Why is Digital Transformation so Difficult?
Digital transformation in traditional organizations is a challenging task for a couple of reasons. For one, it is difficult to define it and measure its results. Also, it is an activity that borders on different business units inside of the company – it is rarely only related to one or two areas of activity. A successful digital transformation touches on everything, from human talent through digital and technology infrastructure to strategy and marketing. Finally, it is underfinanced and marginalized inside various organizations, making this very important task often doomed to failure. Especially in the challenging times like the coronavirus pandemic, companies often forget about transformation and stick to the current business.
We have just published a report about “Chef Digital Officer: The Digital Transformer Guide”, where we summarized various data points showing how digital transformation can become more successful. In this article, I’ll focus specifically on digital transformation definition and impact.
What is Digital Transformation?
Digital transformation is a complex subject specifically because it does not mean one thing. In the research we have conducted at CREATORS, we have divided the term “digital transformation” into four parts: digital strategy, operational efficiency, technical capabilities, and innovation.
Each of these categories is necessary for digital transformation to occur, but the exact mix of these will be dependent of your organization type, your “innovation maturity” (you can learn more about it in THIS BLOG) and your line of business. As always, one-size-fits-all approach does not work well in the world of innovation and transformation.
- Digital Strategy
Digital transformation cannot be successful if it has not been defined through a set of goals and policies that determine the company’s long-term orientation. The digital strategy may consist of categories that cover both the softer policies, e.g. internal culture or defining the growth and innovation activities, as well as policies related to technology transformation, technical infrastructure and core business scenarios. Without a defined digital strategy – which by the way can be adjusted regularly – digital transformation cannot be achieved.
Our research showed that all of the companies that defined themselves as digitally mature had a long-term digital strategy in place. On the other hand, the majority of the companies that were at the beginning of their digital transformation journey struggled to create a cohesive digital strategy.
In their research, Deloitte discovered that only 15% of companies in the early stages of their digital transformation reported having a clear and coherent digital strategy in place, while more than 80% of digitally mature organizations reported that such a strategy already existed. (You can find the Deloitte’s report HERE)
Thus, it is mandatory for executives leading digital transformations to create a coherent digital strategy that covers all aspects of digitalization and combines them into one successful transformational effort.
- Operational Efficiency
Operational efficiency is the backbone of a healthy business – you cannot achieve growth without the ability to create and execute your vision across the organization. Through digital transformation, your operational efficiency can be taken to the next level. New and innovative technologies can both improve and measure the output of the organization in a variety of aspects, from core business KPIs to the analysis of future business scenarios and potential markets.
Implementing these technologies often results in a clash of old and new operating structures. Communication and cross-departmental alignment become essential in bridging the gap between well-established and newer approaches. Lack of cooperation among departments can prevent a successful integration of new methods and thus leave companies far from fully reaping the benefit of their digitalization initiatives. Open lines of communication between team members, departments and groups are essential to ensuring that these new technologies will enhance the efficiency of an organization rather than slow it down.
- Technical Capabilities
We could not talk about digital change without contemplating technological tools that can enable it. In terms of digital transformation, technical capabilities require both the right technology AND the right staff that can create or operate the technological solutions that bring value to your ever-changing business.
It is important to remember, though, that digital transformation is NOT about technology. Technology – in every line of business – is merely means of achieving the goal, never the goal in itself. Specifically, technology can bring scale to the organization, unifying the ways organizations’ goals are achieved or helping the company grow its business across geographies and customers. Technical capabilities are thus the way to support digital transformation and grow your business, but it is not a core of the digital transformation.
The need for companies to initiate digital transformation processes is a consequence of the pressure exerted by the entire business ecosystem. This encourages companies to master the implementation and development of innovative technologies and new business models. While “innovation” has become a major buzzword in an age of self-driving cars, artificial intelligence bots and quantum computing, the actual process of becoming innovative often remains unclear. For example, how does a company start its journey towards an innovative corporate culture? The ability to grow an innovative culture is mainly determined by a company’s capabilities and individual characteristics. As companies differ significantly with regards to their various challenges and strengths, they also need to tailor innovation initiatives to their unique situation. However, the way I look at building innovation capacity is through easy-to-implement, consistent strategies that make the organization’s culture more open to failure, more curious and less hierarchical. In the end, it boils down to create the right tools for innovation, which we have written extensively in the Corporate Innovation Report (CLICK HERE if you are interested in reading more).
Why does Digital Transformation fail?
There are many reasons that may lead to one company struggling with digital transformation while another is excelling with their digital capabilities.
In THIS article by MIT Sloan Review, five main causes are being named, which come forward in our research as well. First of all, companies are often fascinated by technology but not the actual transformation. This is a mistake. Even the greatest technological means of conducting, transforming or growing your business will be unsuccessful if you do not strategize the actual transformation. This has also to do with the underdeveloped talent inside the company – if you do not have the actual competences to conduct digital transformation – or your C-suite has other primary tasks and there is no one focusing on digital transformation – it will be hard (if not impossible) to create a major change.
Also, the fact that companies often operate as smaller entities and create their own silo to support their individual growth acts as a disadvantage in the innovation and digital transformation processes. This is because working on the digital culture can only work if it’s unified – which is not possible with poor communication across the organization.
Finally, the cultural change that should come as a by-product of digital transformation is often the most difficult yet the most disregarded part of digital transformation.
“Employee-wide engagement is still the exception to some extent, the minority. People are finding it hard to translate what they’re doing in digital transformation to something meaningful to front-end products.”
Didier Bonnet, SVP at Capgemini Consulting
At the same time, many companies struggle to achieve the equilibrium between the digital transformation and a required amount of focus on their current business lines and existing customers. In other words, they either focus on changes and digitalization, or keep too close to the current businesses. It’s never easy to balance between two prerogatives that at times may cannibalize each other, but with the digital transformation, where the need does not always feel to urgent until it is too late, it is even more challenging.
How to make Digital Transformation Successful?
Now that we have gone through these four dimensions that form the basis of digital transformation and discussed some reasons the digital transformation may fail, let’s dive into a few simple ways to make this transformation successful.
- Create Digital Strategy
There is no other way to start than creating a realistic yet ambitious roadmap for your organization to create change. It may not be perfect at first and there may be some questions that still need validation over time and that’s ok. After all, it’s good to use the Build-Measure-Learn-Adjust cycle when putting digital transformation in place.
- CEOs Need to be Involved
We write more about that in our report, but the general rule is that the CEO needs to lead the change in order for it to be taken seriously enough. Without it, this type of transformation will never be achieved swiftly and effectively. As Thomas M. Siebel writes for McKinsey HERE, this day and age brought the need for the CEOs to be involved personally in leading the digital change since it now touches on all aspects of the company’s business.
“Perhaps the most unique aspect of this technology trend is that digital transformation is being driven from the top, personally mandated by the CEO. This is something new. With the 21st-century digital transformation, the adoption cycle has inverted. What I’m seeing now is that, almost invariably, global corporate transformations are initiated and propelled by the CEO. Visionary CEOs, individually, are the engines of massive change that is unprecedented in the history of information technology—possibly unprecedented in the history of commerce.”
Thomas M. Siebel, Chairman & CEO at C3 IoT
- Power and Authority is Key
One of the most important lessons learned in our report is that whoever is tasked with digital transformation needs to get enough budget and a strong enough mandate to implement all the necessary steps in transforming the company. That means that the Chief Digital Executive (or any other individual responsible for the process) needs to have enough influence over other business units so that they do not need to invest time in convincing their colleagues to collaborate. This is where the CEO’s influence comes in handy.
- The Rights KPIs
One of the most effective ways to make people inside various business units involved is to include digital transformation into their job description and make sure they get measured with the right KPIs to see their contributions.
- Communication Goes a Long Way
Communicating the strategy and the meaning of the transformation is crucial in making all of the employees feel a part of the company and its goals. This helps to strengthen the engagement and the digital culture inside the organization. Sometimes, showing the inevitability and the strong necessity to transform the organization helps, too.
- Transformation is More Important than Technology Adoption
Technological tools are the means – not the end-goals – in the digital transformation process. Focus on the transformation part in order to achieve the best results.
- Customer-Centric Approach
There are two types of “customers” in the digital transformation process: your employees whom you sell the idea of change to and your actual clients who will direct your efforts into whatever you need to focus on when transforming your company. Since the customers’ expectations continue to rise, your focus on their needs should constantly improve.
Check on the strategy regularly to make sure you stay on track, but also in order to make any necessary changes to the digitalization work you are leading. This can be achieved only if you have the strategy in place and that you attached realistic and useful KPIs to measure its effects. Once you have these basic tools, you can make any necessary changes based on your learnings.
John Chambers of Cisco Systems predicted that 40% of today’s business will fail in the next 10 years. Moreover, 70% of these businesses will try to transform themselves but only 30% will succeed. This should be a caution for whoever is leading traditional businesses today.
Thomas M. Siebel writes that since 2000, 50% of all Fortune 500 companies have disappeared (through acquisitions, mergers or bankruptcies). The companies that did emerge at the same time came with a new attitude and a new DNA: open culture of change, investing for the long term, customer centricity, data analysis obsession. Digital transformation is the cornerstone of making sure that your organization develops such capabilities as well.
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