What is Digital Transformation Strategy?
We have all heard the mandate of digital transformation. Every business is moving to digitize, as the benefits are clearly obvious. The greatest issue with this view is that the definition and return on digital transformation is extremely dependent on the nature and growth stage of your business. The truth is there are as many variations of digital transformation as there are businesses, and a wide spectrum of possible digitization initiatives, each of which has its own cost / benefit or return on investment. As such, it pays to approach this question with a solid strategy based approach.
From a strategic perspective, there are really only three reasons to consider a digital transformation. Most effective transformations achieve some blend of these effects. The most successful transformations, in terms of positive impact to the company’s value and future prospects, are tightly aligned with the company’s current corporate development state and the priorities of that state that, in turn, drive the overall corporate strategy. The three reasons to perform a digital transformation are to:
Improve the Customer Experience
Improve the Product / Service
Increase Operational Effectiveness
Corporate value is created by getting customers to buy and keep buying your product; people purchase products and services, even in B2B, based on how the experience makes them feel before, during, and after the purchase. Customer experience includes the entire journey from how individuals are exposed and opt-in to the evolving sales funnel, to the purchase decision and process, to onboarding, delivery, usage, supplements, repurchasing, and retirement. Addressing customer experience can cover initiatives to remove friction points and roadblocks in this journey, to enhancing the process through highly customized experiences, and may include new processes to address new markets and products / services.
Customer experience initiatives are appropriate during product / market validation, business model validation, growth, and as part of new product / service / market introductions. Earlier phase transformations should be modest in their reach in as these changes are a part of the experimentation associated with identifying product/market fit as well as feature/facet/market exploration. For this reason, in earlier stages, companies would often do well to implement with a minimally automated process until the right customer journey is better understood. The minimal in this approach has to retain the validity of the experiment; there is no way to measure market receptivity to a web sales channel without actually building a web site, but that doesn’t mean every feature of the web site has to be functional or that every underlying process has to be automated. Later stage customer experience initiatives can take a deeper approach. Within Business Model Validation, it is appropriate to start taking into account demonstrated customer preferences and sentiment in addition to the more obvious roadblock removal types of initiatives. For this reason, it is important that 2nd generation and beyond digital customer experience technologies contain built-in customer behavior and sentiment measurement. For this reason, customer experience focused transformations introduce technologies that are often highly customer exposed.
Product/Service improvements address the performance of the product or the perception of that performance. Many products, especially in the B2B space, deliver an ROI that can be expressed in cost savings to the customer or capability that has some value that is enabled. In the B2C space, such ROI’s are often more intangible, but are nevertheless present. Improvements to the product or service address making the impact of the value proposition larger, introducing new levers in the value proposition, enabling the levers of value to be applied in new markets, or reducing a variety of factors of risk. These types of initiatives can be as simple as User Interface changes, feature development and enhancement, or can be as enabling the value to more consistent or apply more broadly through enhancement of data resources, customization of responses to specific users and situations, or a myriad other ways. The ways to digitally enhance the value proposition are highly dependent on the industry, product, and modality of delivery. Product / Service improvement transformations may or may not be customer-exposed, but their impact is critical to the customer’s perception of value. These types of initiatives can be appropriate to product / market validation but are critical during business model validation and growth stage, with the foundation of possible initiatives laid during product / market validation.
Operational Effectiveness is focused on improving the cost basis of the company. Such initiatives can include process improvement, overhead reduction, throughput expansion, cycle time reduction for order to cash or product development or other critical processes, supply chain improvements, capital equipment utilization, or a wide variety of other possible improvements. Operational effectiveness initiatives are generally not exposed to customers, except in their impact and they are most appropriate during business model validation and growth stage.
Digital Transformation Initiatives can be performed as an ongoing series of initiatives (piecemeal) or in large highly structured parcels of transformation. The key risk in piecemeal transformation is future technology and process compatibility. Meaning that over time future optimal technologies can be incompatible with technologies already implemented. This is somewhat mitigated by SaaS continuous delivery models and an industry that recognizes the need for broad and evolving integrations. The key risk in large highly structured transformation is immaturity in the go-to state. Independent of method, most transformations of process and methodology benefit from an holistic process that involves organizational transformation and evolution including cultural shifts around change evolution, process redesign and transformation with manual prototypes, technology implementation, and then a long tail of continuous improvement.
While I have seen dramatic increases in value production, customer sentiment, and reductions in process cost in weeks to months through such transformations, it is more typical that the greatest gains are achieved through an entrenched process of continuous improvement. For this reason, a critical element of all digital transformations should include the organizational and cultural aspects of that shift as well as the inclusion of measurement, analytics, and the ability to refine the processes and associated technology.
A Digital Transformation Strategy starts with corporate development stage and your corporate goals and translates that into concrete organizational, process, technology, and cultural transformations that are directly tied to the metrics associated with those goals. The strategy must include all of these elements with a heavy dose of pragmatism and experience to ensure the goals are realizable and reasonable. With these elements and this focus, your digital transformation can actually be transformative to the business and get you closer to your goals.
If you are considering a digital transformation or see a shortfall in the performance of your products/services, your customer’s experience, or economics, a digital transformation approach may be appropriate. These changes can be the key to ensuring sustainable growth and profitability. We have extensive experience with technology intensive and technology enabled companies and the development of strategies to reach your corporate goals through a wide variety of performance transformations including digital. Please contact us.