Assessing digital transformation
To successfully plan and manage a digital transformation, companies need to understand the maturity of their digital strategy and capabilities, beyond just technical factors. A diagnostic tool can help align their digital initiatives to the “true north” of desired business outcomes, and keep them so throughout the transformation. This paper explores how such an instrument can lead organizations toward a more effective form of digital transformation: Lean Digital.
Why measuring the maturity of digital transformation
The journey to digital transformation is fraught with challenges. Most organizations still don’t derive sufficient impact from their digital initiatives. According to our research, about two-thirds of digital initiatives will not be fully satisfactory.
Most organizations tend to see those challenges as technical, such as lack of technology expertise or funding. However, field evidence shows that the root cause of insufficient return on technology investment often lies in the inability to manage enterprise change from both a strategic and organizational perspective. Hence the need for a measurement mechanism that helps large and complex enterprises benchmark against peers and track progress over time. A specialized diagnostic that covers the ‘why’, ’what’ and ‘how’ of a transformation can support the strategy’s formation and governance.
Key measurement areas
Our research shows that three areas help drive positive change by discriminating between low- and high-performing organizations, and pinpointing what requires attention by asking:
- How complete is the strategic vision for digitally enabled transformation?
- What capabilities does the company have?
- What impact is being achieved?
How complete is the strategic vision for digitally enabled transformation? Companies need a thorough understanding of the business outcome they seek. Most companies tend to focus their digital efforts on front-office transformation, but operations, decision-making and innovation are areas that can also attract deliberate strategies.
What capabilities does the company have? The most common mistake here is to only take a technical focus. Our research indicates that successful adoption of today’s technologies relies on sharp business acumen at least as much as it does on technology prowess. Specifically, many modern technologies are more agile in terms of “technical realization” but require more careful business design and planning – such as design thinking, and process engineering. While capability gaps are unavoidable, they are fairly readily filled (and more so than in more vertically-integrated organizations) through partnerships with an external partner ecosystem. This strategy enables companies to continuously monitor the art of the possible with technology while maintaining enough internal muscle to operationalize and evolve the organizational processes that turn technology into positive change.
- Front office
- Operational improvement
- Decision making
- Innovation (incremental, discontinuous)
- Front vs Middle and back office
- Alignment of interventions with business outcomes
- Legacy systems
- Change management
- Market Share
- Creation of a new market
- Cost reduction / management
- Asset utilization
What impact is being achieved? Most organizations feel that digital can revolutionize their engagement with end clients and help accelerate market share or at least prevent the competition from taking market share from them (this is the position traditional financial services or consumer products companies are in today). Others see digital as a means to create new markets. GE, for example, is trying to do this with the industrial internet of things and asset analytics by making their industrial assets smarter, more effective, and better utilized. Improved pricing is also a sought-after benefit from being able to connect granular data with actionable insight to drive actions throughout the enterprise. And clearly, digitization can also help cut costs across the organization, or comply with regulations.
Last but not least, an increasingly sizeable group of companies is using digital to increase business agility. This is a complex endeavor for established players. While it often receives limited attention from mid-management, it is a necessary activity for many CEOs in industries caught in volatile and unpredictable business cycles.
What analysis is most helpful?
Measuring key transformation metrics enables successful digital strategies and governance. The value of this exercise is strong both at the beginning of the journey, and throughout the never-ending cycle of transforming and running operations with continuous improvement.
Importantly, the answers to key diagnostic questions vary by stakeholder, and these granular measurements are very useful. Comparing results between industry peers in specific functions, such as chief finance or risk officers, can generate a sense of urgency, while other industries’ performance can provide innovative ideas and illuminate traits (such as agility) that may not be found in directly comparable peers.
A particularly intriguing set of findings however can emerge when observing the perspectives of stakeholders within the same organization. For instance, comparing the views of the chief information officer group to business or functional leaders; or the opinion of middle management, that constitutes the “backbone of the change”, compared to the view of the C-suite. The latter in particular can generate findings that are both disturbing and enlightening.
Conclusion: digital transformation diagnostics can enable competitiveness
Crafting and performing diagnostics for a digitally enabled transformation is key to ensuring the effectiveness of new technologies. It is a necessary milestone and first step toward the creation of a continuous feedback loop. Over time, for instance, executives will be able to determine which capabilities translate into concrete impact.
As part of our Lean Digital research, we consistently notice that the capability build for the middle and back office is neglected when compared to the front office, which has negative consequences on the business outcomes delivered. This is particularly important given the unprecedented speed of technological change that is forcing organizations to continuously reimagine the way they run. Explicit ownership of the design and improvement of an end-to-end digitally enabled process, ideally in a centralized center of expertise, and access to an ecosystem of partners and experts are two necessary conditions for tangible positive outcomes in a world where digital technology is a necessary but insufficient condition to being able to compete through digital.