So you’re in charge of a digital transformation. What exactly does that mean?
by Victor Hoong on 14 Feb 2019
Digital transformation is about making foundational changes to remain a competitive organisation in the digital age. We have surfaced five common flavours being pursued across the market, but your transformation will not fall neatly into one box.
Digital transformation is everywhere. Yet, often it is unclear what people actually mean. While there are already thousands of articles on digital transformation, many are vague and some are simply inaccurate. Rather than dispelling the mist surrounding digital change in organisations, many of these publications just add to the confusion. What is digital transformation, really? What key areas of change need to be considered? And with what priority? If you are one of the lucky few brought in to lead, sponsor or support a digital transformation — these will be just some of the questions entering your mind.
Despite the plethora of articles you’ll come across online, an accurate guide on organising and executing digital transformation is pretty hard to come by. With this article, we are starting the informational series Digital Transformation Done Right, which we hope will change that. Over a series of posts in the coming months, we will explain the steps in driving digital change in organisations, written by experts that have really done the work.
With so many different projects hyped-up under the banner of “digital transformation”, this initial article addresses a very basic but important first question: ‘how do we define digital transformation for an organisation?’. What categories of change is this made up of and how can we think about where the scope starts and ends for the different teams involved across the organisation? This article is intended to serve as an initial reference framework basis for our series of deep dive follow-up articles into different transformational topics.
After reading this you will be able to:
Identify the breadth of change that is put in the scope of digital transformations and the differing perspectives that different stakeholders may bring to it
Quickly distinguish between varied digital change objectives, why they are important and some focus areas for each type of change
Our future articles will take further deep-dives into the topics within digital transformation, getting more specific on the different aspects and how to be successful. But for now, let’s talk ambition!
Defining digital transformation
In its broadest definition, digital transformation involves embedding digital technology to improve a business to be more effective and/or efficient. However, the aim is not just to replicate processes and support them with technology, but also to re-design them so that the overall system or service is significantly better. Next to that the most successful transformations also tackle the organisational mindset at a fundamental level. Business and technology competencies are intertwined and a culture of continuous improvement and innovation is established. The process to rapidly enhance business through new technologies becomes systemic.
This is a high-level definition, so let’s get more specific. The illustration below outlines the typical areas tackled within digital transformation. Each have differing objectives and focus. Categories 1 and 3 are more focused on what digital output a business creates while categories 2, 4, and 5 are about how digital ways of working are embedded into the business to create its outputs. A digital transformation tackles a combination of these areas — ensuring it addresses not only what digital output is needed by the business, but also how digital ways of working will be incorporated to do that consistently, systematically and to high quality.
Now let’s take a closer look at each of the categories in turn.
1. Customer & Channels
Why is this digital change important?
Digitalisation has opened up a multitude of new ways for customers to discover and interact with businesses, leading to a shift in customer preferences and behaviour overall. Businesses can market to, sell to, and service their customers via digital channels such as web, mobile, social, and email; which need to work hand in hand with more analogue touch-points such as retail, customer deliveries and events.
The need to be able to meet and compete for customers via digital channels has been a major catalyst for companies to invest in digital capabilities. Early digital start-ups across different market sectors have spurred incumbents to also compete via digital channels despite their domination of traditional channels to market. Some examples include Amazon (which started with Books, CDs before mass merchandise), eBay (Print classifieds), ASOS (fashion) and Expedia (Travel).
Although this first wave of disruption started in the late 90s, this is still as relevant now as it was then, and for several reasons. First of all, customer preference to utilise digital channels continues to grow. This means that also business growth potential is greatest via digital channels. Secondly, digital innovation continues to increase in pace. Businesses must continuously up their game to compete, as the bar for digital competition rises higher and higher.
Most digital transformations today still include efforts to drive improvements in customer channels. If you are leading or supporting a digital transformation where digital channels are a key focus, then it may help to explore some successful examples. As a starting point, we recommend exploring John Lewis’s omnichannel transformation, or adidas’ digital strategy to grow. Especially because they are incumbent businesses which had the additional complexity of how to grapple with the combination of old and new digital channels to reach customers.
Three focus areas for driving digital change in customer & channels
As there are many change areas and interdependencies that should be explained, we will further deep dive this topic in a future article. But for now, here are 3 key change areas we would like to highlight as front and centre of a “digital channel transformation”:
The customer is king. A customer-centric mindset is at the core of this change. Your business is growing in digital channels because customer prefer to increasingly use these as the medium to discover, learn, select, and buy the products and services needed
Understand the customer and act on it. This digital change means increasing your organisation’s capability to learn, and optimise its approach towards the customer. In our experience, many business say they do this — but few really do in practice. This commitment to the customer is what separates average performance with industry leading growth. Success means adopting design thinking approaches, and building the capability to better capture, analyse, and utilisecustomer data/feedback. And not just talking about it but doing it
Cross-channel collaboration. Stimulating collaboration across brand, marketing, sales, and service teams is essential to connect business thinking and action to deliver a superior customer experience. Not an easy task, but crucial to really make the shift you are looking for. And actually a lot of fun for the departments and people involved once they get the knack of it
2. Next Gen Operations
Why is this digital change important?
While change programmes that focus on improving customer experience and digital channel capabilities have been the majority of digital transformations in the past decade, we increasingly find that digital transformations focus on revamping operational and back-office capabilities. And this deserves greater attention. Digital technology has significant potential to drive the efficiency and effectiveness of internal business operations. Our definition of Next Gen Operations is the digitalisation of non-customer facing operations to optimise for efficiency and effectiveness. Digital changes that you want to focus on in this space are “Digital Workplace”, “Digital HR”, “Digital Finance”, and “RPA — Robotics Process Automation” or “RCA — Robotic Cognitive Automation”. Let’s touch upon two of the areas in this article to give you a flavour of Next Gen Operations.
The digital workplace
This relates to knowledge, learning, and collaboration platforms that take web and social technologies developed on the internet — and bring these mechanisms to serve internal employees. Simple inexpensive platforms such as Slack, Trello, Jira, Google docs are already proven in start-ups and digital operations to effectively increase productivity and match digital and lean ways of working. Tools of this kind are now being adopted into the enterprise as a whole.
RPA and RCA
Data according to McKinsey: Bots algorithms and the future of the finance function
Within the back-office functions, Robotic Process Automation (RPA) and Robotic Cognitive Automation (RCA) technologies offer significant promise. They enable computers to take over repetitive tasks and processes which could radically improve speed and efficiency within Finance and HR operations. Read more about our expert tips on how to successfully implement RPA in your organisation.
Three focus areas for driving next gen operational change
Drive business adoption. Managing business change is the crux of internal digital transformation. Start with concrete and expandable use cases to quickly prove value, providing exponential benefit as you scale them
User-centric design. Just as the customer is king for customer & channel transformations, the user is king for internal business change. Many technology development teams been moving towards user-centric design practices over the past decades, but in many cases the priority for, and pace of change can be increased
Business and IT collaboration. As employees become increasing tech-savvy and digital technology becomes more intuitive, we see ever-greater configuration options at the control of end-users. RPA is an example of an initiative that is often driven by the business, using vendor technology. The temptation is for businesses to go it alone with technology. However this is a grave error. Roadblocks will be hit as you attempt to scale, security issues arise, data silos develop and the true potential of new technology is not captured. Don’t make this mistake. Get IT involved and pay due respect to the importance defining the right technology architecture and adhering to design principles. The additional time it takes in the short-term will be more than rewarded in the long-run
3. New Business Models
Digitisation is fundamentally reshaping some markets. Opening up new ways for customers and businesses to form relationships and exchange value has great potential for organisations. Digital transformation programmes therefore often include the development of new business models into their scope. Not in the least to fund the investments needed for innovation and digitalisation in their core service offering. For example, in the financial services industry, innovations such as crypto-currencies, blockchain and artificial intelligence offer huge business growth potential. As a result, some financial institutions have undertaken digital transformation efforts to be better able to launch new digital products and services.
In consumer business and retail, the rise of Digitally Native Vertical Brands (DNVBs) is worth a quick mention. It used to take many years of heavy investment to build a successful brand, but the reach of the internet and social media have given the perfect breeding ground for new brands such as Warby Parker, Harry’s and Bonobos. DNVBs combine the advantages afforded by digital across marketing, distribution and payments with vertically integrated business models. The result is a business growing ~3x faster than typical eCommerce businesses.
Three focus areas for driving new business model development
Adopt lean start-up practices. Made popular by Eric Ries’ book “The Lean Start-up”. We apply lean principles to the development of new businesses/products/services. The idea at the core is to continuously balance the level of investment with the level of risk as a innovation is explored
Manage the organisational immune system. It’s human nature to resist change, and this is one of the most difficult factors to manage in developing and launching new products, services, and associated business models. Innovation teams must consider the tools at their disposal to meet this challenge (including organisational design, incentivisation structures, and PR & communications)
Go data-driven. This is part of the lean start-up method but deserving a book in its own right. Building a capability to quantify, measure and act upon data (reflecting true business performance) is critical to the success of new business models. You will need to be clear on your business objectives, identify the drivers behind those objectives and then define the appropriate metrics to ensure you are accurately measuring success. Establishing a KPI framework / OKRs (Objective and Key Results) will help you formalise and embed the process into your business system
4. Agile Transformation
Why is this digital change important?
The pace of digital change, and the need for rapid speed to market, requires new technology or products to be launched fast. Being able to react to customer feedback or moves by competitors requires nimbleness and flexibility. Creating a business that is able to quickly act and react to internal and external stimuli creates a very strong competitive advantage. Key to this is tight collaboration between functions — both business and technology — to avoid internal inefficiencies being a drag on speed.
Business practices have improved significantly over the last couple of decades. Organisations like Amazon, Google, Apple and Facebook have shown how to be incredibly successful — running organisations with technology at the heart of them. The ways of working these businesses utilise are often adopted within the scope of digital transformations. They are excellent enablers of cross-team collaboration, customer centricity and integrating technology capabilities into the business system at scale.
An agile transformation is the pursuit of transforming an enterprise so it can effectively deliver business technology to achieve customer value at speed. Core to this is the agile method, an iterative approach to technology development where user feedback is sought at the earliest opportunity, the business is directly involved in the team as product owner, and autonomy is increased of development teams. The success of agile as a replacement to the traditional waterfall development method has spurred the adoption of approaches like scrum, kanban or SAFE.
This topic is a crucial enabler of digital transformation, we detail how to go about its implementation in large corporate settings here.
Three focus areas for driving agile change
Ensure leadership understands and champions the change: Being agile is absolutely not about putting a new delivery process in place, it is about creating a new culture of collaboration, accountability, and value delivery. Leadership needs to truly understand this, so they stop reinforcing old behaviours — and start modelling new. Good leadership and example setting is how an agile transformation will take hold
Reorganise and resource teams properly: An agile delivery team requires key roles who are dedicated to the goal of that team. Ring-fencing resources is important, as is ensures that cross functional teams are created with the right representation from the business, not just technology. Unless you create these dedicated units of delivery they will still be challenged with context switching and mixed priorities which will slow them down
Practice, practice, practice: Agile sounds great, and is common sense in a text book, but like most things it is a craft that takes time to learn. So the advice is to just start doing it at a small scale, rather than planning too much ahead or being too theoretical. Do the transformation in an agile way. The whole point is that you run in short iterations with effective retrospectives, so at the end of each you learn something new — and apply it next time
5. Technology Transformation
Why is this digital change important?
To compete in today’s digital age, organisations must be able to deliver technology effectively and at high speed. Technology transformation focuses on creating the foundational components and capabilities to do just that. It sets-up the IT function to become both an enabler of change and driver for innovation. At a high-level, we can summarise technology transformation in three main chunks of change.
First, let’s start with modernising the technology landscape. Replacing legacy systems burdened with tech debt, with more contemporary technologies and architecture patterns. Not only increasing functional value to users, but also improving security, scalability, and agility. Cloud, mobile, social, and big data are a few of the technologies that typically need to be implemented to accomodate for future growth and development of the business.
Secondly, in tandem with updating the systems landscape, technology transformation programmes also drive the need for updated ways of working. Automation, Test Driven Development (TDD), Behaviour Driven Development (BDD), Continuous Integration and Continuous Development (CI/CD) and DevOps practices are key to enable speed, agility and continuous improvement.
Thirdly, technology transformation needs to implement a fit for purpose organisational model. This should not only satisfy the new ways of working, but also start to take into account the evolving role of IT within the organisation. The IT function of the future can no longer serve as a supplier function, but must urgently become an effective partner — collaborating across business teams. In addition, you ability to source and partner with vendors should be reviewed to meet the needs of the digital age. Just deciding between SAP, Oracle & Microsoft is no longer enough. The future IT function must frictionlessly engage and utilise ecosystems of innovation external to the organisation. This means you need to be able to discover, engage, on-board and switch between a wider variety of vendors and increasing diversity (size, culture, geography, purpose).
This should give you a feel of what’s involved in this important aspect of digital transformation. We will get into more detail in future articles.
Three focus areas for driving (digital) technology change
Fix the basics first. In order to become a strong partner for the business, the IT basics must be in place first. Ensure that service delivery is strong, and that day to day operations run like clockwork, delivering well within SLAs. Earning a seat at the table to discuss strategic topics and drive innovation & growth starts with being credible — reliably delivering on the fundamentals
Customer first and business-led. Technology is an important catalyst for change but never starts with the solution first. Value is only created by technology when it solves a real customer or business problem
Start with people. Technology transformation is ultimately about being able to deliver fantastic technology, but the starting point is with people. Identify where the business is going, and what capabilities it will need in the future. Work this back to what the IT function must provide. Honestly assess the competencies and skills you have within your IT department. Make strategic decisions on what capabilities you need in-house for the future, and get external support where you need it. Too many teams get excited and get busy building stuff, only to find that they cannot continue to execute or sustain solutions effectively over time
So let’s get started!
Digital transformation is about making foundational changes to remain a competitive organisation in the digital age. We’ve surfaced five of the common flavours being pursued across the market but your transformation will not fall neatly into one box. It should certainly be made up of a blend of different ingredients across these. The exact combination you need will be driven by your unique set of objectives and context, which in turn will focus you on the digital capabilities you need to drive competitive advantage.
It’s an exciting and dynamic time of transition. Everyone can be a leader in the process of digital transformation and we encourage you to pick-up the torch for driving change. We hope this first article feeds you with some helpful context to do just that. We hope you are triggered to reflect on your own transformation objectives and so you can sharpen the focus with your own team.
This is just a start to our series on digital transformation. There’s more to come. In the meantime we welcome any input and feedback to improve our thinking and sharing learning with the digital leadership community further. For now good luck on achieving digital success!
A bit more about Riverflex and the authoring team
Riverflex is a new type of consulting firm. We deliver digital expertise and value by combining top consultants with the power of independent specialists — providing digital consulting, staff augmentation, and interim management services.
Contributors to this guide
Victor Hoong, ex-Deloitte Digital partner, Riverflex Founder and Director. Past clients include Adidas, IKEA, and Ahold Delhaize. Andre Azadehdel, ex-Deloitte, Riverflex Founder and Director. Past clients include Canon Clear Channel International, O2 Telefonica, and SAB Miller. Arjen de Ruiter, ex-CTO Coosto, ex-bol.com, and now IT Strategy & Ops consultant. Sohrab Hosseini, ex-CTO Transdev, ex-McKinsey, and now IT & Digital Strategy consultant Designed and rolled out multiple digital and agile transformations in Fortune 500 companies. Kenny Cruden, ex-ThoughtWorks and now independent consultant and agile coach. Cameron McKelvie, ex-Bain & Company sr. associate, now independent Strategy consultant.