Digital transformation is a popular buzzword among business leaders, CEOs and senior executives. Everyone, it seems, has a story about the digital transformation project their organization undertook. Far fewer companies, however, can offer examples of successful digital transformation. That’s because only about 14 percent of respondents to a McKinsey Global Survey on digital transformation reported that their efforts made and sustained performance improvement.
So what is digital transformation? And why the huge gap between organizations undertaking digital transformation and those succeeding in their efforts? According to MIT scientist and author George Westerman, digital transformation is a radical rethinking of how an organization uses its technology, people, and processes to fundamentally change business performance. The main driver of these organization-wide changes is often customer expectations of products and services. Because of increasing customer demands, organizations are pushed to consider new business models and new ways of operating.
Today, technology is accelerating the pressure on organizations to implement large scale transformations that satisfy consumer demands. With new technologies constantly reshaping industries, digital transformation is increasingly important for businesses that want to take advantage of new technologies or simply keep up with the competition (think Amazon and package delivery or Uber and the transportation industry). So what elements are necessary to ensure a successful digital transformation? We focus on five features that can be found in successful transformation projects.
The seeds of digital transformation are often planted with conversations about how to enhance a business’s services or performance with new digital technologies. Maybe your CIO wants to implement artificial intelligence to improve customer experience, or perhaps blockchain is considered as a solution to shore up cybersecurity. While these are valuable ideas, no single technology will deliver the innovation and results your organization is looking for. As a result, these proposals shouldn’t be the basis of your organization’s digital transformation strategy.
Instead, successful digital transformation is guided by broader business strategy and a set of clearly defined goals. According to the McKinsey survey, organizations with successful transformations focused on a few key digital themes – such as increasing productivity or improving the customer journey – and tied these themes to important business goals and outcomes. Accountability for these outcomes was also included in the process so that everyone had a shared sense of responsibility for meeting the transformation’s objectives. For a successful digital transformation, avoid focusing on specific technologies. Start with the business outcomes and work backwards from there.
Technology changes fast. What was a popular, cutting edge development platform can be out of date in months, replaced by a new system that doesn’t operate the same way. Given this rapid pace of change, designing a multi-year digital transformation process up front without revisiting the investment requirements and performance goals until the end of the project doesn’t make a lot of sense. Instead, plan to check in and be prepared to make regular, monthly adjustments. This type of adaptive execution is an essential part of successful digital transformation and allows a project to evolve while remaining on track to achieve the overall objectives.
In addition to adaptive execution, a successful digital transformation also includes an agile approach to implementation. This means encouraging risk taking, innovation and collaboration across various parts of an organization. Empower employees at all levels with some decision-making authority, then let them fail and learn from their mistakes. Internal staff have a detailed knowledge of what works and what doesn’t in daily operations, so encouraging their input over broad “one-size-fits-all” best practices is crucial. The reverse of this agile method is an approach that is risk averse and keeps employees siloed in their own business areas, preventing the kind of broad collaboration necessary for positive transformation.
By definition, digital transformation involves change at all levels of an organization. That’s why it’s crucial to have the right leadership and talent in place. An earlier McKinsey survey on digital transformation demonstrated this, finding that one of the keys to transformation success was adding a leader familiar with digital technologies to the management team. In some cases, this was a chief digital officer who could support the transformation. At other times, organizations found success when leaders were brought in on individual initiatives as part of the larger project. Either way, these leaders were dedicated full time to the effort to implement change, and successful digital transformation was more likely as a result.
As digital transformation progresses, the emphasis of a project will shift among various groups within an organization. In order to ensure the process doesn’t lag or fall by the wayside, accountability for each stage of a digital transformation is critical and hand-offs of responsibility must be well-defined. In general, successful transformations have resulted when leadership and corporate strategy groups within a business take the lead in setting strategy and measuring impact, while business units are best at execution. Developing a clear plan for each transition of the project and identifying accountable leaders allow digital transformation to span large parts of an organization successfully.
While these five elements of digital transformation are all vital to an organization’s success, it’s important to remember one crucial detail when it comes to digital transformation: the most successful transformations are preemptive, rather than reactive. Continually evolving and responding to outside pressures from competition can produce some success, but the best transformations occur when organizations embrace change and take big steps to move their business into new territory.