Digital Transformation

We opened this series with two posts dealing with the barriers to implementing Digital Transformation in your organization. “Why start with the negative?”, one may ask. First, it is often most useful to discuss the difficulties involved in a certain endeavor, especially when the general tone of the topic is one of unabashed hype. Second, as with other innovation-related endeavors, a major managerial error in DT is jumping into a buzzy-sounding initiative while disregarding its potential pitfalls and therefore doing so without proper commitment and preparations. One key message of posts 1&2 in this series is, therefore: avoid launching a DT initiative if you are not willing to confront the challenges, that will certainly arise, with determination.

In this post we present 5 Key Elements to consider as you prepare to launch your DT initiative. In future posts we will zoom-in to some of them in more detail.

Key Element 1 – Goals and objectives

Why are you launching this initiative, and what are you trying to achieve by it? It may seem redundant to even mention this obvious rule, given that it is the basic starting point for any activity. But DT efforts, specifically, often tend to be driven by the wrong motivations which can doom them from the outset. This is a short list of some of the common drivers for launching a DT initiative:

1.    Public opinion, boards, Wall Street, stakeholders are demanding it;

2.    Competitors are embracing it, and this threatens to give them an advantage;

3.    Talent flows to organizations that are more digital;

4.    Customers demand it;

5.    Suppliers become digital;

6.    Legacy systems and technologies are becoming obsolete;

7.    FOMO, including both the frivolous and the serious versions.

All and each can be legitimate, but only motivations that are exposed and shared can serve as guides for choosing the right path forward.

Key Element 2 – Where are you now?

It is useful to see the path to Digital Transformation as consisting of three stages:

1)    Digitization – roughly, transforming your paper records into bits and bytes;

2)    Digitalization – implementing the tools and processes that allow access and utilization of the digital information;

3)    Digital Transformation – rethinking and redefining your processes and your modus operandi to make the most of digital possibilities and to adapt to the needs of a digital environment.

Organizations often mistake steps 1 or 2 with DT, whereby they not only miss opportunities for reaping the full rewards of DT, but often suffer damage by digitalizing processes that work better in analog. It is therefore crucial to clearly identify where the organization is at the outset of the initiative. This is less obvious than it may seem, given that business units or departments of the organization can be in different stages of the digital journey, that Stage 2 can superficially feel like a transformation although it isn’t really, and that some stakeholders may very much resist the implications of admitting that Stage 3 is still in front of them.

Key Element 3 – What do you aim to change?

Which area(s) will be transformed?

When you say your organization wants to “be more digital” or to digitally transform itself, you must define what it is that you are attempting to transform:

o Products and offerings   o Business models           o Productivity

o Processes – internal         o Processes – external     o Decision making

o Communications – internal and external                o Other 

Some of these may be difficult to transform without changing adjacent processes, others can be dealt with independently. It is sometimes better to go about the transformation gradually, rather than attempting the change all at once. Both approaches have their pros and cons.

What’s going to be D about it?

Even when a certain part of the business has been selected for digital transformation, for example product offerings, even then there are a variety of aspects that can be tackled and transformed and, in many cases, only some of them will. A full transformation of, say, a specific product or process into digital may, and often will, include changing how you:

o     Sense                      o     Collect                         o     Aggregate/store

o     Analyze                  o     Communicate          o     Visualize

o     Recommend        o     Act

Key Element 4 – Technology

When we work with a company to assist in DT, we find it useful to compile lists of technologies. The lists tend to vary somewhat according to domains and with time. In the list below there are four main families with 16 technologies (fluid number) that are often applied to achieve DT. It is not realistic to expect that any single person will be proficient in, or even just deeply knowledgeable about, all of these, but it is becoming increasingly necessary for every executive to have at least a superficial understanding of what they each mean, enabling them to turn to relevant experts with intelligent questions to assess potential threats and benefits for their area.

1.    Thinking and analyzing

a.      AI – Artificial Intelligence

b.      ML – Machine Learning

c.       Neural Networks/Deep Learning

d.      NLP – Natural Language Processing

2.    Vision and processing

a.      AR – Augmented Reality, VR – Virtual Reality, and MR – Mixed Reality

b.      Computer vision

c.       Image processing

3.    Computing and Communicating

a.      Big Data/Deep Data

b.      Cloud

c.       5G

d.      Quantum computing

e.      Social media

4.    Sensing and making

a.      IoT

b.      Industry V4.0

c.       Robotics

d.      Wearables

Key Element 5 – Behaviors

As is becoming increasingly obvious, even to the more technically inclined, digital transformation depends less on the technologies deployed and more on the people employed in implementing them. The mindset shift required for a digital transformation is elusive and can be understood as the adoption or strengthening of a set of crucial behaviors. The following, non-exhaustive list includes some items that are recommended independently of digital context, while others are more D-specific:

1. Be flexible, break fixedness;
2. Focus on data: collect it, store, analyze, explore, etc.;
3. Beyond listening to the customers: interact with the customer in exploratory mode. Both internally and externally, engage employees in new digitally transformed platforms and engage customers to use them.
4. FFD – Function Follows Data/Digital: search for data, collect it and analyze it even before you understand its potential uses and benefits. This is necessary to overcome the chicken-egg problem of no budget for collecting data until you can prove benefits of it.
5. Everything is a pilot: pilot as soon as possible, even partially (MVP style), progress from pilot to pilot, treat any version as a pilot for the next.
6.  Solutions can come from a variety of sources, both internal and external: develop internally, hire the knowledge, assign to freelance, outsource to vendor, acquire tech, acquire company, partner with academia, JV, and usually a combination of some of the above.
7. Beware overload of data and technologies – do not assume that their existence will guarantee wise usage or any usage.

Following our two posts on barriers to DT, in this post we have reviewed 5 key elements to consider when setting out on a digital transformation journey. In future installments, according to your questions and comments, we will zoom in and expand some of the elements, sharing examples and tips.

In our first post on the difficulties faced by organizations attempting Digital Transformation, we shared a few sentences about each of 4 common barriers:

1. It is truly difficult to trust experts on DT, especially the “experts”.

2. Mixed signals from top management.

3. Security concerns (real and imagined).

4. Ignorance of relevant technologies.

Here are 6 more, completing our not-comprehensive list of 10 Common Barriers to Digital Transformation:

5

Regular resistance to Innovation, probably amplified. In other posts you are welcome to read about some of the multiple types of resistance that people exhibit towards any kind of innovation. They all apply to Digital Transformation, just as they do to any attempt to change processes and habits, in general. But it seems that for many people innovation of the digital ilk can be even more frightening than other variants, maybe due to the fact that many of us feel threatened anyway by what feels like a digital invasion in all walks of life. We are bombarded with digital information, we fight with our children about what seems to be their excessive immersion in the digital sphere, we read of, and sometimes experience the imminent dangers and ethical dilemmas of an increasingly digitalized existence. DT at work therefore seems to be yet another front in a losing battle.

6

Problems related to interfacing with existing IT technologies and organization (real and imagined). Most companies striving for DT do not attempt to jump directly from the Stone Age into digital. Most, or even all, have legacy IT systems and whatever new elements will be introduced will necessarily have to fit in with existing infrastructure, hardware and software. This implies: a) a need to allocate additional budget (good for IT, less attractive for Finance); b) a threat to the professional authority of current internal IT experts; c) bugs and clashes between old and new systems; d) an opportunity for renewing aging systems, which creates a dilemma of how far back to go with replacement, versus adding new technologies on top of existing ones. These dilemmas can paralyze the entire DT initiative.

7

Lack of clear ownership: regular business owner versus IT/tech lead, versus owner of “Digital” if there is one. In one organization you see a digital expert brought in and put in charge of “Innovation” without any knowledge or previous experience in the latter, while in another an innovation expert is assigned the responsibility for a “Digital Transformation” project she has no ability to lead. In both cases the reasons for the decision are an attempt at efficiency (“can’t waste two headcounts on the fluffy stuff”) and a foggy understanding of the differences and interconnections between the two topics (“he’s an expert on digital, that’s what innovation is all about” or “she’s an innovation expert, she can cover the digital transformation part”). IT will also be angling for a position at the DT table (“it’s all about IT, the systems we’re in charge of”), and HR wants their voice to be heard (“it will all depend on the people we hire and on upskilling digital capabilities”). They are all obviously right, often leaving the organization without a clear leader for DT, or worse, with several.

8

Lack of structured data to start building on. Imagine my surprise when the VP IT (and responsible for her organization’s DT initiative) of a leading HMO in the US confided in me that, while they are truly committed to a genuine DT process, she expects the interesting steps to kick-off at best only within a couple of years since they are currently grappling with the uninspiring task of converting their (literally) millions of medical records into digital format. Even technologically oriented companies tend to have a huge installed base of “dumb devices” that were never designed to collect data, or minimally so, or produce unstructured and difficult to use data. This lack of accessible data often makes it difficult to even imagine digital offerings (the “what”) let alone how developers should go about tackling the challenge (the “how”).

9

“Digital” is seen as an add-on, or a translation process to be applied to products and offerings. In 2004 we worked with a large publisher whose management had the foresight and courage to push strongly for “more digital”, quite a while before this had become the ubiquitous trend it is today. But, alas, their strategy was to create a Digital Team that received all the analog materials at the end of their development process to “convert them into digital”. Surprisingly, even today this is still common practice in many companies, where digital is seen as a kind of different language to which specifically trained experts will translate the regular (analog) products, processes, systems, or communications. First, this approach dramatically limits the potential benefits of DT, since you can only translate into digital what you were able to imagine in the analog world, rather than creating and inventing using digital possibilities built into the process. Second, the approach often creates inferior results since many analog-conceived concepts do not translate well into digi-speak.

10

Timelines and pace: development cycles do not fit the rhythm of change in digital technologies, nor the pace of change in customers’ preferences and habits. Most companies have a single well-structured R&D process, if at all. When they engage in the development of digital offerings, or introduce digital elements in their regular development, they often tend to utilize their existing development process, stage gate structure or other process management and control mechanisms. Even organizations that adopt Lean Startup or other agile methods often embed them into their overall approach due to lack of understanding at top management levels that the rules of the game are different in a digital context.

We’ve seen, therefore, that there are (at least) 10 barriers and stumbling blocks to a successful Digital Transformation. Luckily, we have developed a special pixy dust that can be sprinkled on databases and clouds to…. OK, just kidding. But in consequent posts we will share some thoughts and guidelines that are useful when engaging in this challenging task.