Digital transformation is what big data was for organizations just a few short years ago. Everyone is talking about it, and organizations are scrambling to make sure it is a strategic initiative by having some sort of digital transformation process.
Just like big data, the term digital transformation gets its popularity from the size of its potential impact rather than being a new tool for improving operations. Since the first days of robotic automation in manufacturing, people have been using technology to improve and simplify work. Now, we are shifting the use of technology to a wider array of complex work, such as customer interactions, reporting and decision-making.
There are several reasons for this increased attention to digital: the pace of disruptive technology, the need to do more with less, the need to maintain competitive advantage and, above all, the need to be more customer-centric. Though digital tools and technologies significantly affect the way business is conducted, many organizations continue to struggle with them or struggle to put into place a comprehensive and effective digital transformation process.
Why are organizations struggling?
A report on the 2015 global digital business survey conducted by Deloitte and MIT Sloan Management Review said “maturing digital businesses are focused on integrating digital technologies, such as social, mobile, analytics and cloud, in the service of transforming how their businesses work. Less-mature digital businesses are focused on solving discrete business problems with individual digital technologies.”
The root cause of organizations’ struggles seems to start with a key word — transformation — that often either gets overlooked or misinterpreted. Transformation can be defined as a significant organization-wide change that orients the organization in a new direction. This can include a change in its business or operating model. Transformation, however, is not merely an incremental improvement or transition to a new system or application.
Unfortunately, many organizations are not embarking on transformations. Instead, they are solving discrete business problems with digital technologies. This means they are creating one-off solutions for a single business problem rather than looking at an integrated approach to solve multiple business problems. Because these types of projects have digital components, they get mislabeled as digital transformations.
When this occurs, organizations struggle because the digital transformation process lacks an overarching purpose and plan to tie the efforts together. Ultimately, this lack of an overarching strategy results in confusion among those tasked with execution because they don’t know the following:
- What’s in. There are often no parameters or criteria to define what parts of the business need digitization projects or to help scope and prioritize efforts. For example, an organization that wants to use digital technology to improve its finance function will have no guiding criteria to help pinpoint which processes should be automated.
- What the right solution is. There are no criteria for determining the fit of the plethora of solutions available. Without clear goals, the organization can’t clearly articulate what features it needs, potentially resulting in overbuying or making expensive modifications afterward.
- How the pieces will fit together. There is often no holistic perspective on digital projects to help the organization understand the intersections and interdependencies between projects and the work they are accomplishing. This can result in post-implementation integration projects and add-ons.
How to tell if your efforts are transformational
Understanding the difference between a digital project and digital transformation is easier said than done, especially given that digital transformation should be comprised of interconnected digital projects.
However, strategy, rather than technology, should be the guiding principle of the digital transformation process. Additionally, digital transformation tends to hinge on two characteristics: a focus on customer experience and its organization-wide impact.
The purpose of digital transformation is creating value, and that includes for the customer’s experience. Hence, organizations not only need to understand their customer’s journey, but must also use the impact on customers as one of the key criteria and measures of their digitization efforts.
The transformative work of an effective digital transformation process requires looking from the outside in, and that includes value chains and cross-functional, end-to-end processes. To ensure organizations stay focused on the end user, digital efforts must help break down operational silos and improve collaboration for managing customer value.
To categorize the initiatives in its digital transformation process, each organization should ask itself these four questions:
- What’s the value to the customer? Is the effort focused on creating customer value, and is that value clearly quantified to measure success? If the focus is on the steps and efficiencies of a business process and not on establishing the customer value, it’s not transformational.
- Are we changing how we work? Is the initiative going to change how we conduct business or does it simply apply a new technology to how we’ve always done things? As noted earlier, there is often a misconception that digital tools are equivalent to digital transformation.
- Who’s involved? Is the effort limited to a specific business silo — e.g., marketing or finance? Because transformations are organization-wide, they are cross-functional by nature.
- Why are we doing this? Transformations are focused on changing how the organization conducts business in an effort to create value. If the focus of the effort is solely on cost reduction, then it’s not transformational.
Though only a high-level start, the answers to these questions can help organizations start to clear up some of the confusion around their digital transformation process.