Aiming for Digital transformation success? Focus on the fundamentals!
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The track record for transformations has been disappointing for over three decades. In 1995, Dr. John Kotter found that only 30% of transformations succeeded and it’s been pretty much that way in survey after survey ever since.
A recent McKinsey survey found that digital transformations may be even more challenging. Only 16 percent of respondents reported that their organizations’ digital transformations had both successfully and sustainably improved performance, and an additional 7 percent said that performance had initially improved but that those improvements were not sustained. These sobering results were corroborated by BCG research which similarly showed that 70% of digital transformations fell short of stated objectives.
While digital transformation and artificial intelligence (AI) are on the lips of most CEO’s, the emphasis on digital projects should not be confused with true transformation. In other words, digitization – which is essentially automating routine activities – is not transformational. That’s because transformation involves a fundamental reimagining of the business, and rethinking value creation via new business models. Digitization does not. Many firms incorrectly assume that any application of digital technologies will lead to digital transformation. It is this confusion between digitization and digital transformations that has driven the numbers where executives report disappointing results with digitization.
As digital transformation is frequently driven by AI technology (machine learning, natural language processing, robotic process automation, etc.) the success rate for both digital transformation and AI is hindered by the following:
· Companies fail to integrate the technology in their overall enterprise strategy – instead they tend to formulate a strategy for the technology.
· Technology tends to be deployed along departmental lines – and not in terms of large, value creating business processes.
· Due to an over-abundance of caution – many organizations tend to begin with small proofs of concept.
· Various expert practitioners tend to sit in different parts of the organization – making collaboration difficult.
· Vendors rarely collaborate and integration of tools and vendor platforms is problematic.
The above core problems in execution lead us to an understanding of the three fundamentals that organizations must get right if they are to succeed with digital transformation: strategy, collaboration, and integration. In a nutshell, digital transformation must be guided by a broader business strategy. Collaboration is needed to break down departmental, data, practice areas, and technology silos. Also, integration of platforms and technologies across vendors is a fundamental requirement for success.
Strategy
Digital transformation is not about technology! While digital technology enables transformation, technology is not an end in itself. Instead, digital transformation must be guided by a broader business strategy that involves rethinking value creation and embraces a fundamental reimagining of the business. When viewed in this context, leadership gains key insights on the central role of customer and employee experience as well as who should lead the transformational effort.
It becomes clear that digital transformation should start with customers – not just with a focus on competition – not with just the product or service – not with just technology. The focus on customer experience is central to viewing technology as an enabler in fundamentally reimagining the business. It requires an appreciation of the end-to-end customer journey. If the leadership team does not have heated discussions around customer experience – then the customer journey is not fully appreciated. If the leadership team does not assess and take action to improve employee experience, then they have not yet grasped the fact that happy employees make for even happier customers.
Once the goal of digital transformation is broadly recognized as value creation for both customers and the company, it becomes clear that this effort should be led by the senior leadership team as a group. Not just the Chief Information Officer (CIO) – nor just the Chief Data Officer (CDO) – even though both technology and data are central to success.
A digital strategy is optimized when it drives resource allocation and capital investments. Accordingly, cross functional collaboration is at the heart of making the needed transition.
Collaboration
The central role of collaboration in digital transformation success has become widely recognized. Various silos are arguably the single most important barrier. Not just departmental silos. Not just data silos. Not just technology silos. Even vendor silos. All of these silos need to be torn down and collaboration across departments, practice areas and technology vendors is the way to do it.
The widespread use of cross functional teams to drive innovation is a basic building block. But often these teams lack authority and budget. So, cross departmental collaboration at the leadership team level is also needed as that is where budget allocations and authority reside.
Expert teams in areas such as information technology, process improvement and management, customer experience, and change management typically sit in different parts of the organization. Collaboration across these practice areas is equally important and often elusive due in part to turf protection.
AI is often the driver of digital transformation, but analytics requires expertise and lots of data. Breaking down data silos is particularly important since AI depends on large volumes of data. Departmental collaboration is a prerequisite in this respect. Yet, in spite of the attention to breaking down departmental silos, relatively little progress has been made to date. In a recent survey, 75% of 1,500 global senior and C-level executives saw different business functions competing against each other instead of collaborating on digitization efforts. This lack of collaboration contributed to 64% of companies failing to see revenue growth from their digital investments and underlines a clear connection between the lack of success with digital transformation and silo behavior.
As technology silos are particularly problematic, integration of tools and methods is the third fundamental area that firms need to get right to succeed.
Integration
Launching a small proof of concept project inside a department will not lead to digital transformation. The integration of digital technologies and approaches is needed to improve the chances of success.
Gartner coined the term “hyperautomation” to represent the orchestrated use of multiple technologies, tools or platforms to rapidly identify and automate as many business and IT processes as possible. Forrester refers to the same concept of integration as digital process automation (DPA) and IDC calls it Intelligent Process Automation (IPA).
Just consider the power of integrating process mining, RPA, and AI. Process mining uses event logs in existing information systems to displays the process and identify where RPA “bots” can be used to best advantage. Then, applying AI to RPA bots it’s possible to convert small rules based, transactional automation to one that is more intelligent via machine learning and predictive analytics. This is far more powerful than deploying individual tools within departmental boundaries.
While IPA or DPA is attractive in theory, it appears that technology vendors prefer control over collaboration as evidence by the recent set of acquisitions. For example, one well known low code vendor has acquired a process mining company. Also, a leading robotic process automation (RPA) vendor recently acquired an application programming interface (API) integration company and another process automation company acquired a cloud-based real-time speech analytics company which uses AI.
What’s needed is the integration of platforms and technologies across vendors. That remains a challenge. Another challenge is the integration of approaches. For example, when customer experience teams develop a customer journey map, they find that large, end-to-end process improvement is needed to address customer pain points. The integration of customer experience approaches and process improvement methods facilitates the improvement of performance for customers. That too remains a challenge.
Summary
Paying attention to these fundamentals can be instrumental in helping organizations move from a very traditional style to one that is more agile and contemporary and having more success with digital transformation.
What’s involved is nothing less than a shift of management attention. Instead of accepting fragmented strategies by department and technology, leadership needs to develop a broader business strategy to guide digital transformation. Instead of allowing departmental, data, and practice area silos to dominate, leadership needs to promote cross functional and cross practice area collaboration. Instead of ignoring the complications of different vendor platforms, leadership needs to promote the merits of integrating platforms and technologies across vendors.
Is your organization ready?
Andrew Spanyi is President of Spanyi International. He is a member of the Board of Advisors at the Association of Business Process Professionals and has been an instructor at the BPM Institute. He is also a member of the Cognitive World Think Tank on enterprise AI.