What is Digital Transformation?
Digital transformation is the innovative integration of digital technologies to bring about fundamental shifts in how a business makes money. The ultimate form of digital transformation goes beyond process and product innovation and involves digitally enabled business models.
The Digital Transformation Journey
Digital transformation is a journey to adopt and deploy digital technologies and business models to improve business performance. The first step of this journey is to grasp the need for transformation – an imperative driven by the inevitable digital disruption that will continue to change the face of every market in every industry. The likes of Uber, Amazon, Airbnb and Facebook are just the beginning of disruption that will take place in every industry, and no company will be immune to the consequences.
It's All About The Business
Although digital is about technology, digital transformation is about how we can best leverage that technology to achieve strategic business goals. So while technology is a powerful enabler, without which much of today’s transformation would be impossible, the focus must be on the needs of transforming the business to remain relevant and thrive in a highly competitive and evolving market.
Any world-class competitor in sport knows that if they, or their team don’t have the right level capabilities, they have very little chance of success in their sport. I come from an international sporting background and I’ve witnessed first hand how lack of capability in sports translates so well to a lack of capability in digital transformation.
A company’s DNA is made up of many parts, and if certain components are low in digital transformation maturity, their leaders should not realistically expect to achieve an ambitious vision for the future. While tremendous operational capabilities will have been key to their operational excellence, those capabilities are very different to the transformation capabilities required for successful digital transformation.
I’ve adapted Marshall Goldsmith’s book title “What got you here, won’t get you there” for a similar slogan that is relevant to digital transformation, which is “the operational capabilities and culture that got you here, and not the transformation capabilities and culture you need to get there”.
Being one of the world’s finest golfers does not automatically make Tiger woods a good baseball player does it. The same principle applies to operational management and leadership and transformation management and leadership. Being good at one does not make you good at the other. The DNA of operational excellence and transformation excellence are not the same, and no leader should succumb to the illusion that their brilliant operational workforce, can become overnight experts in transformation, because it requires an entirely different set of capabilities.
The leaders who believe their workforce can quickly become transformation experts, eventually see the error of their ways as transformation projects and programmes begin to go very wrong. It happens time and time again in companies all over the world, because leaders under-estimate transformation and over-estimate current capabilities and culture. While managers and leaders might attempt transformation with great ambition, passion, enthusiasm and budgets, after a number of months go by, the consequences of compromised capabilities begin to appear – a bit like the endurance athlete who looked great on the start-line, got off to a good start, but who failed to prepare properly for the full journey ahead.
A great deal of research has now been conducted by leading academic organisations and management consulting firms that points to the fact that the key drivers of digital transformation are not the digital technologies themselves. The differences between companies with high and low digital transformation maturity has been found to be around leadership, strategy, digital business models, culture, rapid transformation and capabilities involving innovation, digital transformation management. The capabilities and qualifications that enabled technical leaders to do well in the past, require a major upgrade, if those same leaders hope to perform well in the digital economy.
So the challenge for many companies is in maturing the digital transformation capabilities among executives and senior managers, if the CEO harbours hopes of digital transformation success. Leaders need to view digital transformation success factors holistically and erase the danger of feeling comfortable with nebulous notions of transformation, with outdated practices left over from the pre-digital era.
Leaders of firms that have done well over the last decade or more are often susceptible to Digital Myopia. Digitally myopic CEOs typically expect their CIO to manage the digital buzz. For a digitally myopic CEO, digital is about technology, which is what the CIO takes care of. They have not yet learned that in the digital economy, digital needs to be core to business strategy, as opposed to an add-on. Digitally myopic leaders rest on their laurels and the ageing business models that did will in the past, and still make them a profit. But they can’t see what’s coming in the longer term.
Leaders need to acquire sharper digital transformation insight, and remove signs of myopia. They need to learn about digital transformation, challenge their own place in the economy, and consider how they need to transform to remain competitive in the new digital economy.
5. Digital Transformation Mindsets
Digitisation needs to become part of what defines a company. It needs to be at the heart of a company’s business, because without it, business models will be unable to provide the value and experiences that customers will come to expect. Digital transformation is already on the minds of many leaders in many industries, but the big question is, do they have the right mindset to flourish through digital transformation? In addition to the IQ and emotional intelligence that most leaders know are important, are they ready to mature their digital transformation intelligence too? – which in itself has a range of dimensions.
True digital transformation leadership requires a mindset, that most companies have not witnessed in years gone by. The great leaders of the past never needed to consider digital as part of strategy. While their IT played a key role in their company’s operations, that was usually left for the CIO address. There was rarely a call for strategic business models to leverage the innovative use of digital technologies.
But that has changed and leaders need their mindsets to shift to address the challenges they will face in the digital economy. Some leaders will do this incredibly well, and others will struggle – or worse, not feel the need to try. And it all starts with looking in the mirror and asking “what do I need to change in myself to become an effective digital transformation leader?”
The fact that you are reading this post already demonstrates that you are taking steps to improve your own capabilities, so already you are setting yourself apart from those that don’t feel they need to. So congratulations on that. A digital mindset is not about seeing digital as a new and separate dimension from the business. It’s not about understanding technology and neither is it about launching the next version of an existing product, or doing the same thing faster or cheaper. There is nothing bad about cheaper or faster, but as I’ve already explained, that’s not transformation. A digital mindset is a way to think differently about business models, customer experiences, innovation, risk, culture, speed and agility. It’s about understanding the power of technology to provide new value and experiences for customers, partners, stakeholders and employees. Ultimately it’s about enhancing the company’s position in the market and increasing profits. But you can’t do that without the right organisation. One that’s fit for transformation.
A digital mindset considers new ways to transform business models, how they can deliver better value and experiences to customers, operations and the workforce and how they make money differently. The mindset calls for new ways of operating within the company, and with its workforce, customers, partners and external talent.
If you want to create a successful, hyper-growth company, you really need to focus on creating the right culture and learning how to experiment and implement at speed. Leaders with a digital transformation mindset invest more in developing digital capabilities, operational efficiency and the workforce. But doing this successfully calls for the mindset to demonstrate other qualities too. It involves helping evolve the culture, and I’ll talk more about culture later.
The Digital transformation mindset seeks out opportunities in their market and other markets, which can be exploited. It also remains acutely aware of potential disruptors, and how to respond to them. It’s an open mindset that adapts well to rapid change and transformation, and to challenges that you might not have faced before. Like suddenly changing directions, possibly because of a new internal innovation, or external threats.
A transformation leader needs to throw aside old leadership and management styles to empower their people to self-direct, make decisions, experiment, generate ideas, and take risks without fear. One of the most difficult challenges the digital transformation mindset can face is culture. And I’ll be delving deeper into that later in the course. For now I’ll just say that most successful companies have nurtured cultures that protect their operational excellence and ability to keep doing the same things well. It’s almost like transformation requires the opposite of that, because it’s about creating a new future. The natural reaction of most people is to resist that, which doesn’t help the need to transform.
Shifting culture cannot happen until leadership mindset is aligned with digital transformation. Any hint of some leaders not sharing this view could be a threat, so the CEO really needs to work closely with his or her leadership team until they all get-it. Only then will they be well prepared to address the wider cultural challenge across the organisation.
Transformation Versus Change
Transformation is about creating a new future, without the constraints of the past. You innovate and transform. But right now, there are countless companies informing their workforces and stakeholders that they are transforming their business using digital when in fact they are only undergoing change. The difference is that change improves the past, while transformation creates the future. Which means that many firms immersed in change initiatives are under the illusion of transformation.
A line once appeared in SAP’s Business Transformation Journal which stated;
“When a snake sheds its skin it changes; when a caterpillar becomes a butterfly, it transforms”.
And George Westerman of MIT articulated this point well when he said;
“When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.”
While companies often need to make things better, faster, cheaper, etcetera, this is different from undergoing a transformation to create their future. The outcome of change consists of efficiencies and economies over what was there before the change. So change is good, but it’s only a better version of the past.
There are some dangerous downsides for firms that fall under the illusion of transformation. And until their leaders understand the difference between transformation and change, they will continue to unknowingly exist under the transformation illusion, with the firm belief that they are transforming, when in fact they are only fixing the past. Such companies become so busy and preoccupied with creating fast caterpillars, that they stand still in the transformation stakes and become increasingly vulnerable to the disruption that they can’t see coming.
They often devote their limited time, effort and resources to creating fast caterpillars, because key “change” initiatives have become their priority. They have no time or resources to do anything other than create their fast caterpillars and maintain business as-usual. Leaders are are lulled into a false sense of security, because they have fallen prey to the transformation illusion. They might be doing extremely well creating fast caterpillars with multiple digital solutions, but there’s no vision of a butterfly in sight.
Many executives are still focused on digital largely as a way to do “more of the same,” but better faster and cheaper. They aren’t stepping back and considering the threats and opportunities of digital disruption, and how to respond to them. There are many examples of mis-aligned perceptions of what is change and what is digital transformation, and the characteristics that distinguish one from another. These mis-understandings give rise to the transformation illusion that will
never go away until leaders recognise the difference between change and transformation, and act accordingly.
Until leaders rid the company of this ambiguity and create a true transformation vision, their companies will remain vulnerable to disruption. It will only be a matter of time before the disruption within their industry reaches a point where customers are offered alternative products and services that have been made possible by leveraging digital and innovation to create new business models that the world hasn’t seen before.
Leaders often want to stick to what they know their company does well. After all, that’s what got them to where they are today. But in the same way that we as individuals need to step outside of our comfort zones to become better, – companies also need to do the same. Because the digital economy will not be sympathetic to those who simply want to hang on to the past – regardless of their reputation and earlier achievements.
When companies fail to step out of their own comfort zone and into the transformation zone, they become at risk of becoming obsolete in an ever changing and competitive world and missed opportunities. Leaders need to remove any illusion their companies might be under about their transformation, because no industry or company is immune from disruption. Until they do this, they will chug away making changes to their existing business, comfortable under the transformation illusion, while neglecting the need to truly transform.
In years gone by, the biggest risk came from rivals with a better or cheaper product or service, which firms could fend off by improving or expanding their range of products and services. Or by getting to market more efficiently and imaginatively. But the world has moved on, and today’s competition is often invisible until it’s too late for incumbents.
These simple three steps could mean the difference between a company’s demise and survival:
- Remove all ambiguity that exists between transformation and change
- Establish the transformation vision, strategy and roadmap
- Adopt all six THRIVE principles
Why Companies Need Digital Transformation
While most leaders have read about the benefits of digital transformation and the rationale behind it, many firms haven’t gone through the process of fully undertaking it. Some are making ad-hoc digital changes, but far more are not strategically transforming their business using digital.
The question “why transform?” is the starting point. We do everything for a reason, and digital transformation is no exception. Most managers and leaders already need to provide very good justification for small change, let alone transformation.
But just as most people know the reasons why they should eat healthy and exercise, many leaders know why they need to transform, but, often because they don’t know how, take little if any action.
It’s easy to find reasons for not exercising, and similarly, many leaders can find reasons for postponing digital transformation. Sadly some people who keep postponing the healthy diet and exercise leave it too late, and they suffer an early death, which might have been avoided Well exactly the same can happen to companies that postpone the need to transform.
A study by the The Global Center for Digital Transformation found that sixty nine percent of respondents saw the need to adapt their business models to respond to the changing digital environment. But, despite this awareness, only fifty five percent of them claimed that digital disruption was a board level concern, and only twenty five percent had active plans to tackle the disruption head on.
What Should Companies Include in Their Transformation?
The difference between the ‘how’ and the ‘what’ of transformation is the difference between ‘Doing things right’ and ‘Doing the right things’.
When it comes to the question of what to transform, it’s important to avoid a blinkered view. For example, if you read the online content of many digital agencies, previously known as advertising agencies, it’s easy to see that their view of digital transformation often relates only to marketing. To be fair, that’s their world, but suggesting that digital is only about marketing is a naive and narrow-minded view of digital transformation.
It’s important to recognise that digital transformation can come in many guises and every organisation will have its own unique set up needs and priorities. Regardless of what they are, you would be wise to adopt a framework such as THRIVE that can help you decide what to transform. One that both IT and business teams can become familiar with. This in turn will introduce consistency versus chaos into the organisation, when exploring what to transform.
By agreeing on how your organisation will decide what to transform, everyone will be singing from the same song sheet and become familiar with the process. This doesn’t restrict innovation, and often it opens the minds of many people to possibilities they would otherwise not have considered.
Making the decision to adopt a tool to help decide what to transform will force people away from knee-jerk reactions, technology trends and sales-hungry account managers who are dedicated to selling you their products and services. The last thing any organisation needs is to be influenced into making decisions that will give rise to siloed initiatives that are not aligned with the overall transformation strategy, priorities and roadmap.
There have been a range of transformation tools created by different organisations in recent years. Some are quite comprehensive, others are focused on certain components of digital transformation, and others are tightly guarded secrets of consulting firms.
Some of the other tools that have been used in recent years include the Digital Capability Framework and the Business Transformation Management Methodology, which were both developed by SAP. There’s the Digitisation Piano from the Global Centre For Digital Transformation, and the Digital Organisational Design Framework, which was developed by MIT and Capgemini Consulting.
It’s good to be aware of these tools, but it’s also important to use just one framework that your company can reference during transformation. THRIVE has set out to cover all bases and be simple enough for everyone to understand.
How Does a Company Transform?
The THRIVE framework presents principles that explain the why, what and how of transformation.
For that reason, I’m only going to touch on the concept of “how”, and I’ll go into a more detail later.
For example the module titled Holistic, is key to learning how to address many of the aspects of transformation. Then the Response Module focuses on how to respond to the market and to the situation inside the company.
Many of the individual lessons throughout the THRIVE course zone in on “how” to address specific aspects of digital transformation, whether it’s related to strategy, cultural, leadership, execution or any other component.
When considering the why, what and how questions of transformation, the how is often the most difficult to address successfully. In fact, many of the transformation failures that litter organisations can be put down to flawed execution. Leaders and managers knew what they had to transform and why, but they lacked knowledge and experience of how to transform successfully.</ p>
Successfully is a key word, because while a specific transformation initiative might eventually get completed, taking twice the time and twice the budget with multiple changes in leaders and managers is not an example of success.
Questions such as
- How do you transform culture?
- How do you decide what to transform?
- How do you manage transformation?
- How do you establish a roadmap?
- How do you know what capabilities need maturing?
Digital Transformation Opportunity
Mobile, big data and social media, etcetera. are changing day-to-day experiences for us all – from executives to entry-level staff. Digital technologies have created an entirely new set of opportunities for organisations of all sizes and in every industry.
3D printing will change the manufacturing industry forever. Connected implants will revolutionise healthcare, battery storage capacities will impact the energy industry and crypto-currencies will short-change the traditional banking sector. This is only a handful of the opportunities that are available for organisations to take advantage of, let alone the more common place digital offerings.
Digital technologies have already changed the lives of consumers, most of whom now expect to be able to check products and services via a website, with many expecting to be able to buy online and have their goods delivered the same or next day.
These expectations also reflect in the workplace where business purchasers expect to buy from their business suppliers in a similar quick and convenient fashion. None of this is new to anyone, and executives now have the opportunity to set up and satisfy the new needs of consumers and business customers.
But digital technologies present leaders with far more than the opportunity to satisfy the expectations of customers. It makes possible the creation of new operating models and business processes to replace those that were designed for an analogue world. And it provides the opportunity to increase the effectiveness of a workforce.
While technology is a critical enabler of all of this, the extent of any improvement is reflected by the innovative use of the technology. Which means that organisations have the opportunity to leverage its people to provide innovative value that might previously have been impossible.
Digital technologies are empowering companies like never before, transforming every aspect of the enterprise. But no two companies are the same and the extent and success with which each company takes advantage of digital technologies varies a great deal.
While social, cloud and mobile is already becoming mainstream, the Internet of Things, artificial intelligence, virtual reality and many other groundbreaking technologies are already making their way into industries in ways that most of us couldn’t have imagined ten years ago.
However one fact that rings true for every organisation, large or small, is that to compete in this digital era, they must transform – or accept that fact that they will eventually become irrelevant, losing their appeal to customers and their market share. Customer expectations are being raised so high that unless companies can satisfy those rising expectations, demand for their offerings will simply dry up.
This is a hard fact to face up to and many executives naively believe that it’s not quite so serious. Others are struggling to consider the opportunities they have to transform, while many embarking on the transformation journey are stumbling because they’re unprepared for the challenge.
To survive and thrive, organisations must digitise. While many companies think they have a digital strategy, few have a truly holistic digital business strategy. Kicking off a few digital initiatives without digital being integral to business strategy is not the way to go.
The technologies are readily available and affordable, so the digital transformation opportunity is there for every company of every size. The challenge of grasping the opportunity covers many areas of digital transformation, that are addressed in the THRIVE course.
From Digitised to Dematerialised
While the word Digital has become as common as daylight, it’s only the first of six words starting with the letter D, that play a part in digital disruption.
In their book “Bold” – How to Go Big, Create Wealth and Impact the World, Peter Diamandis and Steven Kotler shared a lot on the subject of exponential thinking. They explained a framework called the Six Ds of Exponentials, which are a chain reaction of technological progression, and a road map of rapid development that always leads to enormous upheaval and opportunity. I strongly recommend you pick up a copy of BOLD by Peter Diamandis and Steven Kotler.
Let me briefly introduce you to each of the six Ds.
The first D is Digitisation: This idea starts with the fact that culture makes progress cumulative. Innovation occurs as humans share and exchange ideas. I build on your idea; you build on mine.” Today, anything that can be digitised can spread at a mind-boggling pace.
The second D is Deception: This follows digitisation and is a period when exponential growth goes mostly unnoticed because the doubling of small numbers produces results so small that they are often assumed to be a plodder’s progress of linear growth. This is often when other companies laugh at the prospect of this business ever being a threat to them.
The third D is Disruption: In simple terms, a disruptive technology is any innovation that creates a new market and disrupts an existing one. As disruption follows deception, the original technological threat seems very insignificant.
The fourth D is Demonetisation: which involves the removal of money from the equation. Because demonetisation is also deceptive, almost no one in the industries about to be disrupted are prepared for such unexpected change. The Hotel, Taxi, Communications industries never saw the likes of AirBNB, Uber, Skype and WhatsApp coming. And when they did, they were like rabbits caught in headlights.
The fifth D is Dematerialisation: While Demonetisation describes the vanishing of the money once paid for goods and services, dematerialisation is about the vanishing of products and services themselves. Many of the 1980s luxury technologies have since been dematerialised and now come standard with a smartphone. Many technologies once accompanied by hefty price tags now come free or as apps on a smartphone.
The sixth and final D is Democratisation: This is what happens when physical objects are turned into digital bits and then hosted on digital platforms in such high volume that their price approaches zero. Democratisation of technology and information is the process by which access to technology and information becomes increasingly more accessible to more people.
Amazon's digital-distribution business model went through all these stages up until the point when access to hardly any product you could ever want became available with just a few strokes of your finger.
Think about what technologies today are currently making their way through the six Ds. Where are areas for growth? Which innovations look promising?
Identifying them is key to creating successful digital business models that can secure your company’s competitive edge. But it’s also important to look out for the start-ups and companies from other industries, that might have identified business models that you haven’t yet. Remember that the right models can scale at phenomenal rates.
I want to spend a few more minutes talking about Democratisation, because even the THRIVE course was made possible through the Democratisation of technology and information. Years ago, to have someone talking to you in the way I am right now, and sharing so much information, you might have engaged consultants from a top management consulting firm for a hefty price tag. But now you’re engaging in that knowledge transfer in your own time, at your own convenience, where ever you have chosen to, and at the comparatively low price of the THRIVE course. Even the tools that I’ve used to film, publish and sell the THRIVE course are all digital. It would have been incredibly difficult and expensive to have done this ten years ago. Neither would I have been able to reach such a broad global market.
New technologies and improved user experiences have empowered those outside of the technical industry to access and use digital products and services. Consumers have increasing access to use and purchase sophisticated products, and participate meaningfully in the development of these products.
In “Digital Disruption: “Unleashing the Next Wave of Innovation”, James McQuivey looks at the four major factors necessary for massive disruption. The first was a computer, the second an Internet connection, the third a programming language in SDK. The forth was a friction-free platform for distributing and making money.
The fact is that these days we don’t even need the programming language because we can leverage and integrate multiple software solutions that have been written by others. That’s exactly how we have been able to build the THRIVE course. By standardising and commoditising solutions that were previously custom, SaaS solutions have radically reduced the cost and complexity of core business systems and increased the effectiveness of delivering the THRIVE course to a global audience.
It wasn't that long ago that complex enterprise systems were the exclusive domain of a limited number of vendors, who delivered sophisticated and expensive solutions to a limited number of large customers. That's all changed.
The Threat of Disruption
In nineteen ninety five, Clay Christensen and Joe Bower published their HBR article “Disruptive Technologies: Catching the Wave”, which introduced the notion of disruptive technology. Since then, “disruption” has become an overused and misused buzzword, synonymous with “change”.
Digital disruption is the effect of digital technologies and business models on a company’s current value proposition, and the consequences of its position in the market. In the last two years, it’s been difficult not to notice the frantic communication of this message by any person or organisation wanting to voice their opinion on digital transformation.
Digital disruptors are able to innovate rapidly, first appealing to low-end or unserved customers, then go on to capture market share and scale far faster than larger more established organisations that tend to hold on to business models that worked well for them in the past.
The business models of digital disruptors use digital to orchestrate people, process and resources to make better decisions, enable a more connected workforce and ultimately create new value in a way that has never been done before.
Leaders of industry disruptors are using digital technology to break into new markets, while leaders of other companies are sitting ducks waiting for their markets to be disrupted.
When that happens, customer expectations will have been raised by disruptors and because incumbents can’t meet those expectations with their old business models, customers defect and profits are pulled from under their noses. The disruptors are incredibly dangerous to incumbents because they quickly grow enormous user bases and are agile enough to leverage those users into business models that threaten incumbents in multiple markets.
At the start of 2016 Didier Bonnet, the senior VP and Global Practice Leader for Digital Transformation at Capgemini consulting, sent me an excellent line, which was
“Companies that are still hostile to digital technologies today will, I believe, sleepwalk into irrelevance”.
This really does encapsulate what will happen to so many firms, if their leaders don’t wake up and respond appropriately. But despite the threat of disruption, it’s often not seen worthy of board-level attention.
Executives who want to avoid sleepwalking into irrelevance need to act with a sense of urgency, to establish what differentiating capabilities or new value they will create through the innovative use digital technologies and new business models.
The fall of Eastman Kodak is a reminder to all companies that they should not become complacent and ignore the threats and opportunities that the digital economy present. Kodak was once one of the world's leading brands, but it was forced to file for Chapter 11 bankruptcy protection in January 2012.
Then there’s the Dollar Shave Club and Harry’s who have disrupted the shaving market. Gillette never saw them coming, and yet these two start-ups have wiped vast sums off the incumbent’s sales. Nokia and Motorola were taken by surprise when Apple entered the mobile phone market and there are countless other examples of complacent incumbents being negatively impacted by start-ups in a David and Goliath scenario.
No industry or business is immune to digital disruption as innovative digital use-cases appearing in every sector continue to grab the news headlines and become hot topics for every day conversation.
Small companies now have the opportunity to overturn incumbents and reshape markets faster and easier than ever before. While many leaders are aware of this, not all of them have prepared to respond to the threat and many will be caught napping. In a way they’re like rabbits caught in headlights. They’re aware of the digital threat, but stand motionless waiting for the impact.
Too many incumbents are resting on their laurels in the belief that they are too mighty and well-established to be disrupted. Some simply don’t know how to approach their transformation from a strategic perspective, while others are embarking on their transformation journeys without the right capabilities, mindset and culture.
Strategic Transformation Responses
Many companies are responding to the digital economy in an ad-hoc and non-strategic manner. How non-strategic will depend upon the mindset of the CEO and other executives as each company is different.
When companies issue a business strategy without digital being at its core, there’s often a remit to someone such as the CIO or a Chief Digital Officer or even a Chief Marketing Officer to “deal with digital”.
When this happens, this is evidence that digital is still being treated as an add-on to the business, as opposed to core to the business. Which is essentially how IT has always been treated.
If this is something that happens in your company, unless you are the CEO, you need to do your best to influence and educate the CEO to adopt a digital mindset.
You see, this is why a digital mindset is so key. If the CEO doesn’t have a digital mindset, it means they haven’t yet accepted how digital transformation is core to the company’s future and they are yet to grasp the concept of digital transformation.
They might still believe that their old business model is good enough, and that becoming digital is about enabling teams to access data from a mobile device, using the cloud or having a digital marketing campaign in place.
While they are components of a digital company, these alone will not prevent the company from being disrupted, or enable you to disrupt. These are digital elements that are not part of the business model.
Let’s consider the areas that can evolve as a result of digital transformation.
First there are the operations. These can become more efficient and effective as a result of digital transformation. This could be mean improving the supply chain or anything else that improves the way the company operates on a day to day basis.
Next there’s the workforce. This can become more efficient and effective through the use of digital tools and access to information that helps them do their work. This could involve being able to work through mobile devices, easy access to company data and any other means of helping them.
Then there’s marketing and all the channels that the company uses to interact with customers and potential customers. And the offerings, whether they are products or services which customers buy.
Finally there is the business model, which really is the component that companies need to transform to become more competitive in the digital economy. This is also where executives sometimes need encouragement, because it often means stepping outside of their comfort zone.
A strategic response to all of the above is important, or the company will face undertaking siloed digital initiatives that are neither integrated or strategic.
A strategic response also involves the selection of appropriate team members, collection of data, analysis of transformation needs and readiness, design of a business vision, and a business model and the definition of an integrated transformation plan.
THRIVE embodies all that a company should consider when embarking on digital transformation, but some key strategic response questions executives need to consider include:
- What is the need for transformation being driven by?
- How is that need going to impact the existing business model, or marketing channels, operations and workforce?
- How will we consider the threats posed by existing potential disrupters?
- How can we ensure digitisation plays a key role in defining our business model changes?
- What value and competitive advantages will be derived from transformation?
- What 3rd parties should we engage with to ensure our transformation enjoys the right capabilities?
- What is our appetite for risk?
- And how can we evolve our culture to support and facilitate our aspirations of transformation?
During digital transformation, companies need to respond strategically and not treat digital as some kind of add-on.
Digital Transformation Leadership
There are subtle differences between operational leadership and transformation leadership, and much of this is to do with mindset.
Digital transformation is highly dependant on building a coalition and empowering people to act in the right way to help achieve the vision. So leaders need to focus on shaping that environment and encouraging effective communication, engagement and collaboration. But this starts with leadership and an aligned leadership team mindset.
From the CEO and the full leadership team, a shared mindset that embraces digital transformation is vital for the future of the company. The CEO might have their work cut out to get their full leadership team on side with this, but it’s essential that the senior leadership team is united when it comes to digital transformation. The CEO needs to address any signs of doubt with education, and as a last resort, but if necessary, replace those that don’t buy in to the need to transform.
The message from the CEO must be clear …”you’re either on the bus with me – or on the road”.
The reason this united front among leaders is so important is because the next port of call for the leadership team is the workforce, and a consistent message needs to be communicated across every area of the organisation. A company cannot afford to have anti-transformation leaders slipping messages of doubt and criticism into their workforce, as this will only serve to hinder and undermine the efforts of others.
Leaders that are resistant to transformation can act as a cancer, killing healthy cells in the organisation at every opportunity. So it’s important the CEO prevents this from happening – at all costs.
Digital transformation requires skills, attributes, capabilities and influence that only senior leadership has. So leaders need to use these leadership assets to form a transformational vision that is both unambiguous and compelling – and then clearly communicate it across the organisation. Leaders need to identify the capabilities and initiatives required to transform their vision into reality, and ensure the right governance is in place to steer the effort, and avoid it going off track.
Having a vision and clearly articulating it across the organisation is nothing new for leaders, particularly the CEO. But having a transformative vision which looks very different to the current shape of the business is a greater challenge.
Corporate culture has been designed to maintain a company’s trusty old ways of working and when employees have witnessed so many failed projects and programmes in the past, it’s no surprise that the very notion of transformation strikes fear and resistance into the hearts and minds of many employees. This means that the CEO and their leadership team really have their work cut out in communicating their vision effectively.
Leaders need to consider how their company is going to be different and transform into a digital business. They need to understand the threats and opportunities the digital economy presents and how they will respond, and how they will ensure their organisation is capable of transforming.
While the wider workforce should be involved in the transformation from innovation onwards, it’s the senior executives who are responsible for clarifying and communicating the overarching vision throughout the organisation. So before an organisation’s culture can be nurtured for transformation, the mindset of leaders must be suitably aligned by the CEO.
Fundamental to an organisation’s transformation success is its culture, mindset and behaviours and it’s vital that leaders take responsibility for bringing about the changes required in these areas. Delegating accountability for this to lower level management will almost certainly result in politics and other mid-level management conflicts that will only serve to hamper a transformation.
Cultural, mindset and behavioural shifts must be seen to come from the most senior leaders, with them clearly communicating their messages – repeatedly. These shifts must be replicated down through the organisation at every level – addressing any pushback that is encountered along the way in a constructive manner.
With the right leadership, digital transformation opportunities can build on one other to foster new ways of working, which will support the achievement of the transformation vision.
Leaders also need to recognise that often they are unlikely to find the capabilities they need, already inside their organisation and sufficiently available to undertake a new role in a transformation.
The best leaders have a solid grasp of the key capabilities they need to make transformation successful. They are more successful than those that underestimate the importance of specific transformation expertise, making the false assumption that operational staff have all the skills and capabilities needed.
As many lessons learned have shown, underestimating transformation capability is one of the main reasons for transformation double.
Digital Transformation Readiness
THRIVE highlights the principles that leaders need to be mindful of when embarking on digital transformation. Neglect any of the principles and the consequences are predictable. Transformation readiness is about being prepared for what lies ahead and not simply moving forward without a proper assessment of the health of the organisation from a transformation perspective.
You need to identify what your organisation looks like now in terms of leadership mindset, organisational culture, transformation capabilities, etcetera. Then establish what you need your organisation to look like as a prerequisite to successful transformation.
If for example you found that the maturity of transformation management capability was low, that’s a clear indication that action needs to be taken to raise that capability. If you opt to embark on transformation without having sufficiently raised that maturity, the writing will be on the wall from the outset and the transformation is likely to run into trouble.
I’d go so far as to say that any leader that allows this to happen is the root cause of a serious risk that could have been avoided. This same principle can be applied to all of the other transformation success factors.
Transformation readiness can be compared to preparing for other major undertakings. The details might be different but the fundamental principles of preparation and readiness remain the same. For example, an Arctic expedition would be seen as foolish if its leaders set off without an immense amount of preparation. Many other comparisons exist, which show us how preparation and readiness for major undertakings are so vital.
A lot of organisations embark on their transformation journeys with a vision, budget and enthusiasm, and an assumption that this alone will get them to where they need to be.
We’ve known for years that large scale change initiatives suffer severely from lack of readiness, so how should a company be prepared for digital transformation? – at least if it’s to avoid the pitfalls that so many repeatedly fall into by paying scant regard to lessons learned.
By carefully considering all THRIVE principles, then taking appropriate action to fill gaps, you can ensure that all bases are covered and that your company is ready for the journey ahead.
Transformation begins with pro active executives who have recognised the need to undertake digital transformation and are prepared to adopt the THRIVE principles. But it’s also important to remember that the longer a transformation starting point is delayed, the greater the pressure becomes to transform and the greater the risk of business failure becomes.
Proactive leaders adopting THRIVE principles are likely to enjoy a successful transformation journey. I’m not saying it will be an easy journey because all transformations come with their challenges, but the odds of success will be far better.
Digital Transformation Icebergs
The Digital Transformation Iceberg uses Sigmund Freud’s iceberg analogy to illustrate how the conscious mind of digital leaders should be focused on far more than the tip of the digital iceberg. The alternative might be likened to the disaster that struck the mighty Titanic on its maiden voyage in 1912.
The Digital Transformation Iceberg helps to show how the conscious mind of digital leaders should be focused on far more than the tip of the iceberg.
It illustrates the principle of what is often sitting beneath the surface requiring transformation focused leadership and management, and is designed to encourage leaders approach digital transformation holistically.
It helps leaders approach transformation with an open mind and primed to answer the question …what should we transform?
While customers are key and sit at the tip of the iceberg, you won’t be able to satisfy those customers if the company’s transformation readiness is low. So while the customer is key, you need to cast off any blinkers that prevent you from taking a holistic approach to transformation using all six THRIVE principles.
Components that sit immediately below the surface of the iceberg all need to be sufficiently mature, if transformation initiatives are to be successful.
They include transformation management capability, innovation management capability, transformation governance and digital capabilities. There’s leadership, mindsets, culture and more. These are often the reasons that transformations don’t go the way everyone had hoped.
There are also other transformation considerations such as workforce automation, operational excellence, effective staff, product and service development and digital business model creation They’re all part of the transformation iceberg.
It's important to keep your primary focus on the business, as opposed to specific technologies. You need to be focused upon the company’s strategic business objectives, and how the innovative use of all available technologies can be used to help achieve those objectives. Getting hung up on using a particular technology for the sake of a technology is something that all CEOs need to be on their guard for.
The important thing is that you always see below the surface and avoid the fate of ships that only look at the tip of the iceberg.
Social, Mobility, Analytics and Cloud
Social Mobility Analytics and Cloud (SMAC for short) has become the staple digital diet for conversations among IT leaders.
There’s no longer anything very edgy or unusual about these technologies on their own, but when converged, it’s the synergy created between them that can generate new business value and competitive advantage.
This convergence is what sets apart firms that simply deploy single digital technologies, from those that use innovation and business needs to determine how multiple technologies can be integrated to work together to transform their business and how they work.
Integrating the SMAC family into a stack amplifies their power and potential for creating business value. For example, the data from a user's social media activity can be combined with location data from their smartphone. That data can then be analysed to determine customer behaviour and future buying criteria. This in turn can influence marketing strategy.
Because of its low cost, high availability and global reach, the SMAC stack can help companies move into high-margin areas by exploiting the seemingly endless supply of innovative possibilities that can generate business value.
I’ll briefly touch on each member of the SMAC stack. But just very briefly.
On Social – it would be naive of me to think that I need to describe what billions of everyday people now take for granted. But what’s important for companies to consider is that this new-found power of the customer has forced companies to reconsider how they engage with the world. While many leaders recognise this, other than launching a series of social media channels, not so many have incorporated social media into a new business model, to leverage its full potential.
Social media is so much more than a megaphone for your company’s messages and interaction with users. Used effectively, among other things, it can serve as a platform for gathering key data, bringing in better job candidates, and optimising the company’s content marketing program. As buyers and other industry audiences increasingly look to social media for information about companies like yours, it becomes increasingly more important for company to integrate social media into their overall digital transformation strategy.
Social media can also be used to increase the effectiveness of company wide change management initiatives and there
are tools specifically designed for this purpose. The whole business of transformation is difficult from a people perspective. With internal social media tools, transformation leaders can leverage social media solutions to overcome the typical challenges of transformation more efficiently and effectively.
In short, there are hundreds of digital use cases for social media.
On Mobility – With over 80% of the world’s population predicted to own a smartphone by 2025, mobile will undoubtedly continue to play an increasing role in digital transformation.
It’s now common for consumers to flip out their devices to compare, scan barcodes, redeem coupons, and pay in physical and online stores. What has become like a digital Swiss Army knife to the modern day consumer, should also be considered when companies seek out innovative ways to accompany the consumer as they make they daily journeys to potential new discoveries, relationships and purchases.
Mobile will only strengthen the store experience, especially if you create the right mobile experiences to supplement the in-store experience. And the likes of iBeacon technology makes it easy to detect where a customer is in a store, or nearby, at any given moment, providing unprecedented opportunity to encourage a purchase. Google’s Eddystone and Apple’s iBeacon are just the beginning.
But as with all aspects of digital enterprise transformation, there are laggards and masters and it’s astonishing that a decade after consumers started using mobile devices, many companies have yet to take the opportunity of engaging with them, their partners and employees using mobile devices beyond basic phone calls, email and text messages.
Then we have Data and Analytics, which involves the collection, management, and interpretation of internal and external data on a large scale that can be used to dramatically transform a company’s performance. While collecting data is not so difficult, interpreting it is where many companies are struggling, and unless you can interpret it well, it has little if any value.
Transforming raw data into useful insights is vital, and more powerful tools are enabling us to do that more effectively. Armed with these tools, data scientists are increasingly able to mine the value of data. New tools such as Machine-learning technologies are enabling companies to make more informed decisions using more up to date, accurate and extensive data that they have gathered.
Better data analysis enables companies to optimise everything in the value chain, and those that are in a position to take advantage of big data often get to market faster with products and services that are better aligned with customer needs and desires. There are endless possibilities and big data use cases that can inspire any company.
Finally cloud computing. While the cloud now enjoys widespread use among companies and consumers, in a RightScale survey, it was found that although 93% of respondents are adopting cloud, 68% of respondents with more than 1000 employees have less than 20% of their applications running in the cloud.
With digital transformation in mind, it would be prudent when defining your company’s motivations for adopting cloud to consider some of the more transformational benefits that add value to the business. Simply focusing on cutting costs and improving IT department efficiency, is likely to result in CIOs still being labeled as good traditional CIOs, but not transformation leaders. I’m not saying that cutting costs isn’t a good thing. Of course it is. But there needs to be more focus on how cloud can help transform the business, and not just modernise its technology systems.
You should never lose sight of the fact that digital transformation conversations in the boardroom need to begin and end around business value and how it is best achieved through innovative digital means. Rather than talking about investing in analytics, cloud or digital, technology leaders will do better talking about what new value or competitive advantage the business needs, then consider the digital means that can help achieve that.
A platform, by definition, is a business model that creates value by facilitating an exchange between two or more inter-dependent groups. So, rather that making things, they simply connect buyers and sellers. Uber connects drivers with passengers. They have put journeys on a platform. Airbnb connects property owners with guests. They have put accommodation on a platform. There are many other examples but I’m sure you get the gist.
The fastest growing companies are no longer those that have the largest workforce or physical assets. The fastest growing companies are now those that build and manage platforms that facilitate the interaction of customers and companies to create and exchange value together. The notion that bigger is better is fast diminishing as the laws of competitive advantage are changing dramatically. Digital businesses leaders are now creating the scalable and interconnected platform economy that underpins success in an ecosystem-based digital economy.
Uber, Amazon, Apple, AirBnb, Facebook, Google and others all have platforms. They all thrive and scale at a phenomenal rate as a result of their platforms. You might have noticed that the companies I’ve just mentioned are not focused on creating traditional products and services to sell to customers. They are all bringing together customers and producers, which in turn creates value for the platform provider, the producer and the customer. Traditional business doesn’t do this. They simply deliver their products and services to customers.
Nothing physical disrupted the taxi, hotel or media industry. No physical assets were needed. Only a platform was needed to bring about interactions between producers and customers.
Companies have traditionally needed warehouses, resources and large workforces to grow, but now they don’t. They simply need to create a platform based ecosystem where interactions can take place, then encourage the growth of those interaction using the power of networks. Of course the business model value proposition need to be very attractive to suppliers and customers. But once achieved, the potential for growth is beyond what any traditional business model can achieve. In fact the potential for growth is exponential.
Platform-driven ecosystems are taking shape across many industries, and the trend will continue. By the end of this decade, there are unlikely to be any industries that have been disrupted by platforms.
The big question for all companies is, are you ready to embrace everything a platform represents in the digital economy? Or leave it for your competition to take advantage of?
The Internet of Everything
To understand the Internet of Everything we must first understand that the Internet of Things. The Internet of Things is a network of physical objects or ‘things’ enhanced through embedded sensors, software, electronics and connectivity, allowing them to exchange data with manufacturers, operators and other connected devices via the internet.
Building on this foundation, Cisco defines the Internet of Everything as the intelligent connection of people, process, data and things. It builds on the foundation of the “Internet of Things” by adding network intelligence that allows convergence, orchestration and visibility across dissimilar systems.
The Internet of Everything will enable us to see data and respond in different ways, access things in different ways, and intervene at the right times. It’ll drastically transform the world we all know today, and it’s only just beginning.
It’s a key enabler for a digital enterprise and companies that merge
the physical and digital worlds to derive new value and competitive advantage, will watch those that choose not to do so, fade into the history books.
But while plenty of people talk about connected companies, incorporating this lofty futuristic notion into practical business models, which can then be successfully executed upon to achieve the required business outcomes, is another ball-game. While the Internet of Everything has huge a potential to transform our daily lives, it is still very much in its infancy.
The thousands of companies that have already embarked upon their journeys of first ”getting things connected together” are well on their way to having access to unprecedented volumes of data at their fingertips, but it's vital that data is relevant to a strategic business model. Then comes the challenge of deriving value from that data.
While the technical challenge of connecting things using different protocols, and security and privacy concerns need to be addressed, a key business challenge is in knowing how to derive value from the Internet of Everything within a particular industry.
For example, a retailer is going to explore very different Internet of Everything digital use cases than manufacturers will. This is because they have very different business models, which can benefit from the Internet of Everything in different ways, and because they have very different threats to content with.
You need to select digital use cases to drive digital value by focusing on opportunities, value propositions and digital business models that are relevant within your industry. But conjuring up business cases for opportunities that have never before existed, is a challenge.
While many companies recognise that they need to embrace the Internet of Everything, most have trouble articulating and quantifying value for a business case. Despite external opinions, the internal reality might be that you will be unlikely to get buy-in and funding for large-scale Internet of Everything deployments without a solid business case.
On the Internet of Everything journey, Getting things connected together is a start, as is capturing data. But that’s really just the beginning. Because only when relevant data begins to work for us, can it begin to demonstrate its value, along with the value of the sensors and devices that are helping to capture that data.
With the focus on business value, it’s important to keep in mind that it’s not the act of getting connected, or even the number of connections that creates the value. The value is found in the outcomes the connections make possible.
Cisco has suggested that Internet of Everything value is distributed across five key business functions, which are:
Asset Utilisation, Innovation, Employee Productivity, Supply Chain, and Customer Experience.
Whether you adopt this or any other model to work with, while the Internet of Everything is still in its infancy, the task of getting things connected should begin now.
Before Engaging Tech Firms
It might seem logical to first turn to a technology solution provider for digital transformation guidance, particularly as they are all offering advice on digital transformation. But doing so comes with a risk.
There is a right time to engage the likes of software suppliers and system integrators, but it certainly shouldn’t be during strategy. Because if you do engage them before you know what you want to achieve, you can be sure that every effort will be made to steer you in the direction of their solution by the end of the process – whether it’s the best choice for your company or not.
When you’ve reached the stage of knowing what business objectives you need to achieve, and roughly how you’ll achieve them, then it’s time to start evaluating what the most suitable technical solutions might be to help you achieve your goals. Let’s face it, there are usually multiple solutions that might be the right choice for you. There’s rarely only one to choose from. Next you consider who’s best suited to help you implement that solution, if you need external help.
Since tech companies and their partners began aggressively selling licences, the interests of the clients are often put in second place behind the interests of selling licences and consultants to the client.
Even when advisors and account managers from tech companies want to put the clients interests first, they are quickly reminded by those to whom they report, to focus on their key performance indicators, and perhaps with a hint of what missing those KPIs could mean for them.
For almost twenty years, I’ve operated alongside some of the world’s leading technology suppliers and while they are all very different companies with some excellent technical capabilities, their account managers all have KPIs and expectations placed upon them. I’ve even had executive advisors from some of the world’s biggest tech companies approach me with their personal frustrations about being expected to put their KPIs ahead of their clients’ interests.
While tech companies are very knowledgeable about technology, their structure is so that clients are strategically steered towards their solutions, or to those of their partners. This is no secret, and yet naive leaders are consistently led up the garden path to a particular type of software, which might not be the best solution for their company.
In a way we can’t blame these account managers, because after all, they are only doing their job. But if you approach Banana Data Digital Solutions for advice, it’s safe to assume that you will eventually be presented with a strong case that states that a Banana Data Digital Solution is the best way for you to meet your objectives.
There have been too many organisations sold inappropriate technical solutions by sales hungry account managers, for smart leaders to still make the mistake of not being independently equipped to be able to make certain decisions themselves.
But the uninformed will continue to cost their companies money in this way, because they succumb to the grooming techniques of the sophisticated sales folk that have been trained well to persuade the client that their solution is the best thing since sliced bread.
Technology solution providers and their partners are very useful, but you should engage them at the appropriate time. And Transformation leaders have a responsibility to their companies to be capable of leading transformation without having to turn to tech providers to guide them on strategy, only to get led up the garden path to use their solutions.
Good transformation leaders will establish strategy and goals, long before technology suppliers are involved. Because they are able to stand on their own two feet and to think independently and impartially, with the support of their team around them.
We cannot innovate, digitise and transform without digital technologies and the companies that create them; but always keep in mind that the technology solution is only a small component of digital transformation. Which means that while solution providers have a place in transformation, they have a time and a place, and shouldn’t be allowed to steer your transformation business in their favour.
Structuring your transformation initiative in the right way, can protect the company against the influence of account managers that aim to sell technical solutions.
One approach is for the company to appoint a two to three year position of a Transformation Executive. They might be equivalent to the COO and CFO but above the CIO in the organisation structure.
Another approach is to form a functional transformation group which is not driven by technology thinking. Some companies might even elect to keep the CIO out of this group as they are often the target of account managers, and therefore could influence the group based on the influence account managers have had on them.
The functional transformation group should be business transformation focused. Not technology focused. It is a transformation think-tank, with perhaps the support of impartial external transformation advisors, who do not represent any technology firms. The very reason for this group is to enable transformation strategic counsel, and to protect against the influence of the many technology firms that are trying to influence the likes of the CIO.
The fact that you have enrolled in this training is testament to the fact that you want to be able to work independently and be capable of making key decisions yourself. Impartial decisions that put your company’s interests first.
Regardless of the approach you take, you should be very mindful of protecting your company’s transformation strategy and direction against the influence of individual technology solutions.
Transformation Scale Matters
I’m going to write about size from two perspectives. One is around the challenge of undertaking transformation, and the other is around being competitive in the digital economy.
Digital is blurring the line between large and small companies and small companies are now able to compete on a more level playing field with large companies than ever before.
The extreme example to make this point is the fact that a sole entrepreneur in their jeans and T-shirt in their spare room at home, can sell their digital offerings in vast quantities across the planet in the same way that global conglomerates can.
Now every digital company can sell to anyone and we have have seen incredible examples of how very small companies can disrupt entire industries that have traditionally been dominated by wealthy global enterprises.
Small companies can now run the same business software that was once reserved for large enterprises, and technologies such mobility, analytics, and social media provide entrepreneurial companies of any size, with unprecedented connectivity, insight, and market reach.
But bringing new value to the market requires a considerable amount of activity in the company, which is where the playing field is far from level, as both large and small companies face their own set of challenges.
Good simple advice given to the company employing ten people could be ineffective and even be damaging, if applied to a company with a hundred thousand people to consider.
And the bigger the company, the harder it is to undertake digital transformation. It’s vastly more complex.
A leader who needs to transform a company with ten employees will experience something very different to the leader of a company with 100,000 employees. While the principles and basic challenges of transformation remain the same, larger organisations face greater complexity in areas such as change management, communication, culture, process and governance.
While smaller companies face the challenges of smaller budgets, limited talent pools, and more difficulty demonstrating value and benefits to stakeholders.
While business of all sizes need to innovate, digitise and transform, if they are to remain competitive in the digital era, their size will determine the types of challenges that will require most attention.
CEOs of large and small companies might compete in the same market on a more level playing field than ever before, but it’s important to stay mindful of the fact that the internal challenges they each face will be very very different.
Digital Transformation Tools
Digital transformation tools are the digital-age equivalent of the traditional tools that have served technology leaders well over the last two decades. ITIL, CMMI, COBIT, TOGAF, PMBoK and others have been invaluable helping organisations adopt standards to work consistently, and in accordance with international good practices.
As executives strive to remain competitive in a world increasingly dominated by technology and transformation, they will spend more on innovation, technology and transformation capabilities, and embrace new digital transformation tools.
Using the ‘Transformation and Innovation Framework’ below, the Business Transformation Academy and SAP illustrated how various models can be adopted by organisations embarking upon their transformation journeys.
The companies that are prepared to approach innovation, digitisation and business transformation in a proper manner will do so by engaging transformation leaders that are adept in every area of the Transformation and Innovation Framework illustration shown at the top of this page.
These leaders need to be prepared with a well equipped toolbox of strategic digital transformation tools that can guide their organisations along every step of the journey. Tools that bring consistency, a common language and effective ways of working into the organisation. While these tools can come in many shapes and sizes, one thing for certain is that if the tools are out of date and blunt, the journey and outcomes will disappoint.
The Digital Capability Framework (DCF) is a strategic management toolset designed to help companies innovate and orchestrate digitally enabled business transformation. It helps companies analyse their current situation and identify new business cases, which are enabled by technology trends.
Addressing both the technical and people side of transformation, the DCF enables transformation leaders to obtain clarity about what maturity level their organisation has in terms of six digital capabilities, what maturity level they wish to achieve, and how they plan to do that. Digital use cases help them develop a clear picture of the processes to be optimised and the technologies that should be used; and a tailored plan to transform the organisation into a digital enterprise can then be established and implemented.
Core Capabilities and Digital Use Cases
The Digital Capability Framework describes the core capabilities and digital use cases that companies need to consider if they are to approach their digital transformation holistically. Digital marketing and sales channels are the tip of the transformation iceberg, but beneath the surface are other considerations involving the workforce and operational excellence.
The Digital Capability Framework is made up of four building blocks, which are:
Digital Capability Framework Building Blocks
The DCF consists of the following four building blocks:
1. Digital Capabilities are the key skills and capabilities a company requires to transform itself into a sustainable and successful business by considering digital technology as the enabling component.
This consists of three “Digital Enablers” and three “Digital Goals”.
Effective Knowledge Worker
2. Digital Capability Maturity Models are the structured assessments used to evaluate the Digital Maturity of an organisation.
3. Digital Use Cases provide ways of showing how to reach specific goals, which will enhance an organisation’s Digital Capability. They typically show how organisations in specific industries can gain competitive advantages through digital transformation.
4. A Digital Transformation Roadmap provides six steps
to proceed to a Digital Enterprise Transformation
Discover more about the Digital Capability Framework
Implementing digital solutions without innovation is not highly transformational. At best, such endeavours often serve to cut costs and introduce efficiencies for existing ways of working. Which is why innovation needs to be at the heart of every company’s digital transformation journey and should be among a leader’s digital transformation tools.
While many innovation methods exist, the illustration above suggests considering four fundamental innovation approaches. These include:
Open Innovation where companies use both internal and external ideas to advance technology with a willingness to consider both internal and external paths to commercialise the company’s offerings. Visit OpenInnovation.net
Customer Co-Creation enables new products and services to be enhanced through an active, creative and social collaboration process between companies and customers – superseding the Schumpeterian model where the lone entrepreneur would bring innovations to markets. Read How to Engage Customers in Co-Creation
Innovation Scouting sees specialists tasked with identifying new opportunities for partnership, co-development, licensing, or acquisition. Commercially relevant technologies are more likely to be found if the scouting team comprises a combination of marketing and technical functions.. Read how scouting can be part of open innovation
Design Thinking involves a human-centred approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success (Tim Brown – IDEO).
Business models define who a company’s target customers are, what the organisation’s value proposition is, how the business works and why the business is financially viable. Many companies have grown on the trusty old business models that are rooted in history and bound by process and culture. But to avoid becoming irrelevant in an increasingly changing world, they need to dust off antiquated models and make them fit for purpose in todays digitised environment.
The authors of “The Business Model Navigator” suggest that in future, competition will take place between business models, and not just between products and technologies. They also explain how a company’s business model consists of four dimensions, which are: the customer (who?), the value proposition (What?), the value chain (How?), and the profit mechanism (Why?) – and that a business model innovation requires significant modification of at least two of the four components.
Discover more about the Business Model Navigator
Business Transformation Management
While innovation helps us leverage new digital solutions, the planned outcomes cannot be achieved without effective business transformation management. The BBC’s failed £100 Million Digital Media Initiative is an example of how big budgets and technology expertise is useless without the right level of business transformation management capability.
The Business Transformation Management Methodology (BTM²) is the world’s first holistic and integrated approach to transformation, which is also integrated with the Digital Capability Framework introduced above. It is fundamental to any leader’s digital transformation tools, and consists of four phases and nine transformation management disciplines.
Four Phases of Business Transformation Management
Nine Disciplines of Business Transformation Management
- Meta Management
- Strategy Management
- Value Management
- Risk Management
- Project and Programme Management
- Business Process Management
- IT Transformation Management
- Organisational Change Management
- Competence and Training Management
The Business Transformation Management Methodology (BTM²) is a four-phase holistic and integrated business transformation management methodology developed by SAP Business Transformation Services and their extended network of academic and business partners throughout the world.
This post serves as an introduction to an intensely documented approach to holistic business transformation management, which addresses the transformation journey from strategy through to business benefit realisation and everything in between.
Strategy More Difficult to Deploy Than Develop
It is often said that strategy is three times more difficult to deploy than develop, which explains why so many strategies result in a painful execution journey for everyone involved. Budgets and timelines are frequently exceeded and stakeholders get tired of the noise excreted from the project, programme or portfolio due to inadequate transformation orchestration.
The colourful benefits on display in the business case begin to fade as it becomes clear that the planned return on investment is diminishing as more time and resources are sucked into the initiative. This is not to mention the fact that the people and business areas that will inherit the new world, are ill prepared.
This is a reality in many companies, because they lack the right transformation tools and transformation management capabilities. The failed BBC Digital Transformation is one example, and thousands of others are swept under the carpets of companies who thrive on operational excellence, but discover to their cost that, transformation excellence requires a very different set of capabilities.
BTM² was the world’s first holistic business transformation management methodology that provides a framework with clear phases, deliverables and corresponding methods. It is a generic framework, which can be applied to different business transformation use cases, and is not specific to one business function, technology or industry.
BTM² is a leading holistic and integrated business transformation methodology which is based on academic and business research and has been used and validated in multiple business cases. It is described in this 348 page reference book which refers to countless external resources. So this article can serve only as a short introduction to the mission critical subject that many organisations still struggle to get right.
Four Phases of Transformation
There are four phases in the of BTM² transformation lifecycle, which are:
Nine Transformation Management Disciplines
BTM² consists of nine transformation management disciplines which are:
• Meta Management (Leadership, Culture, Values, Communication)
• Strategy Management (Transformation Direction)
• Value Management (Transformation Direction)
• Risk Management (Transformation Direction)
• Project and Programme Management (Transformation Enablement)
• Business Process Management (Transformation Enablement)
• IT Transformation Management (Transformation Enablement)
• Organisational Change Management (Transformation Enablement)
• Competence and Training Management (Transformation Enablement)
Components of Transformation Management Disciplines
The illustration above shows a very high level of BTM². The next level down is shown in the chart below and a detailed body of knowledge resides within each of the 65 components shown below.
An Introduction to the Nine Business Transformation Management Disciplines
In the context of business transformation, Meta Management provides the overarching frame for a business transformation and provides the linkages amongst the disciplines and also the management structure, which will allow the transformation process to be effective. It addresses individual disciplines which include guidelines, leadership, culture, values, and communication.
In the context of business transformation, Strategy Management primarily addresses the Envision phase of the transformation life-cycle, during which a strategy is developed. Strategy Development involves the selection of appropriate team members, collection of data, analysis of transformation needs and readiness, design of a business vision, and a business model and the definition of an integrated transformation plan.
In the context of business transformation, Value Management involves defining the business benefits and changes needed to realise them, evaluating the feasibility of making the changes successfully, and producing an evidence-based, rigorous business case and supporting benefits realisation plan. Value Management relies heavily upon the engagement of stakeholders in the preparation of the business case and benefits plan to create the knowledge and commitment required to realise the benefits described in the business case.
Risk management provides fundamental guidance to the planning, development and effective execution of a business transformation. It is vital that business transformation managers to manage the risks that relate to the process of transforming their organisation towards a desired future state and those risks that relate more to the possibility that this desired state becomes either obsolete or sub-optimal.
Business Process Management
Business Process Management defines the scope of process changes needed for the expected improvements in performance. To make the transformation effort a continuous success, business processes have to be considered from a strategic perspective. The identification of end-to-end business processes and the assignment of responsible process owners is a major task. It is important to understand that process management does not equal process modelling, but rather the relationship between IT, Business and People related tasks.
IT Transformation Management
IT Transformation Management evaluates the impact of current IT processes, competencies and systems on business transformation, and vice versa. It assesses and enables solution readiness of the business, defines and assesses the gap between the as-is and to-be of IT, deploys IT operations and services, and implements IT governance. It also improves IT operations and services, and manages the IT lifecycle.
Organisational Change Management
Organisational Change Management (OCM) addresses the human element of business transformation. It deals with the people who have to change their ways of working and involves setting up a foundation for effective OCM with respect to governance and assessing organisational change readiness. Establishing and implementing stakeholder communication and performance management strategies, and continuously receiving feedback to make improvements is key.
Competence and Training Management
Competence and Training Management provides qualification and enablement with respect to the competences required for business transformation, and the strategic core competences vital for the company’s future success. Competence and Training Management identifies and analyses training needs and objectives, develops training measures for the identified gaps, foster the learning transfer and analyses the success of the measures.
Project and Programme Management
Programme management aims to support the implementation of the transformation strategy in order to achieve the business benefits described in the business case. Programme management focuses on high-level specification and the “why and what” of transformation. It includes stakeholder management, benefit realisation, dependency management, transition management/change acceptance and integration with corporate strategies. Project management focuses on detailed specification and the “how” of implementation, along with control of activities to produce products.
The Business of Digital Transformation
If digital transformation efforts are to be successful, all of the above nine transformation management disciplines need to be adequately addressed, and it is worth noting that technology is just one of nine disciplines in the list. This highlights the fact that transformation is less about technology and more about people and business.
Organisations need to ensure that their digital transformation leaders do not fall into the pitfall of placing an unbalanced emphasis on technology, process and some project management, while paying lip-service or light touches to the other transformation management disciplines. Research has shown that this common error is the basis for countless failed and struggling transformation programmes throughout the world.
What are the advantages of using BTM²?
• BTM² is based on extensive research between leading academics and some of the world’s leading transformation practitioners
• BTM² helps its adopters build credibility among their business peers
• BTM² is an objective, unbiased framework to identify business challenges and solve them
• BTM² is a ideal tool for regular and quick assessments of business transformation initiatives
• BTM² addresses both the rational and irrational aspects of business transformation
• BTM² distinguishes managers and leaders that use a proven business transformation approach from those that do not
• BTM² creates a competitive advantage
• BTM² is not focused on any particular technology or company
• BTM² is open for any organisation to benefit from without having to engage any particular consulting firm
• BTM² provides guidance, support and structure needed for transformation programmes
Are there any certified BTM² experts I can turn to?
The Business Transformation Management Methodology (BTM²) is accompanied by two levels of certification:
• Business Transformation Program Manager (BTPM)
• Global Business Transformation Master (GBTM)
Both certification tracks are available through SAP.
There are approximately 1000 certified BTPM practitioners and 300 GBTM practitioners in the world. Many reside inside SAP Business Transformation Services, the Business Transformation Academy and other organisations such as Daimler, LG, Samsung, DHL, Unilever, etc. A handful like Rob Llewellyn operate as independent consultants.
Read more about Business Transformation Management Certification
Business Transformation Health Check
An assessment of transformation programmes in your organisation can be conducted using this business transformation health check template. A certified BTM² practitioner can undertake the assessment and provide an action-plan to improve the current-state of the business transformation.
The Trouble With Digital Transformation
Digital transformation presents organisations with enormous potential in terms of growth and development, but that doesn’t come without significant challenges and risk.
And as Clayton Christensen once said, “the reason why it is so difficult for existing firms to capitalise on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption.”
The trouble with transformation is often the act of transformation itself and the organisation’s ability to effectively tackle and manage these challenges and risks.
While digital transformation is crucial to the growth and success of businesses, IDC predicts that by 2018, seventy percent of siloed digital transformation initiatives will ultimately fail. They have also suggested that by 2017, sixty percent of digital transformation initiatives will not be able to scale because of a lack of strategic architecture.
These predicted percentages align closely to the commonly touted failure rates of IT initiatives and change programmes that have been taking place for decades. While there are dozens of case studies to look at, I’ve selected one which is backed up by some very detailed documentation that was put into the public domain by PwC.
In 2013, the British Broadcasting Corporation known as the BBC, cancelled its Digital Media Initiative (DMI for short) which was meant to ‘fully prepare the BBC for the on-demand digital world’.
It was a complex business transformation programme aimed at transforming the way in which the BBC makes content for its audiences. It was cancelled with an asset write-down of a hundred million pounds, and PwC was engaged to review the failed transformation.
The shortcomings of the DMI transformation were far from technical and it’s important that leaders learn from these other lessons from transformations that didn’t go as planned. Many of the pitfalls that companies fall foul of are well-known, but uninitiated transformation leaders and managers still fall victim to them.
I’ll run through some of the audit findings of BBC’s digital transformation.
The programme governance structure implemented for DMI was not effective in dealing with the complexity of the initiative. The structure lacked an executive steering board which could effectively challenge the progress of DMI against the agreed quality, time and cost metrics.
Corporate Governance bodies weren’t provided with a clear view of the status of DMI through the formal reporting of progress and management of risk. DMI failed to provide transparent and clear reporting on progress against plan, cost to complete, or delivery of benefits, to enable effective decision-making within the corporate governance structure.
While the overall status of DMI was known via the quarterly reporting provided by the BBC PMO, confidence among BBC Executive, that DMI would eventually deliver wasn’t supported by evidence of detailed recovery plans.
The focus and priorities of DMI were on technology build and not sufficiently on enabling BBC-wide change.
DMI sought to change and standardise working practices across all of the BBC based on implementing leading edge technology that the BBC needed to research and develop with third parties.
Delivery of a single set of processes and the required change in business operations were a pre-requisite of successful delivery of the benefits recognised in the Business Case. But DMI reporting focused on technology risks and issues, rather than the ability of DMI to drive operational change to business practices in the BBC.
The DMI Business Case wasn’t subject to periodic review. This meant the DMI would have had to monitor for changes in the benefits and the cost against the Business Case.
Reviewing cost and benefits together would determine whether trigger points in the BBC Investment Policy and Guidelines were met which would have required a re-submission of the Business Case.
At the time, the guidelines in place required the Business Case to be resubmitted should there be variation in costs or benefits over the whole life of a project by ten percent.
In June 2011 the DMI steering board reported that almost eleven and a half million pounds of the benefits forecast were at risk, and as this represented an eleven point six percent drop in benefits, a benefits review was undertaken the following month.
However the BBC believed at the time that the full functionality outlined in the Business Case, and the benefits, would be delivered over the full life of DMI – which was to be up to March 2017.
Unfortunately, no review was undertaken into the cost of delivering DMI. Had DMI provided an accurate forecast against plan, it would have been clear from delays in delivery, and changes to the risk profile, that the conditions requiring re-approval of the Business Case had been reached.
There was also a lack of an integrated assurance plan, which reduced the effectiveness of governance in managing risk.
The key lessons to be learned from this failed transformation were broken down into six areas of transformation management:
Programme and Corporate Governance. This included Programme governance structure, the Role of the Design Authority, the Role of Corporate Governance, and Programme reporting
Programme Lifecycle Management. Which included agreeing on a common approach, Programme planning and plan management
Risk and Issue Management
Programme Assurance Planning
Financial Management, addressing Business Case definition and approval and Project financial management
And last but by no means least, Benefits Management and Tracking.
What I’ve just described are the results of an official audit, and I’ve seen many of these shortcomings inside a number of organisations that I’ve stepped inside over the last twenty years.
This is one of many examples that serve as valuable lessons learned for transformation leaders who prefer to side-step the pitfalls that many others have fallen into before them.
You’ve probably noticed that the reasons for the BBC’s transformation failure were far from technical.
Six Guiding Principles of Digital Transformation
The THRIVE Digital Transformation Framework provides a body of knowledge six guiding principles which helps leaders approach digital transformation holistically. THRIVE is not related to any one technology or industry – it's a way of thinking of, and approaching transformation from a business perspective. It helps leaders approach business transformation from all angles, and not be blinkered by digital marketing hype or specific technologies.
THRIVE is an acronym made from six words which are:
Leaders first need to recognise the fundamental difference between change and transformation, before they can lead their companies on a journey of legitimate business transformation. While ‘change’ is required to maintain and modernise an organisation, this isn’t enough to sufficiently elevate both its internal capabilities and external offerings. Too many companies are being lulled into a false sense of transformation security through siloed digital projects and change initiatives that are not transformational.
To take advantage of the opportunities and protect against threats that new digital business models present, leaders need to commit to being bold and transformational, ahead of those that remain safely within their comfort zones and traditional ways of working.
Leaders need to communicate this fundamental difference across their organisations to avoid their best resources being tied up making small changes instead of driving transformation. This is also needed to keep the company’s best people on board and attract new talent, because the high-performers have a insatiable desire to be part of an ambitious transformation journey. If one company fails to take them on that journey, they’ll move to another that will.
Legitimate transformation also requires a fundamental shift in other aspects of an organisation. Appropriate governance, mindsets, business models, capabilities and culture are just some some of the transformation fundamentals that THRIVE addresses.
Unlike business process re-engineering, which focuses on business processes, or app development which focuses on technology, or projects, which focus on producing outputs, digital transformation requires more integrated and holistic approach.
THRIVE helps leaders take a holistic and integrated perspective of their enterprise and its complexity. It does not reinvent individual management disciplines but it provides a framework that integrates individual disciplines, which should be sufficiently mature to undertake successful transformation.
From digital business models, capabilities and roadmap design, through to culture, portfolio governance and transformation execution, leaders need to consider the big picture and not limit their focus to only some of the key enablers of transformation.
Most transformation strategies are not successfully executed upon, and only a holistic approach to transformation will produce the outcomes a company aspires to achieve. Through holistic transformation, leaders will dramatically increase the odds of success, and be among the minority that actually achieve their transformation objectives successfully, and live up to stakeholder expectations.
Organisations must respond strategically to the opportunities and threats they are presented with – both inside their organisation, and externally in the market.
Internally this could involve responding to the evolutionary needs of the company’s culture, maturing the capabilities required to achieve transformation excellence, and the establishment of new governance that facilitates innovative transformation while minimising bureaucracy.
Externally it could involve defensive and offensive responses to the changing dynamics of the market caused by disruption, or seizing the opportunities that digital technologies and new business models can be used to take advantage of.
These and other responses form part of the transformation strategy that needs to be shaped, then planned as part of a short, medium and long-term roadmap, which is then governed and executed upon.
It’s vital that the transformation response not only strategically addresses all of the key threats and opportunities the organisation faces, but it must also be supported by the appropriate leadership mindset, workforce culture and capabilities required to transform strategy into reality.
Cloud, mobile, the Internet of Things and Robotics, etc. will all bring about the most rewarding business transformation when used strategically. Only through the innovative convergence of digital technologies can companies to truly transform through new business models and ways of working.
Plugging in individual digital solutions in non-innovative ways lulls companies into thinking they are transforming, when in fact they are merely updating their technology and changing nothing fundamental about their business. This only achieves change, while business transformation should be the goal.
Innovation empowers companies to consider many new possibilities that can be part of its strategic response, and this requires effective approaches to innovation, which transcend technology upgrades and simply doing the same things faster, better or cheaper.
Companies need the ability to envisage how new technologies can be converged into a scalable architecture that is prepared for near, mid and long term digital adoption. While the Internet of Everything will take years for most companies to derive value from, the foundations can be laid now, with capacity for the future in mind.
External value represents the benefits transformation creates for its customers, while internal value represents the benefits delivered into the business as a result of transformation investment.
External value is generated through digital business models shaped by strategic responses to what is happening in the market. This enables companies to tap into the known and unknown needs of its current and potential customers, in ways that create competitive advantages, then seize market share. These models can also be used to reclaim market share after disruption and protect a company’s position in the market.
As markets are disrupted, the opportunities to satisfy the need for value have changed. In 1999, millions of customers were not expecting 24 hour delivery of products purchased via a smartphone, but today they do. The world has changed, but too many companies still rely on antiquated business models.
Internal value is generated through initiatives that provide stakeholders with tangible or intangible return on investment. This could involve higher revenues in a particular line of business, increased workforce capabilities, better operational excellence or more effective marketing. All of this in turn enables the company to serve customers better and increase market share.
Transformation must encourage, embrace and educate people from across the enterprise and build a collaborative culture of new capabilities and mindsets.
CEOs needs to foster a transformation mindset among their executive teams, which is aligned with the strategic aims of the company. This transformation mindset then needs to shape the company’s culture at every level, to create an environment within which innovation and digital transformation can thrive.
Opportunities to upgrade workforce capabilities need to be identified and people made to feel safe and comfortable about innovation, success and failure. The right support and training is vital in helping to achieve this, without unrealistically expecting an operational workforce to become overnight transformation masters.
This can be a major undertaking, particularly for organisations that have been shaped over many years by operational goals, roles, processes, values, and attitudes. While this will have created operational excellence, it is also prone to preventing attempts to change “how we do things around here”. Such an environment will inhibit even the finest transformation strategy, because as the great Peter Drucker told us, “culture eats strategy for breakfast”.
So creating the right internal transformation environment is vital to transformation success.
The role you have within your organisation will also determine the influence you have on shaping how your organisation’s digital transformation will unfold. The people watching these videos range from are C-Level executives to Directors, Transformation, Programme and Project Managers, Strategists, Innovation experts and others. How you personally get to put THRIVE principles and lessons to work will depend on your role within your organisation.
So using the THRIVE principles and lessons, you need to consider how the THRIVE roadmap needs to be custom tuned to work effectively within your environment, and in the context of the role you play within the organisation. If you’re a CEO, you will be leading the transformation from an executive
perspective. If you’re further down the chain of command you might act as an advisor and perhaps manage transformation.
One thing for certain is that if you’ve understood THRIVE, regardless of your role, you will almost certainly have a better understanding of digital transformation than most people in your organisation.
What I describe below are essentially a set of sign posts and directions on how to get from one sign post to the next. Knowing these is one thing, but implementing each of them effectively will in many cases be a challenge. And the larger the organisation, the greater the challenge.
The roadmap helps you ensure that the THRIVE principles and lessons are put into practice in the right sequence. As for anyone, you will probably be more comfortable and familiar with some aspects of transformation than others. So as you address each step in the roadmap, refer back to THRIVE material to help you plan and undertake the various activities.
Most organisations will be able to chart the next twelve to eighteen months reasonably well, but beyond that, with the pace of change and disruption, things become a bit hazy.
Remember that building your transformation strategy and plan is an ongoing process, not a one-time event. So if you can’t see the next two or three years, don’t worry. Just agree with everyone that you will periodically revisit your roadmap, and later we will look at establishing governance to help ensure this happens.
Not only will your strategy and portfolio need to be adjusted over time, but there will be lessons learned that will help you improve areas such as governance, transformation organisation and change management, etc. And this will be ongoing, because no one ever gets it perfect. But you need to encourage continuous improvement throughout your transformation journey.
Your roadmap needs to be holistic, ensuring all THRIVE principles are applied. If you skimp on some of the principles, you’ll find that your implementation and outcomes are unlikely to live up to the expectations of you and your stakeholders.
You might run into resistance from stakeholders when it comes to certain aspects of transformation. For example it’s not uncommon for more technically orientated people to underestimate the importance of governance or change management. Or there might be some who dismiss the need for a flexible innovation process in favour of old ways of working.
Pull out your best interpersonal skills and put the persuasion Cycle to work to convert your adversaries and opposers into alies. As a reminder, this means taking them from resisting to listening to considering to willing to do, to glad they did and will continue to do.
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