The business case for digital transformation: Making it work

In every industry digitally-led businesses have either disrupted or gained an edge because they tend to be more efficient, deliver greater customer value and are generally seamless in how they integrate with stakeholders needs.

However many traditional companies struggle to make headway with their digital investments or fail to make the case for these in the first place. In this interview, Ramesh Shanmuganathan discusses how companies might go about making the business case for digital investment, how the success of digital investments might be measured and why it’s important to be led by a digital vision.

Why digital transformation? What’s the impetus for it?

Digital transformation is a global business phenomenon, capturing the attention of enterprises in every industry and spurring major investments. Dismissed as just a buzzword for many years, digital transformation has become palpable and urgent: many companies and their boards, as well as senior executives, acknowledge that digital disruption will have a major impact on their industries, and many feel it is imminent. But one of the key reasons for a business’s slow pivot lies in what makes the information technologies of the digital age different from technologies that fueled other business transformations. They evolve, seemingly, at warp speed, and can be purpose-built; provided that a business has the right talent and corporate culture in place which is the key challenge for many companies.

At traditional organizations, especially those organizations with huge investments in legacy technology, digital transformation is viewed as a disruption to be avoided or best executed in small steps to protect their existing investments or until their depreciation cycles are exhausted.

The pandemic came as a reality check for many organizations who took a slow pivot since they had to scramble to enable remote work and serve customers in lockdown to keep their businesses afloat. Practically overnight, digital transformation was a matter of survival, and it woke up a lot of C-suite executives since they saw that the organizations that were more mature in their digital transformation suffered much less costly disruption. The switch flipped since most accelerated their digital business initiatives in the wake of COVID-19, and about half foresee changing their organizations’ business models as a result of the pandemic.

Besides, Emerging technologies such as AI, IoT, RPA and edge computing open up entirely new business opportunities and give rise to completely new customer expectations. Companies with the resources and mindset to leap and gain a competitive advantage, widening the gap between digital laggards and leaders.

How does one frame a conversation around digital transformation?

C-suite executives accelerated their digital initiatives during the pandemic. Unfortunately, most can’t articulate their overall strategy beyond to suggest they made a huge technology investment to navigate through the disruption caused by the pandemic. Most fail to realize that the imperative for change is increasingly the creation of an adaptable business — one that can leverage the platform economy and thrive in it. For many C-suite executives, their digital initiatives have not resulted in new business advantages or adaptability and thus has not yielded the transformation that they ought to have achieved.

This dichotomy between business and technology strategy underscores a broader challenge: senior executives understand that technology shouldn’t drive business strategy, but that understanding is superseded by the urge to respond to events by making a series of tech-first, one-off investments.

Compounding this challenge is the fact that C-suite executives have different focus areas and goals. A single technology won’t address their needs; rather, a complex combination of solutions may be required. Further, they often don’t speak to each other when making tech decisions, and when they do, they struggle to effectively communicate. Digital transformation is a team sport and should use a playbook to coordinate strategies across leadership functions with consistency in the face of change.

While organizations have a digital strategy, they lack a common language to strategize across functions, making it challenging to digitally transform and address related opportunities and risks.

Indeed, a common language for digital transformation can enable C-suite executives beyond just the CIO, CTO and CDO to have tech-adjacent and tech-agnostic conversations that transcend any individual technology and go to the heart of their processes and culture, and how people work and interact.

The key is to have a common language across the organization, across functions and units, with the following core philosophies.

(A) BREAK-THROUGH HUMAN BEHAVIOURAL AND STRUCTURAL BARRIERS.

Everything in an organization is interconnected. Leaders across functions can speak thematically about shared needs, avoid redundant investments, address emerging risks, and change processes at scale by simply communicating better.

(B) PLAN BEYOND A SINGLE TECHNOLOGY.

Platforms, capabilities, and initiatives often involve multiple digital and physical technologies securely working together. As these technologies combine, they become greater than the sum of their parts to bring new capabilities and greater value.

(C) EVOLVE INTO THE FUTURE.

Today’s breakthrough technology is tomorrow’s legacy tech. A common language can enable leaders to think flexibly across business and technology needs, without having the business strategy reliant on any single technology.

(D) ACHIEVE A GREATER STRATEGIC BUSINESS VALUE THROUGH ITS CAPACITY TO CHANGE AND ABILITY TO WIN.

This approach helps organizations align and execute against their business strategy to achieve results of advantage and adaptability of the organization, humans, and technology.

The language of digital transformation should appreciate, on one side the business, and be grounded in downstream technology and operations so all parties can understand and contribute. It’s important for organizations, as they become more technologically and digitally focused, to have this gap bridged so they speak the same language in the business as they do in technology.

How can we build a framework for a common language across the organization?

By focusing on business outcomes and technology impacts and enablers to build that common language by thinking thematically across five key digital imperatives; experience, insights, platforms, connectivity, and integrity. An organization can communicate across functions to put strategy ahead of technology leading to initiatives that deliver a more modular, flexible technology core that delivers transformation and strategic value.

These business-techno concepts can act as guardrails to help leaders avoid the trap of falling into a technology-led conversation. They can also frame digital strategies linked to technical realities and workforce implications. In essence, they create a bridge for coordinated discussions between business and technology strategists and workforce and operations leaders.

Focus on optimizing interactions with users, whether they be customers, the workforce, or other stakeholders within the ecosystem.

Assess what data, analysis, operating model, and workforce are required to enable organizational strategies.

Focus on the location and management of information across an organization or its network.

Involves the flow of information between platforms, experiences, and insights, encompassing the future of the internet, and networking with other organizations and ecosystems

Focuses on improving resilience, security, ethical tech, and trust across all internal and external facing business systems and processes with a cyber-minded culture to address evolving threats.

There will be more than one technology to consider for each one. Thinking about the imperatives as categories, or ‘capability stacks,’ can be useful. Themes allow change categories to become fixed as technology changes. This way, organizations can consider today’s enabling and disruptive technologies (that is, cloud, IoT, blockchain, AI, cybersecurity, mobile, 5G, digital reality, edge computing, quantum, and others), while leaving the same strategy in place for future disruptive and horizon-next technologies.

How should organizations evaluate and deliver their digital initiatives?

Today, C-suite executives evaluate digital investments often traditionally applying a capex-based evaluation since it gives them the comfort to report clearer ROI as opposed to an iterative way they feel may result in losing control of funding and visibility into how the organization is meeting business needs. This is one of the key obstacles to an organization’s ability to deliver business value.

This stems from a legacy where most digital initiatives were evaluated and delivered as projects with detailed, well-planned-out scope, budget and timelines designed to achieve specific outcomes for the organization. The old approach is engrained in organizations and is often the default method of evaluation and delivery where the returns are also seen over a long period.

Today with digital initiatives to take months for evaluation and delivery could mean the difference between winning the hearts and minds of your customers, differentiating your product, pivoting on an iterative idea, or losing market share to a competitor.

Product-centric evaluation/delivery empowers product teams to explore and deliver outcomes incrementally on an MPV (minimum viable product) model akin to the born-digital organizations where the product is iteratively enhanced on a real need. This allows teams to pivot quickly based on market conditions, customer preferences and manage the investments incrementally, based on need or market conditions.

For organizations, the key difference is that product-centric delivery is funded continuously — and is justified by the incremental value being created.

Why take a product-based view to fund digital initiatives?

We must understand that digital transformation is about creating and sustaining value and not just about delivering a feature. In a product evaluation and funding model, “products” are defined broadly as capabilities, services, platforms or goods for a specific need of a customer segment and that customer can be internal or external.

An organization might define improving employee productivity as a product category with underlying product lines such as developing on-demand training platforms or fostering mentorship networks. Organizations can assign resources to products according to their digital priorities and leave the details of how those resources are used to product line managers. These pools can be funded at monthly or quarterly review meetings and adjusted or terminated if they are not performing or yielding the incremental, envisaged value thus promoting an experimentation culture to drive the transformation agenda.

This approach to funding digital initiatives help organizations finance and maintain oversight and controls on digital spending without weighing down teams with onerous methods and processes that stall can digital initiatives.

This also makes it possible to prioritize funding without being caught in the trap of trying to build vast monolithic technology solutions in silos. By giving more control over funding to product lines, there is far greater scope for those on the front line to deliver quick, agile projects in response to the needs of the business at the time, and then to scale those with the greatest promise.

How does one measure the digital success of an organization?

Most organizations will have a series of digital initiatives in progress like building a new tech platform, launching new products, or investing in infrastructure.

Just tracking a series of digital initiatives alone doesn’t guarantee the organization is increasing revenue, profitability, market share, efficiency, or competitive moats, as a result. Organizations pursuing digitization need to engage the C-suite to take charge and drive performance from digital investment. That means prioritizing scalable initiatives capable of improving performance.

An organization’s digital success can be measured by these five markers.

  • RETURN ON DIGITAL INVESTMENTS

Measuring the return on digital investment is both standard and essential. Organizations should look not only at value provided by individual digital initiatives but also their support of strategic goals.

(2) PERCENTAGE OF ANNUAL TECHNOLOGY BUDGET SPENT ON DIGITAL INITIATIVES

Organizations that spend only a small proportion of their technology budgets on enabling the most strategic, bold digital initiatives are unlikely to maximize return on digital investment. The allocation of technology spending is a leading indicator that organizations can use to monitor capacity to deliver digital-backed value.

(3) TIME REQUIRED TO BUILD A DIGITAL APPLICATION

Speed, specifically the translation of ideas into products is critical in an organization. In a fast-changing world, a delay means yielding an advantage to the competition or, worse, producing a tool that is obsolete before it’s ever used. Despite this, many organizations have little idea of how they measure up in this area.

(4) PERCENTAGE OF BUSINESS LEADERS’ INCENTIVES LINKED TO VALUE-CREATING DIGITAL BUILDS

Organizational leaders are accountable for digital transformation and are driving tangible value. Aligning incentives is critical to achieving these ends. Importantly, this includes linking digital incentives among leaders Organizations building out their digital and analytics capabilities will often have multiple technology leaders. But the ability to mobilize a technology organization to support business objectives should ultimately rest on the technology leaders who generally controls resourcing, production guidelines, information security, and technology-development protocols.

(5) TOP TECHNICAL TALENT ATTRACTED, PROMOTED, AND RETAINED

The ability to attract and retain tech talent is arguably the most crucial driver of long-term success. Tech talent includes individuals with expertise in data engineering and analytics, design and user experience, and core technology.

What’s the ROI on digital? How does one govern investment and create sustainable value?

When it comes to measuring ROI, there isn’t a one-size-fits-all approach. Take the time to define your principal motivation for digital transformation, and make sure you have the right metrics in place to evaluate your success. Better yet, involve the customer success teams from the platforms you want to work with early in the process. Engage with them to refine your strategy, troubleshoot problems and track ROI from day one.

While priorities change, and your company will have its particular ROI measures, aligning them and your metrics with your goals and operations is important.

  • DECIDE ON YOUR PRIMARY MOTIVATION FOR DIGITAL TRANSFORMATION.

What do you want to achieve with this digital transformation? Boil it down to a single objective: enable transparency, increase employee engagement, boost operational efficiency. Why is this goal important to your organization? Will transparency have a positive domino effect in other departments? Will greater operational efficiency free up employee time for other responsibilities?

  • CHOOSE METRICS THAT ALIGN WITH YOUR PRIMARY MOTIVATION.

Once you’ve identified your main motivation, you can develop metrics to holistically develop it. What does success look like when you meet your objective? What do you need to track and analyze to gather the right data?

  • ANTICIPATE UNINTENDED IMPACTS.

Change always comes with a learning curve, so be prepared. Expect some initial delays and roadblocks, and give new changes time to settle in before pulling the plug.

Let’s look at a simple example of measuring the ROI of digital transformation within the HR department of a large organization. Their goal is to automate the vacation request process to improve operational efficiency. Any change may be only one step in the organization’s overall digital transformation, but it is clear, measurable and aligned with big-picture goals.

The biggest handicap in aligning ROI on digital is the siloed view of digital investments. This is the biggest barrier to capturing digital value. Only a small percentage of companies get both cost savings and new growth from digital because the rest tend to invest in silos and this happens across industries.

One such example, take a retail organization’s functional departments are investing independently in digital initiatives: CRM is focusing on the advanced customer and consumer analytics; IT function is looking at in-memory ERPs to accelerate insights and each group is exploring its data lake. This patchwork approach leads to an incoherent digital strategy. It consumes extra time and resources while building multiple sources of truth, which jeopardize future data consistency. What’s missing is a cohesive strategy to harness the multiplier effect—or combinatorial impact—of digital investments. The leadership to drive the big picture thinking is key and its lacking leads to more silos being created breaking the very business case that organizations try to build for digital.

A zero-based approach to digital investments also links them to the overall digital strategy and embeds ROI into a zero-based plan. It’s about starting with a proverbial clean sheet to understand the full breadth of an organization’s digital investment without blind spots. What does the organization want to achieve? Where should it invest? What investments are working? Which ones should be halted?

Zero-based approaches also allow for continuous control and monitoring of digital value captured and identification of potential interventions where the digital value is not achieving its potential. We need to start tracking digital value every step of the way and make necessary course corrections to meet these targets and to avoid depleting the same.

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