According to a 2017 survey on digital transformation by Constellation Research, 64% of respondents said a digital transformation strategy was essential to driving profits, 70% said they had an IoT (Internet of Things) strategy, and a whopping 75% said they have a Big Data strategy.
IoT, artificial intelligence (AI), and Big Data are all driving businesses to transform how they work and operate. New technologies, new types of data, and new insights are popping up all the time, presenting challenges and opportunities to virtually every business.
But emergent technologies are inherently unsettling, and – without strong leadership and a well-thought-out strategy – can cause conflict and decreased business performance. Clearly, technology alone is not sufficient to bring about a true digital transformation.
Instead, new technologies need to be framed within a compelling narrative about how a business will change for the better because it has embraced and integrated these new technologies. Effective digital transformation demands a well-conceived strategy for changing the culture and serving customers in new and creative ways, even if it means significant disruption to the old ways of doing business.
But what makes for an effective digital transformation strategy? Here are 6 elements you need for success:
1. Lead from the Front
Digital transformation demands executive vision and leadership. Since the disruption to an organization’s business and culture is so profound, the management team needs to be digitally savvy and able to use the right combination of carrots and sticks to move the organization through the next steps in its digital journey.
According to the Harvard Business Review, digital transformations that don’t have strong leadership from the top tend to be ad hoc and chaotic:
“While it is important to encourage local ownership of ideas and projects, turning them into game-changers requires clear, sometimes ruthless direction from the center around which projects to scale and in what order. Only the CEO has the power to provide this kind of direction across the entire enterprise. To do that effectively, CEOs need a holistic view of the digital threats and opportunities facing key parts of the business, and a way to link them to an overall vision for how digital is reshaping the competitive landscape.”
With the executive vision and approval in place, disparate digital transformation initiatives can be consolidated, combined, prioritized, and properly coordinated for maximum impact.
It’s important to note than in order to provide this level of digital leadership, executives don’t need to be expert technologists. While the occasional social media post can be helpful, it’s more important for digital executives to consistently articulate a vision for how digitally transforming an organization will improve its operations, revenue, customer experience, and competitive position.
Having this level of executive engagement and digital savvy sets the stage for the development of a compelling strategy.
2. Put Strategy Before Technology
Strong executive leadership must be coupled with a compelling and time-boxed digital transformation strategy. Organizations should begin by clearly documenting the end state of what the digital transformation looks like, with particular attention to the pain points and experience of the customer.
By beginning with the end in mind, organizations can pursue the overarching cultural and technological changes needed to support their digital transformation. To do otherwise typically results in suboptimizing at the business process level and implementing technology in a piecemeal fashion.
3. Encourage New Cultural Norms
A significant motivator for digital transformation is survival. Technological disruption has been credited (or blamed, depending on your point of view) for reducing the lifespan of S&P 500 companies from 60 years in the 1950s, to under 20 years today. So, it’s actually riskier to not proactively disrupt and transform your business than it is to pursue a digital transformation strategy that takes a broad view of innovation.
Digital transformation demands that disruptive innovation and risk-taking be encouraged and rewarded. Organizations should look beyond the normal paradigms of their traditional markets and competitors, borrowing business models from other industries.
For example, leading manufacturer General Electric (GE) took lessons from IoT pioneers to add digital, remote monitoring and optimization of their industrial machine products. This innovation improved GE’s position among its competitors.
Making such innovations in large, entrenched companies relies on a culture of calculated risk-taking. The Agile concept of “failing fast” is a valuable mindset for digital executives to cultivate in managers and staff. As Dr. John Halamka, chief information officer of Beth Israel Deaconess Medical Center said in a recent Deloitte Consulting paper:
“Failure is a valid outcome. Wearable computing is great, but Google Glass wearable computing devices turned out not to be for us right now. We may discover that patients love the Apple Watch wrist-wearable device and it becomes a platform. It’s hard to know. But even if it doesn’t, it’s OK.”
The lesson here is that in the midst of a digital transformation, many things will be unknown, so the best way to bring clarity is to try small experiments, gather feedback from stakeholders, plan the next small experiment, and repeat until an effective and sustainable strategy emerges.
4. Reimagine the Customer Journey
With a strategy in place and cultural realignment underway, effective digital transformations use fact-based methods to identify customer pain points, then work backwards into a value proposition, features, and ultimately, the customer experience.
Digital media offers many new ways to understand customer pain points, included advanced analytics, online customer surveys, and social media engagement, coupled with text analytics and data mining tools.
When that data is distilled down into actionable customer insights, the organization can create new user journeys and user end states like “Our customers will have X product selection and purchasing experience.”
The goal is not necessarily new technologies, but tools like multichannel integration via Customer Relationship Management (CRM) systems and customer self-service applications help create compelling customer experiences.
5. Disrupt Your Own Business
With new customer experiences in mind, organizations are then primed to digitally transform their operational processes. Digital automation, collaboration tools, and enterprise analytics platforms light the way to modify or replace old processes with faster, deeper, more integrated ways of working at all levels of the organization. As the MIT Sloan Management Review notes:
“Although transformed customer experiences are the most visible — and arguably the most exciting — aspects of transformation, companies are also realizing very strong benefits from transforming internal processes through process digitization, worker enablement and performance management.”
Digitally transforming operations company-wide opens the door to digitally transforming your business. With less interference from operational silos or incompatible data, your company can pursue new digital products. Amazon is a prime example of a digitally-enabled enterprise launching and sustaining new digital business, starting with books, then quickly growing to many other consumer categories, video distribution, and cloud storage.
Or your company could digitally enhance traditional products. For example, an auto repair shop could offer online service history tracking and appointment scheduling in addition to normal car service.
6. Pursue New Technology
Paradoxically, technology should be a later concern in digital transformation. With a new strategy, culture, and business model in progress, companies can then evaluate their current technology stack against the goals of the digital transformation to find functionality or data gaps.
Typically, this evaluation process includes comparing current capabilities to the problems that need to be solved in the digital transformation. The outcomes defined by the strategy and requirements of new customer experiences should help prioritize the technology roadmap for the digital transformation.
In tandem with technology planning, organizations should work to harness the analytic insights those new technologies generate to enable their digital transformation. Properly-defined analytics embedded into employees’ normal workflows enable necessary behaviors for digital transformation, including:
- Data-driven decision-making
- Increased ROI of transformation activities
- Increased productivity
- More competitive products and services
- Greater customer satisfaction
- Increased revenue
While digital transformation starts at the top, it should be seen as an iterative cycle that expects early failure, inspection, and adaptation. It starts with engaged and digitally-savvy executives, who then drive the overall strategy.
Cultural transformation should align organizational norms with the risk-taking necessary to define compelling new customer experiences. Around these experiences, new business models and operational processes emerge, which, in turn, drive technological investments. Finally, digitally-enabled businesses harness analytics to detect needed strategy or implementation adjustments and hardwire necessary behaviors.
While the digital transformation path can be challenging and sometimes costly, businesses that successfully transform themselves open up new ways to collaborate, faster innovation and time-to-market, new revenue opportunities, and, most importantly, serve customers in new and compelling ways.