3 Elements of a Successful Digital Transformation Strategy (Updated)
Digital transformation fundamentally reimagines how companies operate. It’s not about using digital technologies in a specific business case, but rather embedding digital capabilities all across the organization.
This kind of effort consists of many layers – understanding technology, managing integration, leading cultural change, fueling business results – spread across different business areas. Such complexity requires a strong vision and a plan for successful execution, which combined create a digital transformation strategy.
Why does a digital transformation strategy matter?
Organizations rely on technology to be at the core of their transformation efforts much too often, especially when marketers and analysts advertise the latest hot solution as the silver bullet that can solve chronic problems. Well, this could be true but it’s the strategy, not the technology itself, driving digital transformation according to the results of a global survey conducted by MIT Sloan Management Review and Deloitte. Without a strategic preparation for introducing change in the organization, even the best technologies might fail to bring the expected benefits.
The most prominent cautionary tale of such a case is the BBC’s Digital Media Initiative (DMI). It was the cornerstone of the BBC’s digital transformation effort, promising – among other things – to streamline broadcasting operations through the adoption of a tapeless, fully digital production workflow; to unify video, audio, and stills archives by using a media asset management system; and to speed up the development of new programs through an online storyboarding system. Best in class technologies were to be integrated and customized by Siemens.
After receiving £81 million in funding and taking nearly 2 years of development, the contract with the supplier was terminated due to increasing costs, delays, and technical problems. BBC brought the project in-house with a revised budget of £133.6 million. After an additional 2 years of struggle, DMI was finally canceled, resulting in a total of £125.9 million (over $150 million) of losses for BBC.
What went wrong? To answer this question, the National Audit Office (NAO) supported by PwC (PricewaterhouseCoopers) launched an investigation that eventually evaluated DMI as “a complete failure”.
The main identified reasons were: weak governance and quality assurance, a lack of business engagement, a failure to agree on the project management methodology, and not having a plan on extending the transformational effort to business operations. In other words, the digital transformation strategy was not developed and executed effectively. The report said that “DMI reporting focused on technology risks and issues rather than the ability of DMI to drive operational change to business practices in the BBC”.
It is estimated that in 2018, companies around the globe spent over $1.3 trillion on digital transformation projects. Out of this sum, $900 billion has not brought the expected results or was terminated before finalization.
The difference between successful and failed projects? In most cases, it is a solid digital transformation strategy put in place when the project started and updated as it progressed towards completion.
What is a digital transformation strategy?
Nearly 90 percent of executives expect “great” or “moderate” digital disruption, but fewer than half say their organizations are adequately preparing. A digital transformation strategy is a roadmap for leveraging digital technologies to ensure a business advantage.
Organizations need a digital transformation to remain relevant, competitive, and profitable as “software is eating the world”. A digital transformation strategy should be driving this effort and ensure it is aligned with the company’s overall business strategy.
At its most basic level, a digital transformation strategy answers essential questions of Why, What, and Who, creating a compelling story for change. A good change story makes transformation efforts more than three times as likely to be successful, according to McKinsey.
Illustrating the vision prevents losing clarity, having too many priorities, and failing at employee engagement, which together are cited as the most frequent reasons for a digital transformation failure.
- The Why presents the reason for the change and reveals the stakes – is it an opportunity to grow the business at an unprecedented pace or a threat looming over its existence?
- The What imbues the object of change with meaning – digital is full of buzzwords like cloud, mobile, artificial intelligence which only a few really understand. Relating to the everyday employee experience and showing how it can be improved is crucial for getting an organization-wide buy-in.
- The Who nominates the executives personally responsible for driving the effort and having the authority to make quick decisions as strong leadership is the key to the success of a digital transformation.
At the execution level, a digital transformation strategy answers the questions of Where, When, How, and How Much, creating a plan for successful execution.
- The Where highlights business areas that will be most impacted by the change – is it a number of separate experiments or a single company-spanning project? Where should the need for cooperation across silos of departments and suppliers be emphasized the most?
- The When sets the pace for expected changes – it aligns the transformation with business objectives and informs when results should become visible.
- The How describes the way of delivering change, covering multiple aspects – from technology and methodology to covering skill gaps and adapting culture. Addressing employees’ fears is of the utmost importance when developing the How. Many will see digital transformation as a threat to their jobs, which could make them obsolete or require unlearning the old ways and learning the digital ones.
- The How Much openly covers the extent of costs the company is willing to bear. It means not only financial expenses but also the level of discomfort people will need to live with until the change settles in and new ways become business as usual.
Developing a digital transformation strategy is an exercise in bridge-building. The story for change links the current state with the desired long-term vision of the company – it also connects the current employees’ fears with their ambition.
The roadmap bridges technology with business, innovation projects with business operations, and a culture of control with a culture of experimentation. It eventually charts the unknown by linking risks with certainty.
Once those bridges are created, they need to be maintained. A digital transformation strategy should never be set in stone, thus it requires regular inspection and adaptation. Only this can ensure that it will remain relevant to the company and attractive to people taking part in it – employees and customers alike.
Three pillars of a successful digital transformation
All successful digital transformation strategies share three aspects. Incorporating them may look differently in different companies, as their challenges and context are unique, but they nevertheless need to be addressed to significantly increase the chances of benefiting from the transformation.
1. Clear and measurable objective
Digital transformation is not about the technology itself – it is more about solving a specific business case with digital means. Taking time to define this single opportunity and to visualize the desired effect for the business and the customer will pay off tremendously.
It requires introspection and unbiased analysis of the company’s current state to fully understand its challenges and opportunities. Based on the results of this analysis, executives can laser focus on one area and build a vision of how it can be reinvented.
Having such a clear purpose is the number one skill required from digital transformation leaders, according to Forbes. It helps to maintain focus, prevents drowning in multiple priorities, gives a measure of assessing the progress of a digital transformation process, and allows the executives to connect the process with the business KPIs easily.
Procter & Gamble, an FMCG giant, learned a hard lesson on the importance of this aspect when it set out to become “the most digital company on the planet” in 2012. Bob McDonald, P&G’s CEO at that time, surely wasn’t short on ambition when aiming to take the industry leader to the next level, but his broad goal led to a number of vague initiatives without a clear purpose.
When the company faced a slumping economy, the return on investment from a widespread and expensive transformation effort was hard to measure and defend. As a result, a year later Bob McDonald was asked to step down by the board and pass the reins of the company back to his predecessor, A.G. Lafley. Had P&G had more focus from the start, it would have stayed on the digital course even in the times of economic turmoil.
On the other hand, the benefits of a clear purpose and a strong vision were exemplified by Amazon’s drive to introduce its Prime membership program. Jeff Bezos’ unshakeable belief in what a perfect customer experience ought to look like led the whole company's effort to make it a reality.
Even though many critics and even employees found the idea of unlimited two-day delivery for $79 ridiculous, economically unsound, and dangerous for the company’s other projects and reputation, the relentless pursuit of the clear objective united various departments of Amazon and paid off in the end. Amazon Prime single-handedly — and permanently — raised the bar for convenience in online shopping. That, in turn, changed the types of products shoppers were willing to buy online forever and created the most successful membership program to date.
2. Executive leadership and engagement
McKinsey finds crystal clear ownership of digital transformation initiatives and ongoing executives’ involvement in their progress making companies 2.3-2.5 times more likely to succeed. In the beginning, there might be a lot of enthusiasm and hopes around the digital transformation effort, but things will eventually get messy as the time goes by.
Some initiatives will not pay off, business priorities will change, and conflicting interests might emerge. Having an engaged executive owner who can cut through vague situations, resolve conflicts, and align cross-department efforts is a massive contributor to the success of a digital transformation.
Out of a strong leadership emerges a fast decision-making process. Decisions made quickly enable the whole organization to act with speed at scale. All else being equal, the fastest company in the market will be the winner. This is clearly understood by tech giants like Google or Amazon.
Typically, you don’t consider big organizations to be swift and agile, but those two tend to prove that size is not a speed bump if leaders are involved and invested. Eric Schmidt set the pace for Google by assigning a specific and firm timeframe to each decision. This habit made it possible to navigate a multitude of innovation projects that Google was executing at that time, without losing sight of the strategic direction of the whole company.
Working at speed enables companies to iterate and adapt the course of the digital transformation quickly. The competition will change, the market will change, and the company culture will change, too – the success of long-term plans depends on how quickly companies can adapt their strategy to those changes.
Many executives want to make only the right decisions and underestimate the costs incurred by stalling to make sure the decision is the right one. Being fast will often be better for the organization than being right.
“If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”
- Jeff Bezos, Amazon CEO, 2016 letter to shareholders
3. Aligning company culture
Probably the most underrated aspect of digital transformation is the human one. Having the right strategy is good but, as Peter Drucker aptly put it, “culture eats strategy for breakfast”, so having the right culture is even better. Transformative changes will often also require that existing culture adapts to the new ways before it can fully blossom and bear fruit. One of the most frequent cultural shifts involves getting out of the building and getting closer to consumers.
In 2012, Adobe decided to make a switch from the traditional software licensing model to a subscription-based service business model. The leaders knew they needed all employees to share a common perspective that they contributed to the customer experience. To achieve that, Adobe designed the 'Experience-a-thon' – a program that puts employees in their customers’ shoes and spurs change. It essentially turns employees into users – users who provide immediate feedback to the organization. Adobe successfully engaged its employees, which was the key to the success of the digital transformation strategy during their shift to being a cloud company.
“By combining employee and customer experiences, we are able to create rich customer experiences through high levels of employee engagement.”
- Donna Morris, Adobe Executive VP of Customer and Employee Experience
Successful company cultures are tight on trust and loose on control. They often codify a framework for experimentation, which makes failing safe and learning efficient. Leaders can’t control everything happening during the transformation but having transparent information flows and clear rules of engagement might distribute a sense of personal responsibility throughout the organization.
The financial software producer Intuit, known for products such as QuickBooks, Mint, and TurboTax has built the Intuit Analytics Cloud, a solution enabling each employee to access real-time analytics of their products. This platform, combined with the freedom of experimentation and digitally-enabled employees, powers the data-driven transformation at every level of the company.
“We always experiment and innovate with new technologies to see how we can use them to solve our business problems. Here, the power of open platforms comes into play. If we build our platforms right, then we solve not only current problems but future ones as well.”
- Arun Singhal, Lead Product Manager for Data and Platforms
The Wrap Up
Companies with a digital transformation strategy have an opportunity to become more viable than ever before. They put themselves ahead of their competition by navigating the shifting digital landscape. However, every company has a unique business case and unique problems to solve on their way to digital maturity. The process will be much easier if you do it together with an experienced partner that understands the problems and knows how to solve them. See how Netguru can help you.