A Maturity Framework for Digital
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We have known for over a decade that a major advantage of digital maturity is that higher digital maturity drives better financial performance. More recently, a survey of over 1,200 executives revealed that digitally mature companies were three times more likely than lower maturity companies to outperform their industry average on key financial metrics.
But success with radical digital change is elusive. McKinsey estimates that so called “digital transformation” is even harder than traditional business transformation. While the historical success rate of business transformation is around 30%, only 16 percent of respondents reported improved, sustainable performance from their digital transformation efforts and an additional 7 percent said that performance improved but that those improvements were not sustained. This is yet another reason to focus on digital maturity instead of digital transformation as such efforts involve a journey over a long time.
A framework for digital maturity is a useful construct. It can be used by companies to assess their current position and to provide guidance on how to increase their level of maturity. There are several models which attempt to assess maturity. Forrester’s maturity model proposes four dimensions of digital maturity: culture, insights, technology, and organization. Deloitte – in partnership with TM Forum – developed a digital maturity model with the dimensions of customer, strategy, technology, operations, and culture. While these models are thought provoking – organizations may find a framework that is based on the capability maturity model (CMM), developed by Software Engineering Institute (SEI) to be more practical for two reasons. First, CMM is well known, as it was used to assess both software maturity and process maturity. Next, it may provide more tactical guidance on how to assess and improve a company’s level of digital maturity.
Capability Maturity Model Integration (CMMI) was based on CMM and extended it to guide process improvement across a project or even an entire organization. The CMM scales are well known – initial, repeatable, defined, managed, and optimized and there was only a minor change in labeling the scales in moving CMM to CMMI.
Researchers at the MIT Initiative on the digital economy have outlined the elements of success with business transformation enabled by digital on two occasions. In 2014, research with executives at a wide range of companies identified nine elements of success with digital which fell into the broad categories of customer experience, operations, and business model. In 2020, similar research revisited the original elements of digital and added some new ones to reflect the impact of new digital technologies. The new elements included categories of employee experience and digital platform.
This research consistently found that the best companies invested in both the development of digital technology to drive business results and in strong leadership. *See IDC reference below.
The use of cross-functional teams was a common theme among the best companies. The topic of cross-functional governance, while equally important, received less focus. Another best practice was the integration of multiple digital technologies – as opposed to deploying individual digital tools – one at a time. This is what Gartner has coined “hyperautomation” and what Forrester calls “digital process automation.” Digital process automation will assume increasing importance as the number and complexity of digital tools multiply.
Improving digital maturity relies on three fundamental and inter-related factors: a clear strategy – enabled by digital, a focus on customer experience (CX), and an appreciation for the central role of process performance. While each of these factors has received much attention, their interdependence has received much less. That’s where the advantage of a framework for digital maturity comes into its own, as depicted below.
A Framework for Digital Maturity
Many companies struggle with each of these foundational elements. Take strategy for instance. In practice, leaders often struggle to define and communicate strategy. A surprising number of companies don’t have a strategy at all – they just have a budget. Others may have a strategy, but certainly not one that is enabled by technology. Most organizations typically have a budget – but sometimes executives cannot express in simple terms – the scope and objectives of their business. A clear, coherent, solid strategy – enabled by digital – will typically have these three traits or characteristics. First, leadership will look out five or more years. A long time horizon matters enormously. It pushes the leadership team to think outside its comfort zone. Next, strategy in the most advanced companies is not focused on just the digital tools, instead it considers how digital enables improvements in their core business. Then, while top management engagement is indispensable when executing strategy, C level executives may not realize the importance of getting buy-in from managers, supervisors, and frontline employees. Accordingly, effectively communicating the scope and objectives to the organization is necessary.
Digital technologies are potentially game-changing. They deliver three critical capabilities: ubiquitous data, unlimited connectivity, and massive automation. Those capabilities make it possible to solve customer problems and build new revenue streams. However, to take advantage of these capabilities organizations need to nurture the skill set of viewing the business from the “outside-in” – from the customer’s point of view. The importance of achieving a “common view” of customers’ experience, cultivating a customer-focused culture across the organization, linking customer experience investments to business outcomes, and breaking down silos cannot be over emphasized. Making the needed shift in management attention and mindset is particularly challenging for big, old companies that have been focusing on activities in a departmental context for years. In stark contrast, leading companies in CX have found that the following is needed for success in improving customer experience: In addition to viewing the business from the customer’s point of view, it’s equally important to appreciate that processes – not departments – create value for both customers and the company.
Improving CX requires an end-to-end business process perspective. That’s a challenge for many organizations. The term process has become blurred and vague over the years. The difference between process, procedure and task is no longer crisp and clean. Organizations struggle in defining the dozen or so enterprise processes that create value for both the company and its customers. Nor do they typically measure the performance of these processes in terms of what matters to customers – quality and timeliness. The importance of close collaboration across key departments such as sales, marketing, customer service and finance in process performance may not be fully appreciated. Yet, cross-functional teams and cross-functional governance are both needed for CX success in ramping up digital maturity. Similarly, scope matters. The best companies apply digital tools to large, customer touching processes – no one can see the big picture when individual departments just look at their own technology needs.
One might think that management decisions on digital programs are based on evidence and that managers systematically learn from experience. But if you thought that, you would probably be wrong. Management decisions on digital are frequently based on gut feel, hope or fear, or what others appear to be doing, or what others have done and believe has worked in the past. Not on evidence – not on the facts. Dr. Corrie Black has identified a dozen reasons that digital may fail including the following:
lack of alignment
lack of awareness
micromanagement
shiny new toy syndrome
lack of executive language
lack of control over vendors
lack of training
slow decision making
poor prioritization, etc.
From this list, one might surmise that people are both the problem and the solution. To move up the digital maturity curve companies need to pay attention to what matters. Success with digital is 80% soft skills, and only 20% technology.
The success rate for digital is also hindered by the following:
Companies tend to focus narrowly on the technology and fail to integrate the technology in their overall enterprise strategy.
Companies struggle in viewing business from the customers’ (outside-in) perspective and tend to view business from an internal (inside-out) perspective.
Technology tends to be deployed along departmental lines – and not in terms of large, value creating business processes.
Organizations tend to err on the side of either small proof of concepts or very large efforts (“moon shots”) – and both approaches are fraught with danger.
It might not be easy, but ramping up digital maturity is worth the effort. Consider the insurance industry, for example. ACORD's 2022 Insurance Digital Maturity Study of top insurance carriers found that fewer than 25% have digitized their value chain. Yet, the same study found that companies that embrace digital to create new, technology-enabled operating models throughout the organization significantly outperformed others in the industry, driving improved value creation. Indeed, a company’s level of digital maturity is one of the most significant indicators of growth and financial success, according to a study from Deloitte. Around 45% of high-maturity companies achieved net revenue growth above industry averages, compared to 15% of companies not rated as highly mature.
The advantage of a framework for improving digital maturity is that it brings focus to having a clear strategy – enabled by digital, and on customer experience (CX) as well as an appreciation for the central role of process performance. Not just one factor - but all three. For many firms, that requires a fundamental shift of management attention. How is your organization doing?
[1] IDC has used a five-stage maturity model along the lines of CMM, but this model focuses fairly narrowly on information technology (IT)
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.