The Three Main Areas Leaders Should Focus Before Executing Digital Transformation

02 Jan, 2018

Innovation

Sridhar Sunkara

Digital awareness is an essential expertise for every business leader in today’s hyper-competitive, digitally-enabled world. Most company leaders lack the correct knowledge, skills and structure to succeed in implementing a digital transformation of their company. Strong digital leadership matters, as Figure 1 demonstrates how Digital Masters exceed in revenue and profits margins. With strong digital leadership, any business can excel, regardless of size, budget, or industry. Leaders can follow steps to guide their company through a smooth Digital Master journey.

Figure 1:

Digital transformation has already hit every industry,  as seen in Figure 2, however, there is still lack of urgency in many businesses for digital transformation, as leadership fails to realize the need for change. Leadership in most companies react to threats instead of being proactive about the future and start the digital transformation process now. One reason for this approach is that leadership is unaware of the challenge, knowing where the company stands today, where it needs to be, and how to get started.  As a leader in the company, you must create a sense of urgency and appropriate momentum around the digital transformation.  This can be done by addressing three areas early in the process:

Figure 2:

Digital Mastery by Industry.

Source: The MIT Center for Digital Business

1.Building awareness: The leaders of the company need to engage with senior leaders and discuss the impact of digital transformation on the present and future business and teach them the potential threats and opportunities from digital technologies. These can be addressed by asking the right questions such as:
How can new digital technologies disrupt the competitive advantage of the company?
How can these digital technologies help improve the performance of existing processes?
How can it create a better experience for the customers?
What are the new possibilities that can be enabled today and in future?

Leaders need to understand how to pace and scale the digital transformation. Based on the organizational culture that exists today, the decision making is centralized, or decentralized, which can demonstrate how well the company collaborates and shares. They need to understand if the present profitable operations and assets need to be protected forever, or if they need to be replaced and/or enhanced in the future. Look into other industries and what they are doing, as disruptive digital innovations often come from outside of the industry’s verticals.

Digital means different things for different departments like marketing, operations, HR, and so on. It is the leadership’s responsibility to create awareness and unite the senior team on the purpose of the digital transformation and set the right direction.

2. Defining your starting point: Once the senior leadership understands the purpose of the digital transformation and are on board, it is critical companies understand where to start the process. So, to understand the starting point companies need to know where they stand in their digital maturity. It is not by replacing old technologies with new. Companies need to identify what current strategic assets like physical assets, core functional skills, core competencies, processes, and technologies. Companies need to identify their intangible assets like brand value, company culture, and ecosystems of their vendors and partners. The critical asset in the digital transformation is the data; companies need to know how to master analytics as insights from data. This is going to give them a competitive advantage. All these assets are most important and relevant to the company’s digital transformation journey.

Companies must assess their current digital mastery level, as shown in Figure 3, to figure out their strengths, weaknesses, opportunities, and threats to their digital capabilities and leadership capabilities. It takes thoughtful analysis to identify which assets will help make digital transformation successful. View strategic assets through the lens of a digitally transformed world and identify those that have value.

Figure 3 (Source MIT CDB and Capgemini Consulting):

Once the capabilities are identified, start with the path and speed of the digital transformation. This is not the same for every company. Different companies might choose different paths to move directly from Beginner to Digital Master. This means companies need to simultaneously develop their leadership and digital capabilities to make their strategy a success. Or, companies might want a more conservative approach – favoring prudence over innovation. This approach will involve building a foundation of strong leadership before experimenting too far with new digital technology. Or, you might be like the Fashionistas – having already launched a multitude of uncoordinated digital initiatives. If so, the company should focus on developing a coherent vision and a robust governance model, and then streamline, or harmonize digital initiatives across business units. Understanding these differences is important as leadership crafts a trajectory that will work for the company.

Next, challenge the existing business model and see how it will be impacted by the digital transformation journey. Understand what the current business model value proposition is and compare it with what additional value that will be delivered with the digital transformation. Think about the new profits, what problems the new value is solving and what new opportunities the company can create. As you assess this, prioritize the options that generate the greatest value to customers, are difficult to copy, and provide good profits too.

3. Creating a shared vision:  Leadership should set a vision that is focused on enhancing the customer experience, streamlining internal operations, and then combining both to transform your business model. The focus of the vision should be on the business and customers and not the technology. Your vision needs to recognize where you are starting from, taking into account your existing competencies and culture. It needs to be built around strategic assets, or a combination of strategic assets, that will be relevant in a digital future; and it needs to be transformative, not incremental. Once the vision is set, it needs to be shared by senior leadership to the frontlines. Most companies fail at a digital transformation when the vision is not shared with the whole company. Digital transformation only works when your top team is actively engaged and owns the digital vision. Digital transformation ownership cannot be the responsibility of middle management and/or frontlines, it has to be owned by the top management to be successful. Digital transformation is not just involving IT or operations, it is an effort of cross-disciplinary teams at various levels, from top to bottom, to innovate and drive change.

A good test if the company is ready for digital transformation execution is when all members of senior management sense the urgency of transformation (awareness of the challenge), understand their strategic assets and level of digital mastery (starting point), and can share what the digital future looks like (shared vision).

As we conclude, it is important to understand that in digital transformation, technology adds a new dimension to the traditional business challenges. Businesses need to rethink their traditional assets through a digital lens and see how it can create new possibilities. Some assets will still be useful while others won’t. New ones, such as data and insights, will be sources of new value in a digital world; whereas a functional approach sometimes works in a traditional transformation, digital transformation respects no organizational boundaries. You need aligned executives who, as a team, have the authority to drive the change across silos.