Digital Transformation caught many companies off guard when COVID-19 pandemic hit hard. Before that, senior executives typically perceived it like a sort of “magical and mysterious” power that could bring enterprises into a whole new era. But with everyone at home, it then became a “must do”, or in some cases, survive.
However, once a specific industry term like digital transformation becomes “hyped”, there will be many service providers like consulting firms or vendors trying to hook into the hype by talking about the topic from different angles. I have seen this particularly growing in the AI domain too.
But let’s go back to the basics: What exactly does Digital Transformation mean? To be pragmatic and clear, I have come up with the following simple definition:
“Digital Transformation is the journey within an organization to transform data from business processes into a machine-readable format so it can be used in value-driven business applications or new business models.”
The above definition is simple, but it doesn’t mean it’s easy to execute. Breaking down the key elements of this definition helps unveil the implications to execute it in practice, so let’s be pragmatic:
Digital Transformation It’s a journey, not a destination.
A true transformation process is deep. It requires the utmost commitment from the top. Unvaryingly, it will face resistance to change at some point.
To truly transform an organization, it is required to change deep-rooted conducts in the organization, i.e., the existing “status quo”. Any transformation can’t be expected without changing established habits and behaviors.
To fight resistance, companies must think, put up front and communicate the purpose behind such transformation. The main questions are: Why as an organization, do we want to go through this transformation? Why does it matter?
The purpose should not be vague, the clearer the purpose, the better results will be. It should not be fuzzy or unclear, because the implications to the status quo of organizations are not minor.
Trying to embark in a digital transformation initiative without changing or challenging the existing status quo, it’s like trying to lose weight without eating better and not committing to do any kind of exercise.
Prioritization is key to success.
Because resources are limited, organizations must be clear in terms of the business processes they want to focus on.
A good practice is to map the different digitalization value cases to the overall digital transformation purpose. That is, choose initiatives in terms of their contribution to the overall purpose. A good portfolio should be centered on transformational, adjacent or core innovation value cases, with budget thresholds for each case.
Digital transformation value cases can include existing business processes, but also the adoption of new capabilities. For instance, AntGroup in China created a new set of credit scoring capabilities using AI- based predictions using transactions from its payment gateway business.
The criteria of what the value is to the business vs. risks should be linked back to the purpose of the digital transformation journey. If an initiative may represent a disruptive new business model that resonates well with the overall purpose, even if it’s risky, an organization may decide to go for it
.Digitalization means “Machine Readable”, i.e., data driven.
Data derived from processes, documents, biometrics, etc. needs to be in a machine-readable format. That is the key characteristic of digital. Regardless of the use case, data derived from business processes need to be in a machinereadable format.
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For example, Large Language Models such as ChatGPT, or image recognition and other AI driven value cases are derived from data, lots of it. If the data is not stored in a machine-readable format, it can’t be used by machines.
Value added business applications / new business models are not all equal.
Ideally, any dollar amount spent on a digital transformation value case needs to identify the potential benefits to the organization. This is usually a struggle. Following is good approach to guide initiative’s investments:
Common Roadblocks to success
Creating a digital transformation initiative may have profound implications. Many pitfalls can prevent success, for example:
Underestimation of Organizational & Cultural Implications
Organizations, especially large ones, are full of corporate silos. When organizations want to focus on a large and complex business process first, it typically goes through many departments, run across different functions and fragmented systems. Without senior leadership looking across the organization to help break silos, value cases may end up in fragmented implementations with underperforming results. At the end of the day, it all comes down to people. And people, especially in large organizations, have different priorities and objectives. This is why many organizations are setting up product oriented cross-functional digital transformation offices, with strong senior sponsorship and shared objectives. To navigate these silos, methodologies such as scale agile framework or similar are good starting points to align everyone toward common goals and help to manage change.
Unrealistic Expectations
Again, it all starts at the CEO level. I had one CEO that wanted results without investing. Another one wanted short term ROI that simply was not feasible. Establishing investment thresholds depending on the type of initiative is a good start and KPIs for each digital transformation initiative are key regardless of how disruptive the ideas are, adjacent value cases to expand products or services or cost related. Metrics to measure success are critical to manage investments and fostering a culture of fail is ok as long as it’s cheap and fast.
Conclusion
Your Digital transformation will be a long and winding road. To overcome this, a pragmatic, people centric approach, following the definition stated here can help your organization to drive change through technology. It’s a difficult journey, but if executed properly, can position, and drive your business to the future.
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