The Digital Transformation Playbook - SECOND Edition: What You Need to Know and Do

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The Digital Transformation Imperative

Emil Andersson, Tahirou Assane Oumarou, and Tony O’Driscoll

The COVID-19 pandemic was a dramatic accelerant of the application of technology at work. Throughout the world, within a matter of days, millions of people were forced into remote working for the first time. Unable to see each other face-to-face, families worldwide had to quickly master Skype, Zoom, Microsoft Teams, and a host of other virtual collaborative technologies. In April of 2020, just one month after the World Health Organization (WHO) officially declared a COVID-19 pandemic, Zoom’s daily users mushroomed to more than 200 million in from a previous maximum total of 10 million (Venturebeat, 2020).

Most organizations were not as fortunate as Zoom. The vast majority of them were grappling with immediate pressing existential concerns. For many, survival was mission number one, and this required them to rethink everything—their purpose, strategy, business model, operating model, employee policies, customers, and how technology factored into the equation across all these dimensions. Whatever the answers to these questions, technology became a major enabler to transform, and the ability to quickly learn and adapt to this new normal was essential to survival.

Meanwhile, technology continues to evolve at breakneck speed, impacting the changing world of work in a myriad of ways. McKinsey’s Technology Trends Outlook for 2022 concludes: Technology continues to be a primary catalyst for change in the world. Technology advances give businesses, governments, and social-sector institutions more possibilities to lift their productivity, invent and reinvent offerings, and contribute to humanity’s well-being. And while it remains difficult to predict how technology trends will play out, executives can plan ahead better by tracking the development of new technologies, anticipating how companies might use them, and understanding the factors that affect innovation and adoption (Chui et al., 2022, p. 1).

Any transformation needs to have a widely shared sense of purpose and a clearly articulated set of objectives to achieve that purpose. Accordingly, the organization, the leaders, and the employees need to have an answer to this fundamental question: Why are we transforming?

Eighty-six percent of the 326 business executives across different functions surveyed by Harvard Business Review Analytic Services in 2021 say their organization had accelerated its digital transformation during the pandemic (Harvard Business Review Analytic Services, 2021). Of the 279 executives who are accelerating their digital transformation efforts, 91% plan to maintain the heightened pace of digital transformation post–COVID-19 or to move even faster—speaking to how significant and sustained they view this shift in the pace of technological change to be. Emerging technologies can be both disruptive and enable businesses seeking to differentiate themselves and create competitive advantage in their endeavors to create value to their customers.

Add to this vibrant ferment of technological evolution a variety of powerful other forces, such as hyper-competitive responses, blurring industry boundaries, residual pandemic effects, volatile geopolitical dynamics, and perpetually shifting customer expectations and the picture becomes highly muddled. To make sense of this bewildering array of transformative forces and fast-evolving new technologies three fundamentals are clear:

Turbulence is a fact of organizational life. Crises are inevitable: A hack that exposes millions of customers’ data; a crucial supply chain of raw material used for production is disrupted; a major holiday product launch misses an all-important deadline; a chairman’s immediate dismissal for misconduct; or inflation and increased interest rates leading to a major employee layoff. The circumstances of an organization’s next major crisis vary, but its appearance is inevitable. Previous Brightline® research surveyed more than 1,200 senior global leaders and executives about management decisions and organizational strengths during and after crisis events (Brightline®, 2018). A total of 68% of our respondents agreed with the inevitability of their organizations facing a crisis in the future. When facing a crisis, organizations must make a deliberate break from their traditional ways of working. Operating in business-as-usual mode prevents organizations from isolating their in-crisis business unusual context, identifying new learnings and applying them to post-crisis transformation efforts.

Successful organizations embrace and maximize technology. Brightline® research shows that organizations that are successful at implementing strategy rank using new technologies as their number one competitive advantage. They see technological breakthroughs, such as artificial intelligence (AI), digital ecosystems, business platforms, metaverse environments and cloud computing, as critical to their success. Yet, technology falls to the number three priority for less successful organizations (Brightline®, 2020a). In the next three years, organizations expect emerging technologies to be a top driver of transformation (Brightline®, 2022). The question is (see Figure 1): What cutting-edge technologies have the potential for business disruption and how can organizations transform these technologies into enablers that drive business performance in new arenas for growth?

Organizations need to better lead and manage the transformation journey. According to Brightline® research, 70% of enterprise transformation projects fail to meet business leaders’ expectations (Brightline®, 2022). The depth, scope, and complexity of enterprise transformations reveal why this failure rate is so high. Their primary objectives continuously evolve. They are inherently multifaceted. They are simultaneously far-reaching in vision and pragmatic in execution. They are flexible and schedule-driven, value-focused, and explorative. They affect the activities of a single worker in a single department and the operations of entire business ecosystems.

According to Brightline® research (Brightline®, 2022), ways of working and increased transformation capabilities top the list of expected transformation outcomes. Participants in our research highlight the importance of increased organizational agility and adaptability, ability to catalyze innovation, increased resiliency to externalities, and dexterity to adopt to digital and technological changes. These are all elements of successful digital transformation.

Figure 1. From disrupting to enabling.

Challenges Facing Digital Transformation

Identifying something as critically important to the sustainability of the enterprise as the need to improve the success rate of digital transformation efforts does not necessarily mean the problem has been solved. It has merely been identified. If digital transformation is at the top of leaders’ agendas, we need to quickly learn some fundamental lessons if it is to be successfully put into practice. As we have seen, there is an abundance of research suggesting that organizations repeatedly struggle with converting digital transformation from idea to reality. Project Management Institute (PMI) identified the cost of failed transformation efforts across the globe in 2020 at US$2 trillion. This cost is the equivalent of the GDP of Brazil at a macro scale, or US$3 million per minute at a micro scale (Brightline® 2020b).

There are a host of explanations as to why this happens. Mike Sutcliff, Raghav Narsalay, and Aarohi Sen identified two main reasons why digital transformations hit the corporate buffers: unspoken disagreement among top managers about goals and a divide between the digital capabilities supporting the pilot and the capabilities available to support scaling it (Sutcliff et al., 2019). Our own work at Brightline® research suggests that the route to successfully implementing digital transformation requires four key elements, elaborated on in the following sections.

Framing the Transformation

A fundamental issue is that there is often a lack of agreement as to what digital transformation actually is. At the very basic level, digital transformation can be thought of as technology used to improve customer value and experience through innovating business models and developing and enabling the people and processes of the organization.

Research by GetSmarter looked at different interpretations of the term digital transformation (GetSmarter, 2022). Digital transformation in business has historically been defined as using technologies to create new—or optimize existing—processes, culture, and customer experiences. Technology is implemented to meet changing business and market needs, and to take a company into the digital future. Its adoption impacts the entire organization and requires revolutionary thinking and action, it notes before adding, Perhaps because of its far-reaching influence on companies, industries, and roles, digital transformation has gathered many different interpretations over time. Its research found that digital transformation means different things to different people and identified 20 definitions—ranging from the incorporation of digital technology in every domain of the business to creative disruption by way of change in an organization’s business model and sustainable innovation.

The crucial realization must be that digital transformation—now more than ever—requires organizations and leaders to put people first. Technology does not change organizations, people do.

Shared understanding feeds into a shared sense of purpose. Any transformation needs to have a widely shared sense of purpose and a clearly articulated set of objectives to achieve that purpose. Accordingly, the organization, the leaders, and the employees need to have an answer to this fundamental question: Why are we transforming?

In addition to identifying and agreeing on the purpose, it’s important to map and scope what the transformation actually entails. Regardless of digital or not, at Brightline® we believe there are four main types of transformation for organizations to consider (see Figure 2):

Figure 2. The what and how of transformation.

Maintain. The objective is to maintain core businesses by improving efficiency in operations, support, and processes. This can be in the form of increasing sales to customers with the same offers or reducing costs by digitizing or automating processes.

Improve. The objective is to improve core business value perception by reengineering existing processes. For example, the organization aims to expand sales by developing better delivery systems for customers.

Extend. The objective is to increase core business value by extending into new yet adjacent business arenas. That could be selling existing offerings to new customer segments in a given geography or expanding into new geographies.

Reimagine. The objective is to reinvent the business by developing new models of value differentiation and delivery. This can be in the form of changing industry structure through acquisitions/alliances or developing new arenas for growth via ecosystem partnerships.

Once the type of digital transformation is established, the next step is to enable this vision with technology. Yet, the main challenge with digital transformation does not lie with the technology itself but rather with the adoption and application of the new technology or process by the people in the organization. Our work at Brightline® has led us to develop the Brightline® Transformation Compass (BTC). This is built on the realization that the key to a successful transformation is building a movement that aligns inside-out and outside-in approaches. A transformation shaped by BTC is led by committed senior leaders inside your organization and authored and driven by large numbers of your own employees—the management and frontline team members who have a stake in your success.

Creating the Role of CTO

Managing these dynamic and divergent forces requires a versatile leader. The role of chief transformation officer (CTO) is increasingly recognized as an important element in achieving digital transformation (Brightline®, 2022). This individual must be able to understand and respect diverse stakeholder points of view and yet align all parties in pursuit of greater goals. To do so, the CTO must also be able to build trust in the process, so that stakeholders engage as owners and work to collaboratively drive change, rather than feeling that change is happening to them. Ultimately, the transformation leader must be able to mobilize the power that lies at the intersection of technology and human creativity, complexity, passion, and energy to build a permanent, company-wide changing capability.

The crucial realization must be that digital transformation [...] requires organizations and leaders to put people first. Technology does not change organizations, people do.

Powering People Plus Technology

The crucial realization must be that digital transformation—now more than ever—requires organizations and leaders to put people first. Technology does not change organizations, people do. People literally breathe life into every organization. People make the organization stop or go. They are the strategy in motion. Without the ongoing engagement of people in driving the transformation effort, it is doomed to failure.

Organizations mastering digital transformation understand that change efforts are not primarily about the technology itself. Technology is an enabler rather than the answer itself; it is about adoption of technologies and how technologies enable the organization to find other ways to deliver value.

In their work looking at why some digital transformation efforts succeed and others fail, Behnam Tabrizi, Ed Lam, Kirk Girard, and Vernon Irvin simply conclude that digital transformation is not about technology (Tabrizi et al., 2019). Most digital technologies provide possibilities for efficiency gains and customer intimacy. But if people lack the right mindset to change and the current organizational practices are flawed, digital transformation will simply magnify those flaws, they say and go on to recommend that leaders reconnect with the fundamentals to focus on changing the mindset of [an organization’s] members as well as the organizational culture and processes before they decide what digital tools to use and how to use them. What the members envision to be the future of the organization drove the technology, not the other way around.

If digital transformation is personal, organizations need to do a lot of work to harness the discretionary effort of its people to maximize the power of technology to successfully transform their organization. This is about creating processes and developing skills, that enable people to understand and best utilize technology. When it comes to digital transformation, organizations are often castigated for their lack of progress; however, it is worth noting that at an individual level, there is also a lot of work to do. In 2019, Michael Netzley and Robin Speculand created the Digital Maturity Index (DMI) to identify an individual’s position on their digital journey. The catalyst was the urgent need to understand an individual’s ability to learn and adopt digital technologies and methodologies. Additionally, significant individual differences in digital maturity were becoming apparent, which were further complicating digital transformation. The DMI assesses an individual’s position along their own digital journey (not within their organization), provides recommendations for improvement, and identifies equally their knowing and doing skills and categorizes the findings into three stages: reacting, embedding, and strategizing. The 2022 results (from a sample of 1,463 respondents) revealed that individuals have more knowledge than skills to participate in digital transformation. As a result, they are struggling to move from acquiring new knowledge to embedding it into practice. Netzley and Speculand call this difference the Digital Knowing-Doing Gap. Their latest survey suggests that a massive 71% of people are in the reacting category of response, 24% in embedding the response, and a mere 5% in the strategizing response (Netzley & Speculand, 2022).

[...] the transformation leader must be able to mobilize the power that lies at the intersection of technology and human creativity, complexity, passion, and energy [...]

This DMI research demonstrates that training and development are vital. The question of how to close the technology gaps is often challenging. Many of the organizations that need new technology often do not have the necessary know-how and skills to successfully implement it—this also applies to culture. New technologies often require in-depth expertise, which takes time to develop. The more complex the technology solution, the more likely it is that external resources, rather than internal resources, will best bring sought-after capabilities and know-how. A Brightline® study shows that the involvement of a trusted and experienced external partner can play a pivotal role in the curation and adoption of the kinds of emerging technologies that power an enterprise transformation (Brightline®, 2020a). While external sourcing is the quickest way to a digitally enabled organization, changes in mindset, leadership, and general upskilling are required within the organization to sustain the change effort.

Powering the Customer Experience

The people in the organization and the organization’s customers are the leading forces in any digital transformation. A senior vice president in the transformation and finance department in a large telecommunications company told us: [Transformation value] starts from the customer’s perspective. What are the pain points for the customer? How do they want to do business with [us]? You start there and say, ‘how do we go fix these things?’ Usually, if you can go fix some of those things it’s because of inefficient processes, old ways of doing things. If you fundamentally improve that customer experience, there’s value that comes out the back side of it, whether it’s retaining your customers longer, selling more to them, or actually making your teams more productive and more efficient (Brightline®, 2022, p. 7).

According to Brightline® research, evolving customer expectations was considered a top driver for enterprise transformation in 2022 (Brightline®, 2022). Similarly, customer experience scores high for expected outcome and success criteria in enterprise transformation. While it is hardly surprising that customer experience tops the list vis-à-vis transformation drivers, expected outcome, and success criteria, it speaks volumes for our belief that customer insights are crucial for the success of a transformation initiative. Yet, how many digital transformations have delivered transformative customer experiences? Not many. Relentless customer focus is what still separates the corporate greats from the mediocre. Witness Amazon.

It is easy to be daunted by the forces at work, but the fundamentals of organizational and business life remain as true as ever. People. Processes. Customers. Organizations undertaking enterprise transformation with digital technologies would do well to consider two basic notions: (1) what we do, which can also be expressed as the source of value differentiation and can fall anywhere between existing and new; and (2) how we do it—this is the means of value delivery, which can also fall between existing and new. Challenge your organization with these two simple notions to ignite your digital transformation.

References

Brightline®. (2018). Learning from crisis mode. https://www.brightline.org/resources/learning-from-crisis-mode/

Brightline®. (2020a). Strategic transformation research. https://www.brightline.org/resources/strategic-transformation-research/

Brightline®. (2020b). New executive report on how leaders succeed at strategic transformation in transformative times. https://www.brightline.org/press/releases/new-executive-report-on-how-leaders-succeed-at-strategic-transformation-in-transformative-times/

Brightline®. (2022). The chief transformation officer. https://www.brightline.org/resources/the-chief-transformation-officer/

Chui, M., Roberts, R., & Yee, L. (2022). Technology trends outlook 2022 McKinsey & Co. https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-top-trends-in-tech)

GetSmarter. (2022). What digital transformation means and how it impacts you. https://www.getsmarter.com/blog/career-advice/what-digital-transformation-means-and-how-it-impacts-you/

Harvard Business Review Analytic Services. (2021). Digital acceleration redefines the future of work. https://hbr.org/sponsored/2021/09/data-strategy-the-missing-link-in-artificial-intelligence-enabled-transformation