written by Victoria Zagorsky
As companies around the world seek competitive advantage in the digital economy, they make significant investments in the technologies that enable the digital transformation. According to IDC, worldwide spending on digital transformation is forecast to increase at a five-year compound annual growth rate of 16.7% to reach nearly USD 2 trillion in 2022.
According to the latest McKinsey Global Survey on digital transformations, more than eight in ten respondents say their organizations have undertaken digital transformation efforts in the past five years.
DIGITAL TRANSFORMATION RISK – TOP CONCERN FOR THE CEOs IN 2019
Only 16 percent of respondents polled by McKinsey say their organizations’ digital transformations have successfully improved performance and also equipped them to sustain changes in the long term. An additional 7 percent say that while performance improved as a result of digital transformation, these improvements were not sustained.
As majority of the initiatives do not reach their goals, it is not surprising that the digital transformation risk is the top concern for directors, CEOs and senior executives in 2019.
WHAT IS DIGITAL TRANFORMATION?
George Westerman, MIT principal research scientist and author of Leading Digital: Turning Technology into Business Transformation, defines digital transformation as “a radical rethinking of how an organization uses technology, people and processes to fundamentally change business performance”
To better understand the concept of digital transformation it helps to distinguish it from digitization and digitalization.
FROM DIGITAZATION TO DIGITALIZATION TO DIGITAL TRANSFORMATION
The journey begins with digitization, the process of converting information from analog to digital format. Once this task is accomplished, organizations can use digital technologies to enhance their operations. This the process is known as digitalization. And the final task of digital transformation involves leveraging digital technologies to re-invent the entire business model and strategy.
In other words, an organization digitizes information, digitalizes processes, and digitally transforms the business.
What can you do to ensure success of the digital transformation efforts in your organization in 2019 and beyond?
Organizations with winning digital transformations follow 9 common digital transformation principles.
1. TECHNOLOGY IS NOT A STARTING POINT
Enterprises undertaking digital transformation integrate digital technologies such as cloud, containers, big data, machine learning, and Artificial Intelligence into all areas of their business. A technology-first approach to digital transformation, however, will not produce the desired outcome. While it is important to develop a strategy for how to effectively leverage digital technology, the starting point of the digital transformation journey is the customer needs. Successful digital transformations are driven by customer-centric end-goals, rather than a digital technology. As Marc Benioff, Chairman and Co-CEO at Salesforce put it, “Every digital transformation is going to begin and end with the customer.”
This translates into the need to invest into understanding the customer journey to uncover opportunities to deliver superior experience.
2. DISRUPT YOURSELF OR BE DISRUPRED
Enterprises cannot afford to wait to react to the moves of competitors or disruptors to respond. Instead, to ensure success of digital transformation program, it is vital to make preemptive changes. Martin Reeves of BCG’s Henderson Institute, says “The observation of biological systems teaches us that it is optimal for companies to begin searching well before they exhaust their current sources of profit, and that firms should use a mix of ‘big steps’ to move to uncharted terrain and ‘small steps’ to uncover adjacent options at low cost.”
3. ALIGN PROGRAMS TO STRATEGIC GOALS
In 2019, digital transformation programs need to better demonstrate tangible results, and the key areas of focus should be aligned to organization’s primary strategic goals. It is also critical to implement KPIs to assess the impact of digital business initiatives to showcase the measurable value, performance and impact on the bottom line.
Level of involvement and engagement of leadership in a digital transformation initiative can spell the difference between its success and failure. This applies to both senior leaders of the organization and those that lead specific aspects of a digital transformation.
According to the McKinsey Global Survey, a transformation’s success is more likely when an organization has digital-savvy leaders in place. For example, less than 30% of survey respondents said their organizations engaged a chief digital officer to support the digital transformation initiative. However, those that did turned out to be 1.6 times more likely to see the positive outcomes of the digital transformation.
5. BUILD WORKFORCE OF THE FUTURE
To be successful, digital transformations require the right talent equipped with the 21st century skills, engaged in the new initiatives and empowered to work in new ways. Two specific roles that are critical to building stronger internal capabilities in the workforce are integrators and technology innovation managers. Integrators combine technical expertise with the business acumen which allows them to effectively connect the traditional and digital parts of the enterprises. Specialized technical skills enable technology-innovation managers lead work in the area of digital innovations.
Adopting a Silicon Valley startup mentality and culture can be helpful to break down silos and to foster collaboration among employees which has the positive impact on the digital transformation outcomes.
6. LEVERAGE ADAPTIVE DESIGN
Embracing adaptive design is one of the most important factors for success in a digital transformation effort. While performance targets need to be developed up front, monthly, if not weekly adjustments, are essential to re-calibrate plans based on the progress of the digital transformation.
7. EMBRACE AGILE EXECUTION
Enterprises with winning transformations are more likely to adopt agile execution. This requires the workforce to be innovative, take risks and work collaboratively. The process of digital transformation is inherently uncertain. Organizations should take decisions, iterate, fail and learn fast in order to increase speed, streamline processes and ultimately improve outcomes of the digital transformation.
8. INVEST INTO BECOMING DATA-READY FOR AI
Andy Jassy, CEO of Amazon Web Services said at the AWS re:Invent conference, “I don’t know if it is five years from now or 10 years from now, but virtually every application will have machine learning and AI infused.”
In 2018, a number of barriers impeded the growth of AI. Among them, the key challenge was an outcome of the insufficient information architecture and data governance issues which made companies not data-ready for AI. Most of AI proofs of concept were too narrow in their focus having either singularly tested the technology or applied AI to the specific operations, missing out on an opportunity to deliver value and create efficiency gains.
According to Forrester, in 2019, AI will help organizations improve their data governance. AI and RPA technology innovations will also combine to enable enterprises to broaden the scope of proofs of concept in order to create greater business value.
9. FOCUS ON AUTOMATION
Developing web applications was a key priority for IT twenty years ago; ten years ago, focus shifted to mobile and cloud native application, and today automation is gaining traction as the primary source of business value. Enterprises increasingly explore Robotic Process Automation (RPA) tools to radically increase efficiency and speed of processes.
RPA is the technology that allows to configure computer software to emulate the actions of a human interacting within digital systems to execute a business process. Any high volume, repeatable and business-rules driven process qualifies for automation. The impact of automation extends far beyond cost savings. Enterprises that implemented robotic process automation also cite reliability and service level improvements among their key gains.
2018 can be characterized as the year when companies dreamed big pursuing opportunities to leverage digital technologies to re-invent their businesses, enter new markets and uncover new revenue streams. Forrester predicts that in 2019 focus will shift from enterprise-wide efforts to pragmatic approach to developing a portfolio of focused digital investments aiming to make incremental yet tangible changes to the processes to deliver greater value to customers. Innovation will focus on the key business priorities such as migrating customers to lower-cost digital channels, launching digital products, monetizing data, and automating process to reduce costs and improve efficiency.