It seems that everywhere one looks today, another organization is going through a digital transformation. And that is, in fact, true. According to a recent global Gartner survey of over 3,000 chief information officers (CIOs), 95 percent of respondents can feel the effects of digitalization and expect their job to change because of it. The underpinning factors of digitalization (technical agility, interoperability, platform-centric architectures, etc.) are commonly shifting CIOs’ attention from being focused on IT outcomes, taking orders and controlling costs to focusing on business outcomes, setting a collaborative agenda and building revenue. We also see innovation, industry disruption and organizations’ ability to respond to changes rank at the top in Protiviti’s 2018 Top Risks survey.
While most leaders would agree that digital transformations are important to helping organizations keep up with competitors and ever-growing customer demands, the reality, according to a recent study, is that only half of these transformations are viewed as successful by executives. There are many factors that contribute to this rate of failure, but the key ones relate to lack of understanding of all the possibilities of emerging technologies, unclear business goals (focusing on technology accomplishments instead of business outcomes), lack of a digital mindset among the leaders in the organization, and a missing architectural approach to the underlying systems during transformation. The last is particularly true when a digital transformation is undertaken by large, complex enterprises that have years- or even decades-old legacy systems and processes in need of modernization.
What Exactly Is Digital Transformation?
Before discussing some common mistakes organizations make when starting on a digital journey, I want to set digital transformation in the context of the types of technologies that are usually leveraged to accomplish such change.
In most cases, a digital transformation initiative is intended to address some combination of the following four goals:
- Enhance how customers are engaged
- Offer new products, services or alternative business models
- Harness data and analytics to improve decision making
- Significantly improve operational efficiency
In many instances, a firm will describe these goals as an aspiration to become a “technology company,” even if technology is not its traditional business. Regardless, to the company, the effort represents a fundamental change, with the goal of driving better business outcomes through the adoption of new and emerging technologies.
What Technologies Equate to Digital Transformation?
In years past, firms would have described digitalization in the context of SMAC (social, mobile, analytics, and cloud) technologies. While these are still relevant, the number of technologies and other innovations deployed in a digital transformation has expanded dramatically, and continues to do so at a rapid pace. Some of these additional technologies include:
- Artificial intelligence (AI) and machine learning (ML)
- Blockchain, distributed ledgers and smart contracts
- Robotic process automation (RPA)
- Internet of Things (IoT)
- Virtual reality (VR) and augmented reality (AR)
- Natural language processing and voice recognition
- Open APIs and microservices
- Drones and autonomous vehicles
How Can Organizations Effectively Navigate All of the Digital “Choices”?
Is blockchain going to be the most disruptive technology since the internet, and what’s our opportunity with it?
Are open APIs and microservices going to disrupt our business model?
Will RPA, chatbots, AI and natural language processing replace agent-assisted customer service channels, and how will this affect us?
These are but a few of the questions that organizations have to wrestle with as they consider the impacts of emerging technology.
Our perspective is that no single one of these technologies will be the disruptor. Rather, it’s a combination of all of them that offers the promise of digital transformation. For example, implementing IoT devices to monitor a supply chain, feeding that information into a blockchain, using smart contracts to facilitate transfer of value, and applying AI to identify issues in the supply chain may prove to be an incredibly effective way to increase efficiency while at the same time improving quality and reducing fraud. Independently of each other, each of the technologies in this example adds business value within a defined scope; combined, their value increases exponentially, offering the synergistic promise of real disruption.
What About the Pitfalls?
Now that we are on the same page about what digital transformation entails, let’s turn to some of the reasons these initiatives so often fail and the steps organizations can take to improve the likelihood of success. Based on our experience, we have identified four major themes that could cause digital initiative derailment:
- Lack of focus on the business outcomes – Organizations tend to focus on the capabilities of emerging technologies instead of focusing on the relevant business outcomes.
- Lack of a digital mindset – The transformation of people and processes is more important than the tools themselves. If the people within the organization are digital leaders, then the organization will become a digital leader. If the people are not ready for digital, then it is highly unlikely that the change will be successful.
- Lack of knowledge – Few enterprises have the resources and time to continuously keep up with the latest in emerging technologies.
- Lack of enterprise architecture approach – Technical debt and legacy infrastructure and processes prohibit organizations from deploying digital technologies on a broad scale.
With those common themes in mind, I want to offer several high-level considerations for organizations to keep in mind prior to giving a digital transformation initiative the green light:
- Align enterprise and digital strategy: Any digital strategy (including people, process and technology components) should be built in parallel with, if not as part of, the corporate strategy. Lack of coordination between the two typically results in delayed delivery and increased cost of the transformation, if not outright failure. From an IT point of view, the enterprise and digital strategies should be readily apparent in the organization’s target architecture.
- Become maniacally customer focused: When crafting their digital transformation strategies, organizations must listen closely to customers’ demands, both to what they want and how they want to access it. As companies go through the transformation, they must continue to shorten the feedback loops with their customers to confirm they are delivering solutions their customers want to use.
- Make outcome-based technology decisions: Instead of picking emerging technologies to pilot because competitors in the industry are using them, companies must focus on the business outcomes they want to achieve and select the correct technologies to support the delivery of these goals.
- Evolve your architecture: Companies must design their systems to be as flexible and scalable as possible. This means dealing with legacy technology debt and developing capabilities that are loosely coupled and agile enough to allow for the adding and removing of features with demand.
- Test and learn: As companies begin their transformation, they must utilize proofs of concept for the selected solutions and use cases. This will allow them to fail fast, quickly change direction based on feedback, and save unnecessary implementation costs.
Over the past couple of years, Protiviti’s digital team has done extensive research into what it takes to be a leader in this space and has developed an assessment methodology designed to evaluate organizations for digital readiness. The methodology considers 36 core attributes across multiple dimensions, including people, business, data and technology, and rates organizations on five digital maturity levels (skeptics, beginners, followers, experts and leaders). Based on the results of this assessment, organizations can make informed decisions about how to address their gaps or build on their strengths to get where they want to be.
In the final analysis, digital transformations are not for the faint of heart – but they are often necessary for companies to remain competitive in fast-moving and disruptive environments. In fact, it’s probably best for organizations to think of digital transformation not as a one-time event but as the new norm, and get in shape to consistently perform at their best in this transformative setting.
Michael Roberts, a manager with Protiviti’s Technology Strategy practice, contributed to this content.