Digital transformation is picking up speed — and urgency.
A 2017 IMD survey of 636 executives found 75 percent expect digital disruption to have a truly transformational impact on their industries. That’s up from 17 percent when the survey was first fielded just two years prior.
Unfortunately, most transformational efforts underachieve. According to a new study by Bain & Company, a mere five percent of these programs meet or exceed their goals.
Sometimes that’s simply a result of businesses not sensing the urgency and thus not giving digital transformation work the resources and attention required by new competitive realities.
Elizabeth Spaulding, leader of Bain & Company's global digital practice
“We see this time and time again,” said Elizabeth Spaulding, leader of Bain & Company’s global digital practice. “There’s a bit of a frog-in-a-[boiling]-pot scenario, especially in sectors that feel they have some regulatory or capital barriers to entry.”
A successful digital transformation ultimately means a change in the business model, said Michael Krigsman, an industry analyst and creator of CXOtalk a podcast on innovation and transformation that interviews business leaders. Companies need to start with small bets, he said, but “when you change a business model, there is always a certain amount of risk,” he said.
So what are the signs that a transformation program is making progress? And how do companies take their work beyond initial success, creating a next-level digital transformation effort?
4 success markers for the digital transformation office
Active reskilling, inside and outside the office
If the business model is changing, then products and workflows will change as well. That means employees need new skills and capabilities.
At Harvey Nash, a global recruitment consultancy and IT outsourcing service provider, staff are helping the company’s clients with digital transformation as well as supporting it internally themselves, said Anna Frazzetto, chief digital technology officer for the company, with its global headquarters in London and its U.S. headquarters in Wayne, N.J.
“About five years ago, we started seeing more clients faced with this dilemma: Digital, and what does it mean,” she said. While digital transformation started out as being seen as digitizing the media sector to make information easier to access, over the past three years there has been a significant change, Frazzetto said.
“Companies going through the process need to go back to the basics of consulting: People, process, and technology,” she said. Skills that employees needed five years ago might not be the skills they need today, so what is the company doing to retool and to find talent with those new skills? “What ties it all together are the processes and procedures you have put in place,” she said.
That’s true for Harvey Nash itself as well. “We practice what we preach,” Frazzetto said. For example, digital transformation has changed the way the companies sources candidates and gets them to prospective clients. “We have a whole engine of people providing around-the-clock sourcing,” she said. “By the time our recruiters come into the office, they already have vetted candidates. All of that’s changed internally, the more automation we’ve added to our daily practices.”
The skills required will of course depend on the specifics of the new model. Whatever learning needs to take place, it won't happen by accident. French cosmetics company L’Oreal, for example, hired a Digital Transformation Learning Director to accelerate its transformational efforts.
Agile cross-functional teams throughout the business
Companies that have been doing digital transformation for a while typically find they have to break down the silos in their organizational structure to better serve their customers. Spaulding describes this as the process of becoming “a product-led business, rather than a function-led business where they might not think about the full arc of the customer experience.”
Comcast Cable had to fight the function-based mentality, said Chris Satchell, executive vice president and chief product officer for the Philadelphia-based telecommunications company, in a CXOTalk interview.
“We have amazing high-speed data services, and we have great home security services,” he said. “But really, what the consumer thinks about is their digital home. They don't really care what the products are or the org structure. ‘I have a digital home. I want to have automation in it. I want it to be able to react to me.'”
To deliver on that customer experience demand, Comcast integrated the teams under a new Digital Home banner. “We're going to think about it differently than just the vertical businesses we thought about before,” Satchell said.
A digital transformation office is making important progress when cross-functional teams become prevalent throughout the business, bringing diverse skill sets together to solve business problems and create new possibilities.
Digital metrics and processes adopted
Spaulding noted, “If you structure things that way, the metrics will follow.” But a new set of customer-focused metrics can be at odds with business-as-usual.
She says another indicator of mature transformation is actually the decline of using old metrics.
An example would be placing “a higher premium on growth and customer loyalty and engagement, versus purely based on traditional profit drivers or milking everything for profit,” she said. The point is to ultimately make more money by taking a longer view.
Such changes aren’t trivial, and removing old KPIs means changing decades-old management processes, like the rigid annual budgeting process (read more in How Your Budget Blocks Digital Transformation and What to Do About It). But markets are becoming so fiercely competitive that some public companies, under constant scrutiny of quarterly profits, may think about ‘going private’ in order to achieve the level of investment they will need to survive.
Again, without affecting fundamental changes in the core business, a digital transformation office is stuck in first gear.
Producing customer-facing products
Several companies point to this as the ultimate achievement of digital transformation: Turning internal processes and products into customer-facing revenue generators.
Transformation “starts with just keeping the lights on,” said Preston Simons, chief information officer at Aurora Health Care, a Milwaukee, Wis.-based medical provider, in a CXOTalk interview.
“But the real Holy Grail is delighting the customer, making them connected to you. And the very top is when IT becomes part of the product or service that you perform. That’s where I think digital transformation has an opportunity.”
A shift in culture has been a cornerstone in our digital transformation journey, combining our legacy domain knowledge with new software talent with expertise in areas such as cloud, mobile, and open source.GE illustrates this journey, founded as an industrial company more than a hundred years ago.
“A shift in culture has been a cornerstone in our digital transformation journey, combining our legacy domain knowledge with new software talent with expertise in areas such as cloud, mobile, and open source,” said Bill Ruh, the chief executive officer of GE Digital as well as senior vice president and chief digital officer of GE.
GE Digital, a software arm of the company, was actually created to help develop digital transformation software, not just for use by GE itself but for industrial companies in general, Ruh said.
“We really started this digital transformation journey simply to find a way to help make GE as an industrial company more productive,” he said, by developing applications such as FieldVision, for its field operations, and Predix, an application development platform for the industrial Internet.
“This helped take out non-value-added activities that our field engineers are doing in their job day-to-day, and automating as much of the work as possible, but then providing one view to how they do their job,” Ruh said. “We’ve seen tremendous productivity gained through delivering a truly digitized field technician workforce, which we’ve been able to scale across our Power, Aviation, and Healthcare businesses.”
In the process, GE has seen internal productivity savings of $1.1 billion last year alone, but also creating the new business arm to provide software applications and technology platforms that help manage industrial companies’ assets, Ruh said. “We determined we could take what we learned about our own productivity and apply it to our existing customers to help them operate more efficiently using industrial applications.”
So what’s the next level?
If a digital transformation office has successfully spread its capabilities out into the business, it’s reasonable to ask what becomes of the office itself.
One option is the for-profit model GE demonstrates.
CXOTalk's Michael Krigsman
Another train of thought is that the office effectively disappears, because the business has become fundamentally digital. In fact, the end goal of a CDO should be to put themselves out of work, Krigsman said.
“Once the organization is fully digital, do they still need a CDO?” he asked. “Born-digital companies don’t typically have a CDO. The job of the CDO is to drive digital transformation throughout the organization. Once the organization is fully digital, there’s no more need to drive digital through the organization, because you’re there. You’ve arrived.”
Spaulding offers a different idea, which is that a next-level transformation office can turn its attention to bigger and bigger possibilities.
“In the early going, it’s separate, distinct [transformation] teams, but then over time it becomes part of the core business,” she said. But later, the transformation office “can still be an independent team, but maybe now looking more at ‘moonshot’ programs, like [Google’s holding company] Alphabet does.”
Whichever outcome is right for a given company, it's clear that digital transformation still demands a lot of work for most — with a potential payoff to match.