4 considerations when preparing for digital transformation
For midmarket organizations, both the risks and rewards of transitioning from legacy processes and systems to the wholly digital enterprise—known as digital transformation—are all too real. Full transformation offers an environment where operations are streamlined, responses are agile, genuine innovation is fostered and hastened, and customers are fully engaged, connected and loyal. Yet despite the promise of digital transformation, recent reports show that over two-thirds of transformation efforts fail.1
Why do they fail? Unfortunately, a disconnect often exists between possibility and reality. Digital transformation demands the scrutiny and careful consideration of executives before implementing a successful strategy. To that end, four key considerations should be kept in mind prior to embarking on the journey of digital transformation.
Consideration #1: Disrupt yourself or be disrupted
While it may seem counterintuitive, a key to successful digital transformation is the thoughtful disruption of your business model. Disruption is about challenging assumptions and paradigms. It’s about risking current revenues and profits because you know there’s a better way of doing things.
The increased use of sensors to provide data on machinery is a prime example of companies practicing self-disruption to create more effective digital processes. For instance, an elevator manufacturer recognized that it needed to disrupt its business by rethinking its maintenance revenue and service model. It took the risk of changing this legacy process and revenue stream by adopting digital practices.
The company installed sensors on its elevators to record usage information, utilizing that data to schedule service. Instead of performing maintenance at a defined time, some elevators received service at quicker intervals, while others required a more extended timeframe between maintenance visits. With this digital strategy, the company became more efficient and at the same time increased visibility by providing maintenance at the right time, preventing quality breakdowns. Ultimately, the risk paid off, as the company has driven revenue from its physical assets by applying digital capabilities, a significant trend for asset-intensive companies.
Unfortunately, recent studies show that while 87 percent of executives believe digital technologies will disrupt their industries, only 44 percent indicate they are taking appropriate measures to avert digital disruption.2,3 Successful digital organizations embrace the concept of self-disruption, knowing that disruption is a certainty within the digital marketplace. Your organization must give appropriate consideration to your unique threats and disruptions, and develop a plan to address the actual threats to your business.
Consideration #2: Be mindful of the war for talent
Many analysts consider the lack of digital talent to be the primary danger to businesses, as the scarcity of resources limits digitization initiatives and progress toward transformation.4 Organizations at earlier stages of digital transformation are more likely to be threatened by not having qualified internal talent, but they also have trouble retaining the few resources that may exist, as 50 percent of employees say they plan to leave within three years and 20 percent plan to exit within one year.5
Organizational leaders face several specific challenges to integrate the right level of talent and skills to move toward transformation. There is currently an unprecedented digital skills gap in the marketplace, with the volume of skilled talent not matching the demand. This gap does not only exist for information technology (IT) personnel; instead it is a growing concern with positions company-wide as digital knowledge becomes necessary at all levels. Consequently, wages are rising and creating a market of digital haves and have-nots, which will ultimately result in the have-nots losing and becoming digital prey.
Therefore, when considering a digital transformation strategy, you must focus on the advancement of talent to retain internal resources, but to also become more appealing to external talent. Conversely, organizations seen as lagging in their digitization and transformation efforts are becoming non-starters to resources in high demand, stifling progress toward transformation.
A recent Massachusetts Institute of Technology (MIT) research report on digital transformation confirms that qualified talent is leaving companies while it is in short supply—with only 11 percent of surveyed organizations indicating that existing in-house talent has the skills necessary for success in the digital economy.6 However, more digitally mature organizations make greater investments in internal talent than do their less sophisticated counterparts—with 75 percent of mature organizations providing resources and advancement opportunities while only 14 percent of early-stage transformers doing the same.7
A lack of in-house digital talent coupled with a lack of focus on developing resources can create constant talent gaps, particularly for midmarket organizations. For example, while 65 percent of these businesses lack the right talent to execute digitization initiatives, most continue to use internal resources, effectively slowing the potential speed of their digital progress. This hastens the exit of existing in-house talent, creating a greater need for external resources who likely find these opportunities unappealing.8
Consideration #3: Evaluate your culture and digital readiness
Your company’s culture is a focal point of your digital transformation efforts. While traditional corporate culture was designed to maximize efficiency and margin while lowering risk, digitally mature organizations are focused on nimbly taking data-driven action, measuring, adjusting and continuously refining and improving their offerings to remain sustainable and relevant to customers.
Consistent cultural traits exist among organizations successfully progressing toward digital maturity, with more mature companies moving further away from the traditional corporate status quo. These shared characteristics include:
- Speed of action: Nimble responsive action, instead of a slow and deliberate approach
- Risk tolerance: Favoring bold, experimental, fail fast approaches
- Leadership structure: Favoring horizontal and distributed structures over top-down models
- Work styles: Integrated and collaborative engagement across departments and functions versus projects and departments in individual silos
- Quality of life: Nurturing non-traditional, employee-centric environments that talent is committed to and passionate about
- Data driven decision-making: Decisions driven by actionable data and customer-centricity over opportunism, intuition or instinctive responses
Most importantly, digital transformation requires a culture of customer-centricity, transforming the customer experience. Digitally mature organizations leverage technologies such as big data and business analytics tools to better understand customers, including unique preferences, habits and requirements. In addition, these businesses leverage customer relationship management and marketing automation platforms to customize the sales journey, enabling personalization that ensures relevant transactions and nurtures relationships. Finally, they connect touch points, creating a consistent, seamless, omnichannel customer experience.
Consideration #4: Take an integrated approach to strategy development
In order to effectively leverage digital technology, corporate strategy and digital strategy must not be digitally exclusive. A typical corporate strategy seeks to address five key areas—vision, mission, purpose, plan and goals—and ultimately aims to address the following questions:
- What business should you be in?
- How do you add value to your business?
- Who are your target customers?
- What’s your value proposition?
- What business capabilities do you need?
Digital concepts and strategies must be reflected in each of these questions and answers in order to align the two strategies and achieve true digital transformation.
To illustrate the importance of this alignment, 90 percent of digitally mature organizations have strong ties between corporate and digital strategies, compared to only 38 percent of less mature companies.9 In addition, more digitally mature organizations define transformation more broadly, encompassing process, talent engagement and the business model to revolutionize the way they do business, rather than considerations that have a more modest impact on the organization.10
Digitally mature organizations are also considerably more likely to have strategies that look farther into the future than early-stage counterparts. Half of mature organizations have plans that extend two or more years into the future, as opposed to only 34 percent of those that are less mature. However, with many transformation timeframes estimated at 10 or more years, all organizations may require more long-term vision.11
It’s not if but when you will start your digital transformation. Stop thinking about doing things differently—and start thinking about doing different things. And before you embark on your digital transformation journey, remember to take the following into consideration:
- Disrupt yourself or be disrupted
- Be mindful of the war for talent
- Evaluate your culture and digital readiness
- Take an integrated approach to strategy development
For success on your digital journey, you will require resources with industry knowledge as well as deep understanding of technology concepts; you will also need a strategy to attract and retain that talent.
Digital transformation is not a one-time exercise; you must cultivate the culture in which employees are encouraged to develop new ideas and become agile. A transformation initiative is not a traditional IT strategy, with corporate strategy driving the business requirements that prompt technology solutions. Instead, business requirements and technology must be thought of together to affect and fundamentally change corporate strategy.
1. Barry Libert, Megan Beck, and Yoram (“Jerry”) Wind, “7 Questions to Ask before Your Next Digital Transformation,” Harvard Business Review, July 14, 2016.
2. G. C. Kane, D. Palmer, A. N. Phillips, D. Kiron and N. Buckley, “Aligning the Organization for Its Digital Future,” MIT Sloan Management Review and Deloitte University Press, July 2016, 6.
3. MIT Sloan Management Review, “Moving Digital Transformation Forward,” Infographic, 2016.
4. Kane, “Aligning the Organization for Its Digital Future,” 7.
5. Kane, “Aligning the Organization for Its Digital Future,” 7.
6. Kane, “Aligning the Organization for Its Digital Future,” 8.
7. Kane, “Aligning the Organization for Its Digital Future,” 4.
8. “How Digital Are You? Middle Market Digitization Trends and How Your Firm Measures Up,” National Center for the Middle Market, January 2016, 18.
9. Kane, “Aligning the Organization for Its Digital Future,” 9.
10. Caroline Donnelly, “DevOps Shortages Hit Enterprise Digital Transformation Efforts,” ComputerWeekly.com, July 14, 2016. .
11. Kane, “Aligning the Organization for Its Digital Future,” 9.