Digital Transformation is a Team Sport
Image: Depositphotos enhanced by CogWorld
Why do so many companies talk about digital transformation, and yet they deploy digital technologies for modest incremental improvement?
They automate simple, repetitive, rule-based tasks. They don’t redesign. They tinker at the margins with AI through small proof of concept projects and pilots and fail to deploy models at scale for true economic value.
The plain fact is that most digital transformations fail. Various studies indicate that the failure rate of digital transformations based on not meeting their original objectives is somewhere in the range of 70% and 95%. This dismal track record with digital transformation is largely due to leaders continuing to view business in the context of the organization chart and not in a customer centric, business process perspective. That’s problematic! Focusing on customer experience and operational processes are two of the critical factors in digital transformation success. That’s been known for some time and has been established by researchers at MIT on at least two occasions, in 2014 and 2020.
The challenges in taking a customer centric, business process perspective is far from new. There were similar challenges in terms of success with process improvement and management two decades ago. Let’s examine how the following eight principles for success with process improvement and management in my 2003 book, Business Process Management is a Team Sport, might apply to success with digital transformation.
The eight principles for success with process improvement and management were:
1. Look at the business from the outside-in, from the customer’s perspective, as well as from the inside-out.
2. Tightly integrate strategy with enterprise business processes.
3. Articulate strategy to inspire, from the boardroom to the lunchroom.
4. Design enterprise business processes to deliver on strategic goals.
5. Ensure that organization design enables enterprise business process execution.
6. Deploy enabling technology based on the value added
to enterprise business process performance.
7. Hard wire the enterprise performance measurement system to budgets and operating reviews.
8. Sustain focus and alignment.
To what extent do organizations continue to struggle with the same challenges with digital programs as they did two decades ago with process improvement?
First, “look at the business from the outside-in, from the customer’s perspective, as well as from the inside-out.” This was a challenge for many companies two decades ago, as they viewed business in the context of the organization chart – not value creation. Plans, budgets and even reward systems were developed and managed in a functional paradigm. It wasn’t until around 2007 that understanding customer experience took center stage and executives began paying attention to every aspect of their company’s offerings. This led to the development of various methods for customer journey mapping and the realization that the entire customer journey is what matters – not just touchpoints. Despite these developments, relatively few senior leadership teams discuss a customer journey map at the right level of detail in shaping their digital programs. Fewer still link process performance to the insights from the customer journey map. There’s a strong argument to be made that digital transformation should start with customers, so failing to look at the business from the outside-in will surely reduce the likelihood of success with digital.
Second, “tightly integrate strategy with enterprise business processes.” Two decades ago, a surprising number of companies didn’t have much of a strategy – instead they relied on a one-year budget. Little progress has been made in the past two decades in this respect. This is problematic for two reasons. First, as value is created via a company’s enterprise business processes, the senior leadership team needs to have a high-level view of these processes and integrate strategic objectives with process performance. There are only about a dozen enterprise processes, yet few organizations have a one-page schematic of how these create value for customers. Fewer still discuss and debate this at the senior leadership team level. Then, thinking in a longer time horizon is a key element of a wining digital strategy. Digitally mature companies typically look out five or more years in formulating strategy. A long-term perspective and a candid discussion on the integration of strategy with process performance will increase the likelihood of success with digital.
Third, “articulate strategy to inspire, from the boardroom to the lunchroom.” The importance of engaging employees has long been recognized as a prerequisite for change. It was a key success factor in process improvement, reengineering and continues to be such in digital transformation. It is now known that strategy – not technology, drives success with digital transformation. Employees want to work for leaders who get digital! Less digitally mature organizations tend to focus on individual technologies (often deployed within departmental boundaries), while more mature organizations tend to emphasize stories that inspire and serve to transform the business. Digital fluency is needed to engage the front line – not a mastery of the technologies – just the ability to articulate the value of digital technologies to the organization’s future success.
Fourth, “design enterprise business processes to deliver on strategic goals.” Incremental improvement was far more common than fundamental process redesign at the turn of the century. Moving beyond a piecemeal approach was a challenge for many firms in performance improvement at that time. It still is! Many firms continue to just automate repetitive, rule-based tasks. They settle for just digitization. They continue to model small processes inside of departmental boundaries. They fail to tackle the large, value creating end-to-end processes like order to delivery and idea to commercialization. More mature digital companies think long term and rethink how digital enables a fundamental and significant improvement in their core business. They go far beyond incremental improvement and aim to redesign and reimagine the business.
Fifth, “ensure that organization design enables enterprise business process execution.” Cross functional collaboration has long been a prerequisite for success when it comes to performance improvement. It is no less important with digital transformation. While it’s not a prerequisite on small projects within departmental boundaries, it’s necessary for success with transformation. Cross-functional teams are a good start, but more mature organizations recognize the importance of cross-functional process governance and leadership engagement. Departmental and data silos impede progress with digital technologies. When departments have the authority to singlehandedly select software tools, then enterprise processes suffer, and data silos proliferate. One study found that on average a large organization uses over 350 software apps and systems to manage various workflows thereby leaving employees overwhelmed. The same study estimated that the resulting data silos caused employees to lose nearly 12 hours per week searching for information needed to do their work. Widespread use of cross-functional teams combined with governance for enterprise processes via process owners can mitigate departmental and data silos.
Sixth, “deploy enabling technology based on the value added to enterprise business process performance.” Technology – by itself – does not create value. It never has. Technology – when properly deployed – creates value for customers via the organization’s’ enterprise business processes. Call them what you will – processes, value streams, capabilities. That is what creates customer and company value. The role of technology is to enable a new way of doing business. Providing customers with more self service, providing customers with perfect order delivery. As interesting as it might be to wonder about new technologies such as AI, machine learning, blockchain and the Internet of Things (IoT), the real challenge is reimaging the business (through enabling technology).
Seventh, “hard wire the enterprise performance measurement system to budgets and operating reviews.” Measurement and calculating the return on investment (ROI) has been a challenge for both process improvement and digital transformation. Two decades ago, the challenge was to expand management measurement attention from volume and cost to incorporating metrics of timeliness and quality. As more and more digital tools become available and organizations launch multiple digital initiatives, there is even greater complexity in monitoring whether these initiatives are delivering the desired business results. McKinsey recommends that CEO’s monitor factors such as measuring ROI, time to market, and talent retention. When companies also pay attention to the factors that matter to customers (timeliness, quality, and value) then a robust measurement framework evolves.
Eighth, “sustain focus and alignment.” Shifting priorities has always been a challenge. Now it’s even more so as industry disruption, difficulty in managing legacy systems, and a proliferation of technologies have made it more difficult to focus on the critical few objectives and ensure that the organization is fully aligned. And organizational alignment can only be accomplished via cross departmental collaboration – not just in the context of a departmental view. That can be complex. To succeed with digital programs, organizations must contend with complexity. According to Jeanne Ross, “eliminating non-value-adding complexity demands tough decisions.” Success with digital demands that companies go beyond just automating simple, repetitive tasks. More mature companies tend to obsess around customers – not the competition. That can serve to maintain focus and achieve alignment..
Organizations appear to struggle with many of the same challenges with digital programs as they did two decades ago with process improvement. That’s largely because they continue to view their business in the context of the organization chart where the focus is on departmental activities – not with a view to value creation. So, George Westerman’s first law of digital transformation holds true. It states, “Technology changes quickly, but organizations change much more slowly.” The solution? Focus on customer experience and enterprise processes! Reimagine the business!
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.