What is Digital Transformation?
Digital transformation is the integration of digital technology into all areas of a business, fundamentally changing how you operate and deliver value to customers. It's also a cultural change that requires organizations to continually challenge the status quo, experiment, and get comfortable with failure.
It's a cultural change that requires organizations to continually challenge the status quo, experiment often, and get comfortable with failure. This sometimes means walking away from long-standing business processes that companies were built upon in favor of relatively new practices that are still being defined.
There are five pillars that large corporations need to achieve success:
Metrics and measurement
There’s a great deal of information and learning I could share in each of these pillars—previous drafts of this article turned into a lengthy white paper!—but for now, we’ll just address a few high-level concepts.
Establishing your vision—and a strategy to achieve that vision—is the most challenging pillar. The vision needs to have buy-in from across the company, starting with the CEO. It’s critical to create the foundation by which everyone can agree to prioritize funding and resources, and identify any processes that need to be changed along the way. Digital strategy impacts legal, finance, and—in the case of changing business models—sales and quota structures. Digital transformation impacts everyone from IT and marketing to customer service and sales. Every company has dozens of touchpoints, hundreds of applications and backend systems, and hundreds of legacy processes. Remember, too, that in parallel to the work of establishing your vision, there’s an ongoing business to run and operate. Existing products and services drive immediate revenue targets and are required for companies to keep their commitments to the market.
Creating your vision and strategy starts with getting everyone in the same room. Yes. The same room. Or, in this case, maybe a Zoom meeting! It’s all about getting people to be a part of the thought process. There are different methodologies and workshops for driving out a vision and strategy; you could use Design Thinking or Innovation Games. Evaluate the macro and global trends that will impact your business, walk through a day in the life of your customer, figure out what will help you move forward and what’s holding you back. You’ll be surprised at the alignment that exists and the alignment that’s created by the nature of the face-to-face process. Work together to create a high-level roadmap that addresses near-term wins as well as a path to longer-term wins that begins now with a value that’s realized further out. Derive a mission statement for your digital transformation. Here’s an example: “Our mission is to get the right information, at the right time and place, to the right person (or machine).”
2. Customer understanding
Customers are at the core of every business’s digital transformation. As you create your roadmap and priorities, start with the customer in mind. The initial considerations that came out of your Vision discussion now need to be validated. Your roadmap should be prioritized based on outcomes—near-term wins with customers and cost savings—while working on the new business model. The business model will more than likely take longer to execute, but it needs to be done in parallel.
Begin by addressing customer pain points. Do a detailed analysis of your business. Collect call center data, net promoter scores (NPS) and verbatims, analytics from online and physical stores, and areas with high or increasing costs in your business, like services and manufacturing. Evaluating, correlating, and understanding the pain points should drive your priority. Use your customer advisory councils to correlate and test your findings.
One example might include looking at NPS and verbatims and highlighting something as simple as “we want to be kept informed of the status.” A longer-term pain point to solve might be cycle-time reduction, while a near-term solution could be as simple as notifying a customer about an order status.
Once you’ve identified both the quick wins and the priority areas that will take more time and investment, it’s important to model the new processes and experience. A journey map will give you a visual interpretation of the overall story. It’s the view from one individual’s perspective of their relationship with an organization, service, or product over time and across touchpoints. That individual can be a customer, a partner, or an internal employee. Journey maps ensure that you’ve thought through the steps of the new processes that you have created or automated, and they will save you time and dollars. They should be made for everything, including IoT process changes, and used as the foundation for user stories, architecture discussions, and prioritization. They architect experiences that drive value to the business while enabling prioritization of strategic initiatives.
Customers are at the core of every business’s digital transformation. As you create your roadmap and priorities, start with the customer in mind.
3. Technology alignment
Technology is at the core of customer-facing channels (online, mobile, and in store), IT platforms (inventory, billing, service/ticketing), and manufacturing environments (PLC, SCADA, MES). Every company is a software company, and a technology roadmap will need to be at the forefront of your digital roadmap.
More than half of today's Fortune 500 companies are over 100 years old, and others are more mature than many realize. Nike is 56 years old, and Amazon is 25 years old. Colgate-Palmolive dates all the way back to 1806, while the Bank of New York Mellon has its beginnings in 1784—just after the Revolutionary War. The collection of underlying technology at these companies spans decades and is a daunting challenge. Any collection of acquisitions or long span of existence brings legacy technology and the need for thoughtful planning.
New platforms will need to be implemented. Application Programming Interfaces (APIs) will need to be implemented. Data cleanup will be necessary and end of life (EOL) plans for legacy technologies will be required. All this influences timing, as well as your ability to execute. New platforms appear to be a great place to start, but the technology will also be new to your engineering team and, depending on the complexity, it will take time for them to build understanding.
With API enablement, you can build the abstraction layer to enable the migration from an old platform to a new one, if you need to run both in parallel. Data cleanup will be the thing that slows down your big wins. Whether you are implementing IoT in a manufacturing environment and data is entered manually today from OT to IT systems, or whether you are trying to consolidate to a single customer ID, clean data is critical to any transformation strategy. Data cleanup is costly, but it’s what will take the pain out of the processes you are trying to move to digital. Outline an EOL plan for each product and platform that won’t be part of the future state of your business. Be sure to align EOL plans with the prioritized roadmap.
New processes will also be required. More than likely, you’ll have some legacy products that still follow a waterfall delivery methodology, and newer platforms and applications that follow agile. Plan upfront how to run these processes in parallel and, in some cases, merge concepts. Many organizations with large development teams and 20+ years of code through eras of programming languages, styles, and skills practice “wagile” (waterfall + agile), which tends to have an impact on expectations. Ensure everyone is clear on which teams are following which methodology and the overall impact this has on delivery.
Digital transformation is no longer an option. Companies will permanently change the way they do business.
4. Metrics and measurement
Every project needs to be outcome-based. For example, increase operational efficiency by 15%, or increase revenue by 3% YoY through a new business model. Establishing a baseline will be easy for areas of your business where data is already collected. The critical success of the project will be alignment on measuring areas of the business where there is no historical reference. New business models create measurement and metrics challenges. Is this incremental revenue or replacement revenue? Is revenue shifting from one business unit to another?
Pay-per-use models are the one big shift associated with digital transformation and IoT—selling compressed air instead of compressors, charging for hours of use of an industrial cleaner instead of selling the equipment, and so on. These models may impact compensation structures in your sales organization, as well as how the revenue is recognized.
The current landscape of dramatic changes will provide insight to new long-term shifts in your business. Prior to the shelter-in-place restrictions, were your online sales at 14% and now they’re at 30%? Will that shift continue? How are you adjusting inventory, and what logistics and technology changes do you need to make to address it? If you’re not tracking your data at every part of your business begin immediately. When used to help improve the entire team, metrics are a key part of managing your progress towards transformation. Include engineering and development in the metrics you set. This will require a great deal of patience, and reassurance for your engineering teams that transparency is good for everyone.
Information Technology (IT) metrics will vary based on the complexity of the work and the age and complexity of the systems involved. Transformation projects involve several teams such as engineering,
business architecture, design and UX, software delivery teams, and production management/Operational Technology (OT) leaders. All team members need to understand how the development metrics are being measured and they need to be included in the process and be part of the overall target (“win together”). The IT and OT teams will also need to understand the business metrics to ensure priorities remain aligned.
Governance is a four-letter word for most people within large organizations. It carries connotations of being complex, time-consuming, and political. But there’s an opportunity for it to move your digital transformation strategy forward. If the previous areas I discussed are done with a collaborative and transparent approach, it will be a productive and successful endeavor. Digital transformation is a multi-year program; openly sharing priorities, key drivers for those priorities, investment needs and timing will help. Governance can be used to remove roadblocks in processes. It can be used to reprioritize when the market changes. Create a global view dashboard for each business unit owner. Include a view of the individual business unit impacts, as well as that of their peers.
These dashboards provide a view of investment dollars allocated and shared across business units. Include targets and attainment of the targets by each functional area, along with a view of priorities across the business related to revenue growth/new business models and business efficiencies/cost reduction. Again, everyone will need to be comfortable with transparency. The governance model you choose to put in place is the influencing body for the changes needed.
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