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What is Digital Transformation?

Digital Transformation

This is the new buzz word at the moment, to be honest, Digital Transformation is just a rebrand of the business improvement and transformation projects that companies have always run. New buzzwords can energize projects, which is a positive, but it can also make stakeholders throw caution to the wind by deciding to spend big bucks on items that they don’t understand and without truly deciding if they will deliver benefits or ROI.

If I was to formally define it, I would say Digital Transformation is a journey with multiple connected intermediary goals, in the end striving towards continuous optimization across processes, divisions and the business ecosystem of a hyper-connected age where building the right bridges in function of that journey is key to succeed. A digital transformation strategy aims to create the capabilities of fully leveraging the possibilities and opportunities of new technologies and their impact faster, better and in more innovative way in the future.

Structured Approach

Digital Transformation projects still follow a structured approach:

1. They originate out of an initial vision that is spurred by a current problem within the organization

2. They are modular and collaborative

3. They are able to overcome silos by being overseen by strong executive partnerships in finance, technology and operations, among others

4. They turn IT from a back office cost centre to a core, integrated business functionBuilding Blocks that can help drive organisational change

Building Blocks

#1: Autonomous and cross-functional teams anchored in customer journeys, products, and services

Successful companies constantly rethink how to bring together the right combination of skills to build products and serve customers. Removing silos, encouraging close collaboration whilst encouraging innovation/trying new things makes teams quick, nimble and adaptive to change. Iteration is crucial to making this approach work. Leaders test various team configurations and allow flexibility in response to changing customer needs.

#2: Flexible and modular architecture, infrastructure, and software delivery

Technology is a core element of any next-generation operating model, and it needs to support a much faster and more flexible deployment of products and services.

#3: A management system that cascades clear strategies and goals through the organization, with tight feedback loops

The best management systems for next-generation operating models are based on principles, tools, and associated behaviours that drive a culture of continuous improvement focused on customer needs. Leading companies embed performance management into the DNA of an organization from top to bottom, and translate top-line goals and priorities into specific metrics and KPIs for employees at all levels. They make visible the skills and processes needed for employees to be successful, put clear criteria in place, and promote the sharing of best practices.

#4: Agile, customer-centric culture demonstrated at all levels and role modeled from the top

Successful companies prioritize speed and execution over perfection. That requires agility in delivering products to customers and quickly learning from them, as well as willingness to take appropriate risks. The best organizations have already made agility a cornerstone of how they work Critical to success is leading the change from the top and building a new way of working across organizational boundaries.

Senior leaders support this transformation as vocal champions, demonstrating agility through their own choices. They reinforce and promote rapid iteration and share success stories. Importantly, they hold themselves accountable for delivering on value quickly, and establish transparency and rigor in their operations. They focus on putting in place the building blocks that drive change across the organization, and they select a transformation path that suits their situation. These practices don’t apply only to companies that have yet to start their digital transformation. In our experience, even companies that are well along their transformation journey can pivot to putting in place a next-generation model that delivers massive value while significantly reducing costs.

Pathway forward

There is no one way to develop a next-generation operating model. It depends on a company’s existing capabilities, desired speed of transformation, level of executive commitment, and economic pressure. Examples paths include:

An innovation outpost is a dedicated unit set up to be entirely separate from the historical culture, decision-making bureaucracy, and technical infrastructure of the main business. It creates inspiring products that illuminate the digital art of the possible (sometimes with questionable economic impact), and hatches new business models in informal settings

A fenced-off digital factory is a group of groundbreakers that works in partnership with businesses and functions (such as IT infrastructure and security, legal, compliance, and product development) while enjoying a high degree of autonomy. Business and functional colleagues come together to work with teams in the factory. Each of these teams develops products and services, moves them quickly from prototype to deployment, and then transfers them into the main business. As part of the management system, the team continues to monitor and iterate the product or service based on economic performance and customer feedback.

A Business-unit accelerator is a scaled-down digital factory that incubates a transformation inside a business unit to tackle local customer journeys and business functions. The business unit builds its own skills, such as process-redesign and capabilities, and has control over specific capabilities and investments. This means it doesn’t need central funding or organization-wide agreement on a host of issues to get going, so easy to set up and executive

A full-scale evolution is a comprehensive transformation in which the enterprise reorganizes itself almost entirely around major journeys. This is the natural operating model for many digital natives, as technology, digital services, and product delivery are basically inextricable. Companies focus on specific digital initiatives that deliver on business priorities, deploying specialized talent and cross-functional teams to support each one. The model is highly attuned to the customer, and rapidly develops, tests, and iterates on new products or services. Team members may be managed through a center of excellence or by business-unit leaders. This path is the aspiration for many incumbents, especially those that deliver services rather than physical products.

Steps every leader should take:

Every organization’s transformation journey will be different. However, a simple set of immediate, no-regret steps can help leaders shape their first set of priority decisions and provide clarity on the way forward. These often include:

Creating clarity on enterprise strategy and on where digital services can quickly enable sustainable value creation. (For more on this, see “The next-generation operating model for the digital world.”)

Challenging the board to be explicit about the importance of the transformation and its support for investment; or, as a board, making this decision and challenging the executive team for a bold vision.

Building top-team excitement and belief in change through visits to leading digital natives or incumbents pursuing their own transformation paths.

Assessing the maturity of the management system using benchmarking against other organizations to identify strengths to build on and risks to mitigate.

Investing in targeted capability building, especially for the top 50 leaders in the organization. Exploring core concepts such as digitization, agile, design thinking, and advanced analytics can create a shared vocabulary and spur action.

Making an honest objective assessment of talent and capabilities within the organization, benchmarked against peers and cross-sector leaders.

Disruption often comes from outside an industry rather than within.Surveying the cross-sector landscape for ideas and inspiration.

It’s easier than ever to learn from others, and a rapid inventory of ideas can shed light on potential execution challenges to resolve.

Assessing the level of change that the organization can realistically absorb in the near and long term given its other priorities.

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