor. A balance needs to be struck between tech opportunities and a well-defined strategy. A good strategy should allow some degree of flexibility and enable itself to be challenged and updated in response to external changes in the business landscape.
Digital IQ and an innovation mindset are the third components of our framework. A company with a high digital IQ is one that has invested in training its workforce in digital literacy, and has empowered localized decision-making with a global mindset. A digitally prepared workforce will be more open to embracing new tools. Many companies have recently rushed to announce that they will be incorporating generative models, such as ChatGPT, in their operations. However, are they certain that their workforce knows how to communicate effectively with these AI tools? Do they understand the potential risks associated with their use? The Economist Korea has reported that “Three Samsung employees reportedly leaked sensitive data to ChatGPT.” Such incidents can prove costly if sensitive information is shared with chatbots
As surprising as it might seem to some readers, we are only now going to discuss technology in our approach. The reason is simple: technology is only a means to an end. I am always surprised when users take technology for granted: for better or for worse, execs in the boardroom assume that technology can solve the majority (if not all) of their problems. On paper, technologies can do wonders easily. However, in real life, technology projects rarely pan out as expected. According to the Chaos Group, a typical IT project has a mere 30% chance of being successful (i.e., delivering on time and on budget), at best. One way to avoid the surprise of discovering that “this functionality will not be delivered as expected” is to create a feedback loop between strategy and technology. Technologists and strategists should sit together regularly to discuss “what future business needs would be” and “what technologies can or cannot do.” High-level business requirements should not be “thrown” at the digital tech department, with the assumption that “those requirements are de facto doable.” This feedback loop implies that technologists must regularly scan the landscape for new technologies and evaluate them through proof of concepts. These meetups between tech and business people can be part of the digital literacy crash courses we advocate in the previous paragraph.
Finally, Data and analytics should not be disregarded in a digital transformation process. Here by Data and analytics we are not referring to the daily use of Data for running activities. Data (and facts by extension) can be used to informe the decisions made in the boardroom. However, we are not simply suggesting that execs look more frequently are their dashboards; leaders must look down the corporate chart and listen more to managers and frontline workers. This posture relates to the company culture of openness. Of course, the company must be equipped to gather and crunch Data — from all the valuable sources at its disposal. This section emphasises the importance of a more data-driven approach to strategizing and managing a company.
How does this framework unfold?
First, organisations must gauge themselves against the 6 axes of the model. Examples of questions to explore are : How inclusive (digitally speaking) is our company culture? How do we incorporate insights from Data and facts in our decision making? At the end of this evaluation leaders should be able to visualise on a simple matrix (e.g., with scales such as low, moderate, high or 1, 2… out of 5) the levels at which the organisation fares on the dimensions.
Second, the leaders should be able to articulate the level at which the company needs to be positioned in order to comfortably ramp up its digital technology ambitions. It would be unrealistic to expect that the goal post for every dimension would be at 5/5. Taking into account, the resources available and also the industry and market outlooks every dimension will have a reasonable grade at with the company will be well-equipped enough to progress.
Finally, a program can be launched to improve on the dimensions. It is worthy to note that a regular reevaluation of this matrix and adjustments to the program will help keep abreast of the internal and external conditions and the progress made overtime. The good new is the program along with the digital transformation plan can be tackled quasi-concurrently.
Sources:
