Digital capabilities dictate your ability to become a leading digital player, a digital master. Capabilities are not systems, applications, software platforms or processes usually associated with digital transformation. Think of digital capabilities as the acquisition of skills, culture and corporate fitness needed to play on a fast-moving digital playing field.
Challenges of digital transformation
Digital transformation presents unique opportunities and challenges. McKinsey research suggests that less than 30% of digital transformations succeed (we think that it's less), and of those that do, only a small percentage achieve the desired efficiency gains and costs savings. Many transformations prove difficult to maintain and revert to previous working practices when the change agents depart.
These problems compound for large companies - while a small company can rapidly pivot and adopt new practices, large companies have inherent, organic complexities that underpin the formal operating models in implicit poorly understood ways that can be impacted easily, leading to poor transformation results.
Creating a technology enabled growth platform
The mistake that is easy to make is that a digital transformation is viewed as just a series of projects and programmes executed to create efficiencies by digitising existing processes. This has been done by companies for decades and has been a cornerstone of increased profitability and economic growth.
This is not true of digital transformation, and indeed is only one feature of it. Inward looking digitisation and digitalisation that seek to improve operational efficiencies is a ubiquitous IT activity in established businesses with non-digital business models.
This can be contrasted to a company that leverages technology in a more strategic and synergistic way that supports and complements other business functions to create new customer value and create a technology-enabled growth platform. This requires a digital vision sponsored at the highest level of the organisation and is part of a whole-company digital transformation.
What does digital capability look like?
True digital transformation is a business model transformation that exploits technology. All industries are being disrupted by new models that harness technology, and even a digitally progressive company can find itself playing catch-up.
One reason why digital transformation is so difficult and risky is that the connected digital world moves so quickly, and a widening gap has opened between those exploiting new technology-enabled markets, devices, data, platforms and network effects, and others reliant on complex slower-moving ‘high inertia’ business models that impede change.
True digital transformation transforms the way a business delivers value, and, in a digital environment the fundamental dynamics of business models and the ways in which competitive advantage can be achieved has changed.
Digital transformation starts with customer value and works back. It requires ongoing structural changes to business operations and organisation. Customer expectations in the digital economy are of real-time convenient interactions and relevance. They don't care about your latest digital project's ROI.
Box ticking and adding piecemeal technologies into your already complex and inert estate in the hope that these will yield a step-change in business performance is not enough. Technology that enables digital business has become a strategic imperative, and as such the entire company needs to be mobilised to follow a set of cohesive digital working practices.
Collaboration across traditional corporate silos is essential and teams must be created around core areas of customer value that the company wants to strategically leverage. Ultimately digital transformation is all about changing culture, from control and an inward, operational focus, to an external customer and network focus.
The following are some ways in which digital capability can be thought of:
- The understanding of what customer value looks like
- The extent to which information is shared
- The extent to which teams define and measure success
- The degree of automation
- The degree of business agility that provides an ability to pivot and react to fast-moving markets
- The ability of teams to collaborate and solve problems
- The digital skills of the teams who deliver the value
- Online presence and the ability to attract new, and retain existing customers
- The use of analytics to understand your customers' behaviour and preferences
- The degree to which you can personalise your offerings
- The ability to pivot, release platform upgrades and measure their effectiveness
- The understanding of existing constraints imposed by your current technology, ways of working and operating model.
- The ability to create and exploit customer networks.
This list is far from exhaustive, and there are many additional items that may be specific to your sector. However, these are the underlying individual and organisational capabilities that need to be seeded within your organisation to enable purposeful digital transformation. More than anything, these attributes need to be present at the top levels of a company's leadership to ensure that operational teams can deliver the transformation.
Where does technology fit?
It's a mistake to view digital transformation as being all about technology. Technology is the apparatus by which you gain your advantage, not the final outcome. Owning a Ferrari can help you go fast, but winning races consistently requires the development and honing of skills that cannot happen overnight, or be bought by undertaking technology upgrade programmes.
Technology can help you save money and become efficient, but it can also bring about opportunities to create new value propositions.
There are many disruptive technologies available to help with digital transformation, but adopting mobile, or blockchain, or IoT isn't particularly strategic and won't by itself get a business to where it wants to be.
Box ticking is to be avoided. Technology has already changed the rules of the game and has redefined the competitive landscape. Digital businesses understand this new game.
There are opportunities to adopt new technologies, but digital transformation is not primarily about technology, and certainly should not be done simply for technology's own sake. For example, the following technologies have all created disruption and made possible new business opportunities, but not all of them may be relevant to your organisation:
- Web and eCommerce (e* is a prefix now over 20 years old)
- Mobile and Devices
- Big Data
- Internet of Things
- Prescriptive and Predictive Analytics
- Machine Learning
- Robotic Process Automation
- Deep Learning
- Internet of Things.
Digital transformation requires a strong digital strategy that sets out how you will compete, or create new customer value while keeping operational costs within the limits of the resulting business model. It’s important to consider how the above technologies have changed industry sectors, the businesses current and desired position in the competitive landscape and what that means for its digital strategy and transformation.
Once a digital vision has been developed, the gap between the current and desired position must be navigated, Success depends more heavily on the core digital capabilities that enable constant change, than on the technologies ultimately selected and implemented.
How to do it
Avoid transformation by solely running projects. Instead adopt transformation by continuous, incremental, measurable change, and building new habits and behaviours supported by the right tools and technologies. And do so within an overall strategic intent.
Transformation can begin by:
- Taking small, measurable risks, learning to fail quickly and capitalising on learning
- Creating clear goals and lines of communication
- Empowering people to be accountable and give them the tools and support they need to perform.
Change must be expressed in terms of motivations and goals, rather than as projects with sterile checkbox success criteria. A product roadmap is a great example of how to guide change and serves as a set of principles for evidence-based decision making. Like all good plans, it’s alive and describes where a product is going. When some items prove too costly to deliver or don't deliver the benefits expected, the roadmap is adjusted, and new hypotheses are devised and tested. This is the reason why change must be small, de-risked and continuous, and the right organisational capabilities are what allows this to happen.
Improving any form of ability requires the right motivation to get started. From there it's persistence and leadership from the top that prevents regression into the familiar comfort zones that ultimately entrap organisations.
Start now, by learning, educating and advocating change. Support your employees in having open and constructive conversations at all levels of the company, giving them a chance to lead and contribute, to make things better, and not least to make things more interesting!
Ultimately transformation is a misnomer implying a time-limited change initiative that fixes what is 'wrong' and puts your company back in the game. In reality, digital transformation is continuous, and much more of a culture shift and set of capabilities than a plan to execute against. Even the big disruptive digital companies have an almost paranoid focus on finding the next advantage.
As any good strategist knows, advantage can be replicated, and understanding where your next source of advantage will come from is an ongoing necessity.