As a result of these dynamics, there is an urgent need for companies to adopt a digital-first business strategy involving pertinent digital solutions and/or subject-matter expertise. This need has been further exacerbated due to the increased demand for contactless transactions driven by the onset of COVID-19.
- Digital customer service interactions will increase by 40%. (Predictions 2021: It’s All About Empathy, Digital, and Virtualizing Customer Care, Forrester)
- While Digital has been a top priority for several years, 83%of companies now plan to accelerate their digital transformation efforts. (The Evolving State of Digital Transformation, BCG)
- 87% of companies think digital will disrupt their industry, but only 44% are prepared for a potential digital disruption. (Why Companies Don’t Respond to Digital Disruption, MIT Sloane Review)
Digital transformation projects are often a way for established organizations to compete with nimbler, digital-only competitors. This is reminiscent of similar reactions that took place in the mid-1990s with established companies seeking to migrate from mainframe-based solutions and adopt client-server, ERP, and early eCommerce solutions.
While companies are increasingly seeing the impact of digital advances on their business and their respective industries, many of these companies are questioning how to get started and where exactly to focus. To that end, here are some suggested steps that will hopefully guide and ease your transition and relieve any angst you might be feeling.
What is “digital transformation”?
But, before we dive in, let’s first get on the same page by what we mean by “digital transformation.” “Digital Transformation” (DT) involves using digital solutions (e.g. mobile phones, electronic payments, data) to remake a process to become more efficient and/or effective. The goal of DT is to transform that process into something significantly better. This is analogous to traveling from Point A to Point B, driving a car rather than riding a horse. We are sure that there are more nuanced definitions but that’s the essence of it.
When organizations embark on a digital transformation journey, their goal is also to increase the digital capabilities, skills, and processes of the organization against specific business objectives. Each transition enhances the execution of the desired activity and also introduces its own unique needs and ecosystem. Using our car example above, for instance, rather than requiring a steady supply of hay and stables, you would now require gas stations and oil. This is also the case with digital solutions (e.g. cybersecurity, data formats).
When launching “digital transformation” (DT) efforts, we recommend taking an incremental, iterative approach. Taking an incremental, iterative approach enables companies to a) devise feasible plans to meet objectives; b) gain early wins and also evolve; and c) adapt plans as business needs and the business environment change.
Now that we are on the same page with DT, let’s get started.
1. Prioritize Your Problem Statement. Identify the specific set of problems that need to be addressed and prioritize those problems. While it’s easy to pontificate on the need for artificial intelligence and machine learning-based solutions, oftentimes companies can gain significant improvements just through the application of 1 or 2 simple, obvious solutions; “why apply a sledgehammer, when a hammer will do.”
2. Define Evaluation Criteria. Specify the critical elements to be used in considering digital solutions. This step is critical as it helps define and determine the criteria to be used when evaluating solutions, whether it’s cost, time, customer satisfaction, etc. Defining evaluation criteria also helps companies align on their priority (ies) in their evaluation.
3. Formalize Performance Management. Define and capture how efforts will be measured with individual metrics/KPIs. Employing a dashboard format will help organize metrics by various categories and provide a convenient format for communication to others.
It is also strongly recommended that a metric glossary, defining each metric/KPI, accompanies the scorecard. Also, establish a regular schedule by which information will be updated and shared. Just like the mail, people value consistency. A few additional pointers.
- Do not try to capture too many metrics. Make it easy (and more manageable) by identifying, capturing and monitoring the metrics/KPIs that provide the most insightful information on performance. Going back to our car analogy, even though a car is always evaluating hundreds of data points, the car’s dashboard typically only displays a handful of items — the engine temperature, oil level, fuel level, speed, and odometer.
- Continually evaluate and update metrics. Metrics that were important early on may be less important later in the transformation due to increased learnings, changes in focus areas, and progress made.
- Don’t let others define your success!!! Defining and establishing success metrics early on will set the tone for DT efforts and greatly enhance one’s ability to manage communications and perceptions of efforts.
4. Conduct a Current State Assessment. One cannot determine their future without first observing their past. In conducting a Current State Assessment, capture and model all the key processes in your current state using a process modeling tool (e.g. Interfacing, MS Visio (For all of you traditionalists!)) Business process modeling maps out the current processes and sets a baseline for improvement. Using our car example, we should not get on the road and start driving without first checking fuel and oil levels, first.
For each activity, identify the following information — Name, Owner, Average Duration/Transaction Time, Average Cost, Success metric, Inputs, Outputs, and Other Critical Information. Review the current state model with key stakeholders to enlist their feedback further ensuring that the current state of the identified business process has been accurately captured.
Lastly, be sure to identify and call out critical issues/concerns in the current state model indicating how they adversely impact the overall process, customers, and/or the business. And, indicate what would happen if these open issues are left untreated.
5. Evaluate Areas for Improvement/Prioritize “DT” Candidates. Review each of the processes from the Current State Assessment and prioritize them as candidates for DT based on the predefined evaluation criteria defined in Step 2. Oftentimes, 80 percent of issues can be addressed by focusing on 20 percent of your processes. This will further ensure that the focus is on the areas that will have the most significant impact. Time is your greatest enemy — be ruthless when prioritizing.
When evaluating DT candidates, think about potential digital solutions that can be applied, their cost, complexity, impact, and other requirements; bear in mind the cost of building a feature versus the benefit the business gets from it.
Once a list is compiled, tabulate the weighted scoring, prioritize the list (Prioritize On The Outcome; Not The Output) and apply it to the future state definition in Step 6. To jump start your efforts, consider using WSTF or the following template.
6. Define Your Future State Model. Utilizing the Current State Assessment captured in Step 4 and employing business process modeling, define the future state process. Be sure to also capture and incorporate the selected DT process candidates from Step 5.
As the future state is defined, indicate the improvement/impact to the current state (i.e. What will be different and better) through the usage of digital solutions noting any process improvements and other benefits. Additionally, note how problematic areas captured in the Current State Assessment will or will not be addressed.
Lastly, be sure to capture your corporate objectives to ensure your future state DT plan aligns and supports them. This will minimize any concerns from executive management and may further bolster your efforts.
7. Summarize Digital Transformation Plans. Summarize and share the results and expected business impact to stakeholders. When detailing plans, provide a holistic business plan detailing the objectives and justification of the proposed plan. We recommend capturing the following information:
- Goals — The objectives of the effort and the metrics for success.
- Tenets — Restate the prioritized evaluation criteria in prioritizing candidates for digital transformation (Step 2)
- Current State of the business — Inform the reader of the current state of the business that further highlights the need for change. The state of the business should offer a detailed enough snapshot of the business to give the reader enough information to assess the positive and negative activities of the recommended approach.
- Strategic priorities — Define priorities (e.g. Improved order fulfillment velocity, Reduced customer complaints).
In summarizing DT plans, consider the Amazon six-page model, which offers a great format and approach. Additional perspective on this approach can also be found here.
8. Solicit Feedback. Share the proposed plan, including required resources and investments, with stakeholders soliciting feedback and buy-in. When receiving feedback, be sure to incorporate applicable feedback into the proposed plan, acknowledging the author of the feedback received. Be sure to share updates in as timely manner as possible. It is highly recommended that you timebox this activity to one business week.
9. Sign-off. Once the DT plan has been finalized, it’s time to get sign-off from all key stakeholders. Set up a signature page and ask for a signature from all designated stakeholders approving the finalized DT plan. We realize that the idea of a sign-off sounds like overkill, however, we have found that nothing ensures that an audience will read a document and take it seriously than when it is required of them to sign-off and approve of the proposed plan.
In addition to serving as an “insurance policy”, the sign-off typically ensures that stakeholders are aligned and vested in the DT initiative and will do and provide what is requested and required for the plan to be successful.
10. Execute the Transformation. Now that the plan and the set of priorities have been established, it’s Go Time! Again, it is strongly recommended to take an Agile approach in the execution by focusing on 1 to 2 priorities at a time for each iteration.
While executing, also be sure to:
- measure and monitor performance;
- communicate efforts sharing progress to stakeholders and management;
- seek and incorporate input and feedback; and
- smell the roses and celebrate progress and early wins recognizing key contributors.
One additional critical area that should be prioritized, involves addressing “change management”. Change management is defined as the methods and manners in which a company describes and implements change within both its internal and external processes.
Digital transformation involves some pretty involved changes to business culture, as well. According to McKinsey, 70% of digital transformations fail, most often due to resistance from employees. (The ‘How’ of Transformation, McKinsey).
Companies succeed best with digital transformation efforts when they match investments in technology with similar investments to reshape culture. Therefore, unlocking a company’s full potential to embrace digital transformation and resultant change, requires a shift in mind-set to embrace the speed, insights, and agility made possible by digital solutions. Developing a shared, realistic vision along with an aligned, structured approach to change is critical to help ensure a beneficial transition while mitigating disruption.
Digital Transformation can vastly impact and enhance a company’s performance. And, traditional companies are being challenged by nimble, digitally-savvy competitors to operate differently and transform,
Companies can effectively address their digital needs by defining the right plan, focusing on the right set of priorities, and executing in small iterations. To minimize the complexity and be most effective in executing and delivering digital transformation, companies should:
- specify the problem(s) to be addressed;
- define the criteria that will be used to prioritize issues that will be addressed;
- formalize performance management detailing the measures of success;
- capture the current state of the key activities/tasks using a process modeling tool (e.g. Interfacing, MS Visio)
- review each of the activities/tasks from your Current State Assessment and prioritize them by the predefined evaluation criteria;
- utilizing the current state model, define the future state process model particularly addressing areas that are overly troublesome and/or costly based on your evaluation criteria in Step 2;
- summarize the Digital Transformation Plans in a holistic business plan detailing business objectives and justification;
- share the DT plan soliciting and incorporating feedback received, as appropriate;
- get signatures from stakeholders on the finalized plan; and
- execute — measuring performance, communicating progress, and celebrating wins, along the way.
As companies seek to make the shift, oftentimes, their efforts can be impeded by roadblocks based on resistance to change, limited knowledge sharing, risk aversion, and simply, the fear of change. Therefore, it is incumbent upon companies to prioritize addressing change management related items, to support and bolster digital transformation efforts.
Lastly, despite the implied concreteness of the term “transformation”, digital transformation does not stop. Instead digital transformation should be thought of as a continuous journey. True digital transformation involves fundamentally rethinking key business models and underlying business processes to create something new and impactful that delivers value to the company and its customers continuously.
As you embark on your digital transformation journey, please feel free to reach out if you have any questions, comments, or wish to share any key insights/lessons learned from your digital transformation efforts.