Three Habits for Effective Digital Transformation
Image credit: Depositphotos
Large scale change has never been easy. Nearly three decades ago, leadership guru Dr John Kotter reported that 70% of all major change efforts in organizations failed. Just a couple years later, the late Dr. Michael Hammer estimated a 70% failure rate for the radical reengineering efforts. Now that transformational efforts are often driven by technology, the recent success rate is equally bleak according to research by BCG.
The root cause of failure with large scale digital change is captured by George Westerman’s first law of digital transformation, which states that: Technology changes quickly, but organizations change much more slowly. The slow pace of organizational change has been well known for some time. Nearly a quarter of a century ago, Phil S. Ensor coined the phrase, "functional silo syndrome” to describe a top-down managed organization with vertical departmental silos, often characterized by a lack of cooperation and slow pace of change. While the problem is widely recognized, practical guidance on how to accelerate the pace of organizational change is less clear. Since success with digital transformation involves a new approach to customer experience, business processes and even business models, developing the following three habits can improve the odds of success with digital transformation.
The first habit to develop for digital transformation success is to look at the organization from the outside-in, i.e., from the customer’s point of view. This is not easy for many companies. Decades of conditioning involving a preoccupation with the organization chart, where plans, budgets and even reward systems are defined according to a departmental paradigm, have motivated many companies to look at things from an internal, inside-out perspective. To shift the traditional mindset and begin building the habit of viewing the business from the customers’ perspective, leadership first needs to accept that Digital Transformation should start with customers. Next, a customer journey map can be used to develop the habit of viewing the business from the outside-in. Instead of focusing on just customer touch points, the customer journey map will help bring attention to the entire journey, especially when it is actively discussed at the senior management team level. Then, continually examining the impact of any plan, project, or initiative on the impact on customers further develops the habit of viewing the business from the outside-in. In a nutshell, management attention needs to shift from a departmental focus to one of customer value creation.
The second habit to develop for digital transformation success is that cross functional processes – not organizational structure – are the cornerstones of success with digital. Once again, this is not a recent discovery. Three decades ago, Stalk formulated four principles of capability-based competition:
1. Business processes are the building blocks of corporate strategy (not products or markets)
2. Success depends on transforming business processes into capabilities that provide customer value
3. Investments in infrastructure is needed (perhaps more so now than ever before)
4. Capabilities cross functions and hence the CEO is the logical champion
To shift the traditional mindset and begin building the habit of viewing the business in the context of value creating processes, the first step is for leadership to explicitly acknowledge that value creation occurs via capabilities – or large, cross functional processes – not departments. A process perspective is central to success with digital. It sets up the organization for success in two critical areas: scaling initiatives and tearing down both functional and data silos. For example, if an organization chooses to deploy robotic process automation (RPA) bots in a departmental context, scaling RPA will be challenging. Similarly, a process perspective will magnify the data challenges especially when individual departments hoard data. This is particularly important in applying an integrated approach to digital deployment, which Gartner has called “hyperautomation.” A high-level process relationship map can be used to develop the habit of viewing the business in the context of value creating processes as opposed to just the organization chart. Continually asking who is accountable for process performance and examining the impact of any project or initiative in the context of cross functional processes further develops the habit of viewing the business from the outside-in. There are also some activities that need to cease if an organization wishes to develop the habit of viewing the business in the context of cross functional business processes. Modeling small processes within departmental boundaries is counterproductive. That needs to cease. Allowing individual department heads to engage technology providers to solve small problems within their own departmental boundaries is pointless and this also needs to cease. In a nutshell, to the habit of focusing on processes, management attention needs to shift from a departmental focus to one of capability driven value creation.
The third habit of digital transformation is that a focus on digital maturity will yield superior results as opposed to an obsession with digital transformation. Too many companies are preoccupied with digital transformation – sometimes without a shared understanding of what that really means. A focus on the level of digital maturity is likely to create a more unified and pragmatic approach.
A digital maturity model should meet the following criteria:
· One can use it to determine where the organization currently stands in terms of digital maturity by asking and answering a few simple questions
· It provides insight on how the firm can move up the maturity scale or curve.
The Capability Maturity Model (CMM) is a well-known model for software development and is easily adapted to digital maturity. Adapting the CMM framework to digital maturity has the following stages:
At Level One – Called Initial or Ad Hoc, there is no formal program to deploy digital technology. Instead, there may be small proof of concept projects carried out inside departmental boundaries.
At Level Two – called Repeatable, digital technologies are deployed one at a time of limited scope, typically in one department at a time.
At Level Three – or Defined - One or more digital technologies are applied to end-to-end processes with a focus on customer experience and involving cross-functional collaboration.
At Level Four – Managed – several digital technologies are integrated[i] with a focus on one or more end-to-end processes.
At Level five – Optimizing - The integration of digital technologies becomes part of the organizational deploys digital.
The fact that most organizations are at a relatively low level of digital maturity means that much of the buzz around digital transformation is likely to be more hype than substance. For example, IDC estimated that nearly 80% of companies are at the three lower levels. In other words, only 21% of companies are at high levels of maturity (level four or five). A CMM based digital maturity framework also facilitates asking and answering questions on factors such as scope, collaboration, integration, sequence, and mindset.
Scope matters. Less mature organizations are more likely to deploy digital to improve processes of small scope – typically within departmental boundaries. Less mature organizations are more likely to have several small proof of concept projects. That is one of the reasons why many AI projects never get deployed. Scaling RPA is typically challenging for less mature organizations. Connecting systems with RPA has very limited ROI until the business is ready to break down silos and redesign end to end processes. More mature organizations will pay more attention to scaling and deployment and will deploy digital technologies to improve end-to-end process performance – with attention to customer experience and not just in a departmental context.
Also, when departments do not collaborate, digital efforts suffer. It was surprizing to learn from a 2020 Accenture survey that 75 percent of 1,500 global senior and C-level executives still saw different business functions competing against one another instead of collaborating on digital efforts. Lack of collaboration across departments is a prescription for perpetuating data silos. While cross team collaboration is simple in theory, in practice it can be challenging as the teams responsible for process improvement and customer experience and technology deployment often sit in different parts of the organization. Further, while cross functional teams are important – such teams often lack budget authority so cross functional governance in the form of executive steering teams is necessary. Collaboration is equally needed across internal centers of excellence, and technology vendors for digital automation to reach its true potential.
Integration of tools matters too. That’s what Gartner calls “hyperautomation” and IDC calls it “intelligent process automation.” Instead of just thinking about deploying one discrete technology for the benefit of an individual department as less mature organizations are likely to do, leaders of more mature companies tend to think about deploying multiple digital technologies in an integrated, agile manner for the benefit of the business.
Mindset matters enormously. Shifting management attention from a traditional static view of business to a customer centered, agile, business process-based view of performance involves a new management mindset. First, instead of just thinking about what is good for the company, more mature digital organizations also focus on what is good for customers. Second, instead of thinking just about what is good for their individual departments, the leaders in more mature organizations tend to shift their attention to what is good for the entire organization. Then, instead of just thinking about deploying one discrete technology for the benefit of an individual department, thoughtful leaders think about deploying multiple digital technologies in an integrated, agile manner for the benefit of the business. This constitutes a significant change in mindset and can be challenging as it must overcome decades of silo behavior conditioning. The mindset of leaders in less digitally mature organizations may be dominated by such silo thinking.
Finally, digital maturity is driven by the specifics of the company’s strategy, and strategy needs to be driven by customer experience. That requires paying attention to the firm’s value creating, cross functional business processes. It doesn’t happen if strategy is simply an extrapolation of last year’s budget. Nor does it happen when individual departments select individual technologies to solve small problems within their own departmental boundaries. That’s not digital transformation.
As technology evolves even more rapidly, the communication gap between business and IT may also widen. Developing habits around customer experience, business processes and digital maturity will likely improve communication between senior IT people and senior business leaders. By developing these habits, the level of cross functional collaboration will improve as the conversation shifts from tools to results.
[i] The integration of digital tools has been dubbed “hypeautomation” and “intelligent process automation.”
Andrew Spanyi works at the intersection of customer experience and process management in helping organizations improve performance, with specialties in: strategic alignment, process improvement and management, customer experience, process architecture, performance measurement and analytics, digital business and change management.