The What and Why of Digital Transformation Strategy and the Future of Business

By Jonathan T Hardy, Intelligent Automation and Digital Transformation Executive

Digital Transformation in its most modern form started with the Internet Age in the late 1990s. It is when the first companies emerged whose go-to-market strategy was based on this new technology and way of doing business. This emergence was a significant turning point in business because, if done right, it provided companies an opportunity to reach and deliver to customers with better scale and speed than was not ever possible before. Those who did succeed, like Google with web browsing, Amazon with its online mall, or Netflix, which changed how people rented movies (and again with its streaming service), traditional businesses of all stripes and across all industries began to take note. They knew they needed to transform their business digitally if they were going to be relevant or even exist in the future.

1. So, what is Digital Transformation?

There have been several takes on defining what Digital Transformation is. For example, Wikipedia defines Digital Transformation as “…to transform services or businesses, through replacing non-digital or manual processes with digital processes or replacing older digital technology with newer digital technology,” whereas Salesforce describes it as “Digital transformation is the process of using digital technologies to…modify existing….business processes, culture, and customer experiences to meet changing business and market requirements.”. While both definitions cover essential aspects of Digital Transformation, I have developed this one that provides a straightforward interpretation of the topic on how it should be viewed today. In essence, Digital Transformation is the continual use of digital technology resources to change how the enterprise will go to market and internally operate, which includes cultural and strategic factors specific to the company to enable this ability. This definition inherently covers people, processes, and technology to allow a strategic focus on becoming Digitally Competitive and eventually Digitally Native, a concept we will discuss further in this article. It speaks directly to what you should do as a company based on who you are as an organization and how you compete.

According to Gerald, KC, and Nguyen, many companies find that becoming Digitally Native is a continual effort, not a destination.

2. The Struggle to Digitally Transform

According to a book by Tony Saldanha, Why Digital Transformations Fails (2019), approximately 70% of Digital Transformation efforts fail “because of an anemic strategy regarding the transformation effort or a lack of discipline (resources, commitment, and focus) to see it through.” Most companies fail to digitally transform their firms because they fail to align this effort to their overall corporate strategy. This failure often results in haphazard efforts that are siloed, redundant, and inefficient, which often results in increased costs but decreased effectiveness across the company. The resulting inefficiency and lack of progress not only hurts the credibility of such efforts but also hurts overall company morale when progress appears hopeless.

A firm could take two broad steps to try to avert the most troubling aspects of digital transformation from materializing. The first is to develop clear aims and objectives for digital transformation at your company that are quantitative, qualitative, and aligned if not incorporated directly into your corporate strategy. According to Saldanha, developing a Digital Transformation Vision Statement, which is more or less a corollary to your overall corporate strategy, greatly helps in this regard. The second is to ensure that your strategy lays out top-down accountability to the board and C-suite while providing bottoms-up responsibility for the various business units and corporate functions within the company. By taking this approach, the company better ensures that it has a top-to-bottom alignment of its strategy and those efforts that are taken to transform the firm digitally. In addition, business units and corporate functions should be tasked to develop their digital transformation objectives, and compensation throughout the firm should be tied to meeting the company’s Digital Transformation goals. It is important to note that Digital Transformation is probably already happening within your firm in some form, with specific business units more digitally advanced than others. Given this, your vision statement should encourage existing best practices and collaboration within the company and discourage silos.

3. Building the Digital Transformation Office

As previously discussed, most decently sized companies will have some digital transformation efforts occurring throughout them. Unfortunately, however, these efforts will be uneven in some areas in their effectiveness and can lead to duplication of efforts with many similar, if not nearly identical, projects materializing throughout the enterprise. In addition to being less effective, having this disjointed approach raises the cost in aggregate for the digital transformation efforts throughout the company, which can squander already finite resources and company capital. Establishing a Digital Transformation Office (DTO) could help ensure that digital transformation efforts are made with a strategic lens by having an internal function set up to:

• Be a Center of Excellence (CoE) of centers of excellence for emerging technologies such as Machine Learning, Robotic Process Automation, Cloud Migration, Data Analytics, and other emerging technologies and capabilities that will define how companies will operate in the coming years (one that comes to mind is Quantum Computing)
• Aggregate all of the internal transformation efforts occurring at the firm by aligning the respective roadmaps of the technologies being brought to bear
• Provide coordination among the array of projects occurring within the firm to ensure the duplication of effort is minimized and that return on investment is maximized to the fullest extent possible
• Determine what other areas of the firm could benefit from a proposed, ongoing, or newly completed project

Ultimately, the DTO has considerable accountability to ensure that the company’s Digital Transformation efforts are made to maximize results while lowering risk and minimizing costs. In doing so, the DTO would be led by a Chief Digital Officer (CDO), who would report within technology and directly report to the Chief Information Officer (CIO) as the Chief Technology Officer (CTO) does. As the DTO should be a CoE of CoEs for emerging technologies, the leadership of these technology groups would report directly to the CDO from an organizational standpoint. The DTO would not necessarily “manage” all projects that these distinct groups would have, but it would have an awareness of them and determine how they fit into the company’s strategic efforts (not all projects would be considered strategic depending on their scope). In addition, projects can start with a strategic lens or be identified as strategic depending on their nature and how they might aid other areas of the company. The DTO and its CDO’s job is to ensure that a critical eye is provided to maximize the outcome of the company’s efforts from a Digital Transformation standpoint. Your company’s Program Management Office, called an Agile CoE at some organizations, should have direct alignment with the DTO if not directly report to it too.

4. Becoming Digitally Native

Many companies today start as Digitally Native firms. So, what does it means to be Digitally Native? Being Digitally Native means having a company that can adapt to the ever-changing technological landscape by having its culture, people, and processes that can leverage this change to deliver value for the company’s customers and stakeholders. Netflix started as an internet company that allowed customers to go out and rent movies from their website (its business strategy), which required them to ship those movies using standard US Postal mail (its operating model). When the progression in streaming technology developed enough to evolve its operating model from shipping movies to customers to allow them to stream movies on demand in real-time, it was able to do so, and it made no other sense to them but to do so. Because they were Digitally Native, they could leverage what they did well (rent movies to customers online) and leverage that and the progression in online technology to stay at the cutting edge with their operating model (Gerald, KC, Nguyen, A (2019) The Technology Fallacy, MIT).

You don’t have to be currently a Digitally Native company to become one. What about your business strategy and operating model can help your firm leverage (your leverage points) to allow you to exploit the latest technological innovations? Developing scenarios about how your company can be disrupted and using those exercises to build your own disruptive products and internal processes would be a great start. In large part, you will be using your Digital Leverage Points (the things that you do well already) and reimagining them digitally. This activity could also be a responsibility of your DTO as a part of driving them, helping to guide and adapt the company’s overall strategy.

5. “Let Your Customers Lead You”

Letting your customers guide your strategic and digital roadmap must also become a mantra that your company adopts. From a Digital Transformation standpoint, customers are the people and entities that we externally target to sell the company’s products to, but can also include those internal functions and processes within the company that needs to be transformed digitally to ensure that they do not negatively affect the company’s competitive position. Another way to look at it is that some digital transformation initiatives will be driven by the need to serve external customers more efficiently and effectively or by creating new products for your customers altogether. In contrast, others will start with internal stakeholders (internal clients for the DTO), involving the need to improve internal processes and increase overall internal effectiveness and efficiency. However, regardless of where these initiatives are started, they will likely have ramifications in both directions.

Consider using Design Thinking to help determine how your customers should lead you. It is an excellent method in helping you decide what your customers want externally and internally. According to the Interaction Design Foundation, “Design thinking is a non-linear, iterative process that teams use to understand users, challenge assumptions, redefine problems and create innovative solutions to prototype and test. It is most useful to tackle ill-defined or unknown problems by involving five phases—Empathize, Define, Ideate, Prototype and Test.” Design Thinking is an expansive topic in its own right, so I won’t try to tackle it all here. However, I will say that it provides a method to determine what your external and internal customers and clients need that is iterative and aligns well with the Agile project management methodology as they appear to have inherent synergies. Moreover, Design Thinking allows for experimentation via designing Proofs of Concepts (POCs) for various use cases using multiple technologies.

Conclusion

According to Gerald, KC, and Nguyen, many companies find that becoming Digitally Native is a continual effort, not a destination. Updates to the Digital Transformation vision statements for the overall enterprise and the business unit level must be made continually. To cement this mindset within your firm, an increased focus and ongoing awareness of Digital Transformation trends coupled with Digital Literacy must be initiated at all levels of the firm. It is essential to understand that people throughout the company, regardless of background, age, or experience, can be a part of this continuing effort. Furthermore, build a robust governance framework that centers your AI and Digital Transformation efforts that aligns with your company’s mission statement, values, and policies. Lastly, adjust your risk tolerance and appetite statements to compensate for Digital Transformation and allow experimentation as a part of this governance activity (Agrawal, A, Gans, J. (2018) Prediction Machines, Harvard Business Review Press).

Increasingly, companies across various industries are heeding the warning to either digitally transform their business or face going out of business. The stakes are high as the technological and competitive landscape grows more intense. Many companies are answering the call, like Target and Walmart picking up the digital gauntlet to become more competitive with Amazon. Many financial services firms are increasing the power of their online and mobile offerings to appeal to changing customer tastes and preferences. Digital Transformation will vary depending on your industry, strategy, and unique differentiators (your culture, processes, and operating model). Regardless of these factors, the framework presented in this article is a way for your company to sustain itself and thrive in this ever technologically quickening world.