Digital Transformation: An Emerging Strategy

Digital Transformation is more than adding a Business Process Management Suite (BPMS) of tools, or putting in an ERP or even putting out an app on social media.  It is also more than a new website or even moving to leverage cloud computing or advanced analytics. All of these things are part of it, but they are not Digital Transformation. They are all more of the same with new capabilities. They are just adding some new technology to the current mix.

Adopting any of these are good steps, but they are band-aids and really don’t help the thing that is ailing business and IT today.

Because much of the literature on Digital Transformation is from vendors and technical consultants I think the big picture is being missed. That is the thing that will really transform the business and IT.

So let’s take this up a notch and talk about what really counts. Digital Transformation is an opportunity to bring the company into the modern business era. It is a chance to redesign the company and IT around the strategies needed for the company to succeed.

In her new PEX Network study “Emergence: The future of Process Excellence” Diana Davis states The average lifespan of an S&P 500 firm is 18 years today down from 61 years in 1958. By 2027, new firms will replace 75 percent of the companies that were in the Index in 2011. Source: Innosight Consulting Research

If I were the CEO of a large company that statistic would terrify me. As a stockholder, which most of us are, that does terrify me. For employees in large companies, who may not want to jump to new companies several times in their careers, this should be a real concern.

Aside from the unfortunate few companies that will either die slow deaths from mismanagement and are either closed or sold, the question is “how can a company beat these odds?”  The second question is “what can we do to help the company succeed.”

This where the opportunity that Digital Transformation driven Business Transformation provides comes in. It is also where the bold thinking I talked about in my June column comes in.

The fact is that older companies and large companies are suffocating under the weight of the past.  Their business operations have changed so much that they have lost any semblance to their original operating design. IT has it even worse as it drags around even more of its past in systems that are 20 or 30 years old, built in antiquated programming languages with little or no real documentation. The hardware environment is generally better off, but it is also run on a mix of operating systems and middleware that complicates things. This is all held together by complex interfaces that need constant attention.

This complexity is no one’s fault. I want to stress that!  There is a natural evolution in all companies to become mediocre over time.  It happens because of change. The business re-engineering movement that started BPM and the creation of BPMS tools is actually a recognition that periodically companies will deteriorate and will need to be redesigned. That is not good news to the CFO’s whose job it is to constantly cut costs, but it is none the less true.  It is also a fact that the time between these redesigns is shrinking as technology continues to offer new capabilities to people around the world and ways of interacting with customers changes. This is a natural cycle and for those companies that are still here in 30 year or so, it will repeat itself.

But for us who are working hard to keep the current businesses afloat, the key is to find companies that understand this and help them succeed.  The others will die slowly as management remains fixated on cost reduction instead of modernization and revenue growth.

Hope

So enough of the doom and gloom.  I included it here to provide insight into why I believe that Digital Transformation and Business Transformation, which it must drive, are both so important and so compelling that companies are investing in them – even in a poor market.

But (again the infamous but) investing in these things in a haphazard way will still not get the company a competitive advantage.  In reality it is simply continuing with the current piecemeal focused changes that have resulted in a growing operational complexity and rising cost.  It will probably delay the inevitable collapse of a company, and it will help the company compete with the old sluggish companies that don’t make a move to modernize.  It will not however, stop a company’s decline because it will not lead to increased flexibility, higher productivity, or an increase in the ability to leverage mobility computing, social media, or emerging technology to deliver increased customer satisfaction.  It will just be more of the same with new technology – in many cases resulting in doing the wrong things faster.

The good news is that we have the ability to change this.  It is not a situation where we need to wait for something to happen before we can move.  The real issue is a lack of will, an understanding of what is available, and the creativity to leverage it.  Fortunately, this is not universal.  But companies today range from those who have embraced this change to those who have yet to become involved in any form of transformation.  As always, there are early adopters and there will be both late adopters and deniers.  And, as always, the deniers will be out of business, sooner rather than later.

Everything that is needed to transform exists now and both the technology and our understanding of how to leverage it are getting better.  We just need to put the parts together in the right way and then have the courage to invest in really transforming our companies.  This ability to truly rethink the company and then transform it will separate the winners from all others.  After all, if the predictions in the PEX study cited above are anywhere near correct, it would seem that the goal should be to rate in the 25% of companies that will continue to thrive beyond 2027.

But, we can do it.  I will just take commitment to see it through.

Digital Transformation and Business Transformation

Since both Digital and Business Transformation are really concepts, they can be, and have been, defined in a variety of ways.  It seems to depend on your perspective – business side or IT side.  That unfortunately seems to be the same old perspective divide – but we cannot afford that divide any longer.  For true transformation, these perspectives will need to be brought together.  Most people also think of these as separate initiatives, but consider what happens when you put them together.  I believe that the result of linking these two initiatives is Enterprise Transformation.  

I also believe that any company that wants to stay in business over the long term must go through this transformation process and then keep transforming as it moves into the future.  To me, there is simply no real choice other than picking the number of years it will take to transform the company.  The world has changed dramatically and business has generally not kept up.  The only issue is whether to keep just adding capabilities/changes and increasing complexity until it is impossible to do anything, or to redesign and rebuild over time according to a schedule the company can afford.  The first of the options leads to an inevitable bad result – but it is cheaper.  The second option is costly over time, but leads to a much better result.

The reason that I have come to this conclusion is that most companies that have been in existence for more than 30 years will have built up a legacy business operation, run on top of a legacy IT infrastructure with a mix of old and fairly new applications.  These applications have been woven into an interconnected network of applications through complex interfaces that pass data.  Data itself is duplicated in multiple applications and spread around applications, PC files, paper, and emails.  Few people know what data is good and what is not – or how to fix the data that many avoid using, making a lot of reporting suspect to management.  New digital capabilities are being cobbled into this already complex, balanced environment – adding to the difficulty in dealing with it and increasing the probability that something will go wrong any time an application or interface is touched.

This is not an IT problem alone.  Business operations have evolved along with IT due to constant change.  Both business and IT managers are forced to respond to a range of change drivers by cobbling in new activities, new technology, new applications, changes from compliance regulations, and other things that require the business to modify its work.  These changes are constant and focused.  They destroy any end to end design that may have once been in place and force a growing inefficiency into the work and IT support.  Over time the work evolves to an overall state of performance mediocrity. This is the natural result of small seemingly harmless and often seemingly beneficial ongoing changes.  It is not due to anything managers have done wrong. 

Part of the problem is that this change happens gradually and generally goes unnoticed until it becomes obvious.  The current transformation movement is one of the results of this business and IT evolution.

I have found this to be a common situation.  It is no more prevalent in large companies than in smaller ones.  It is simply a normal evolution that affects all companies everywhere as they respond to changing regulatory requirements, competitive pressure, financial pressure, and more.  But for business this is an anchor.  And, this is a downward spiral as the business needs faster response from IT while IT fights budget wars and for a variety of reasons, a constantly increasing complexity in the technology and the applications.  The real issue, aside from a constantly increasing operational cost, is that they cannot respond quickly.  In a global economy where response time is critical and customers demand a solution that leverages digital mobility and social app capabilities, an inability to quickly produce a solution that melds internal and customer facing mobility with state of the art social app capabilities, may well be one of the greatest problems the company will ever face.

Ecommerce and IT consumerization

Note:  With 30% of US ecommerce transactions happening via mobile devices, and with growth rates exploding in Asia, Latin America, and Europe, delivering effective mobile commerce experiences is essential.  From the Paper, “THE DIGITAL ULTIMATUM: WHY BUSINESSES MUST DIGITALLY TRANSFORM TO SURVIVE” by Progress Software

So, for many companies, if they are to compete with the newer companies that don’t have the legacy baggage, it is time to make a leapfrog “modernization” of the business operation and IT and the way they look at and use technology.  By necessity, the company of tomorrow must be geared to the rapidly changing ecommerce business environment.

This area is fertile ground for digital innovation based performance management.  It is also the foundation needed to create an adaptive digital enterprise – Enterprise Transformation.  The company of the near future will likely be moving more to ecommerce as new markets are opened around the globe.  This is making the traditional “store” concept somewhat questionable.  The online ecommerce world is also growing rapidly as creative people get into markets with low investments or group investments that they get from internet investment groups.

The real importance here is that these are the companies that you must compete with.  These companies start and then automate with new technology – without the baggage of the old tech and the complexity of the older companies.

The bottom line, to me, is that older companies must now invest and modernize if they want to remain competitive.  They must be redesigned to eliminate the baggage of the past and once again become entrepreneurial and creative.  Although a great product is essential, so is its marketing, the way it is sold, and the way a company deals with customers.  Similarly, the price that is charged is important, but not as important as the customer experience and how those customers are able to buy from you.

For many, these perspectives represent change. They are the cultural part of the transformation that must also be considered.

Digital Transformation

As mentioned, Digital Transformation is a concept and thus has no specific definition – it means something different to different groups and to people in different disciplines.  I believe all are partly right and that the real definition is a composite of all of these perspectives and opinions.  That makes any definition of the concept somewhat abstract.  To actually use the concept, I find that it must be described through characteristics.  In Digital Transformation, these characteristics will be unique to the desired result of Digital Transformation and what it needs to deliver.  These characteristics will start out being fairly basic and become more focused and complex over time as business strategy managers, business leaders, and IT managers/staff learn to work more closely and develop a better understanding of each group’s perspectives.

For this column, let’s adopt this fairly generic definition for Digital Transformation.

“A business strategy to change the company, infusing state-of-the-art IT technology into all aspects of the business’ operation and IT infrastructure architecture to gain a competitive advantage. The business operation is performed as an integration of people, technology, and work.”

This defines the technology environment – the box that business transformation can play in.  It guides the evolution of this environment and thus the technology box that business transformation will have to use over time as any solution evolves along with the market and customer buying patterns – including the way any ecommerce store will operate and change.

This thus starts with the high level definition of the technology architecture and applications aligned to the business operation.  It progresses with the simplification of IT and the business design through Enterprise Architecture and Business Architecture.  This is the technology box that defines the capabilities that the business process and workflow designers must work within.  Of course I also add in lessons from the past into setting the standards and policies that will guide this evolution.

However, the end result should be an integrated hardware design (architecture) that simplifies the way the hardware, communications software, the tools, and application can work together without complex interfaces.

Business Transformation

Once the Digital Environment is defined and the Digital Architecture is designed, the company can begin replacing hardware, operating systems, and communication software.  This replacement will need to be closely coordinated with the implementation of new Business Transformation solution replacements.  You obviously cannot remove a computer or replace it until all applications have been moved off of the old hardware.  This means that transformation planning and scheduling coordination will need to be a compromise between the two possible schedules – Digital Transformation computer and peripheral replacement and Business Transformation process or business unit operational redesign construction.

Although I have seldom seen it done, I recommend that the Digital Transformation characteristics and the Business Transformation guiding principles be merged in a collaborative new Enterprise operating design.   This will create a complete high level model of the business to guide the transformation.  In this way Digital Transformation drives the boundaries of the Business Transformation as both interact to define emerging technology that may be used while assuring that anything that is added to IT or the business will not simply add complexity.

Enterprise Transformation

Digital Transformation driven Business Transformation at the corporate level is Enterprise Transformation – the redesign/rebuilding of the company and all its support.  This collaboration defines the business and how it will run in the future.  This model is the basis for determining the order of business operation reconstruction and application redevelopment.  When done correctly, it also builds a very flexible business/IT combined operation that can be quickly changed to allow operating and sales flexibility and rapid change.

Culture – The People Side of Transformation

Perception is part of culture.  It can be allowed to evolve as it will or it can be controlled by change management.   For many companies today this is a problem that has been built on past attempts to change, trying the latest improvement of the day – causing many to virtually ignore these constant changes.  This has caused a perspective problem and a type of disbelief in the effort before it is started.  This is part of the baggage that any digital business transformation must deal with at its outset as part of establishing the transformation project foundation.

People will either make any transformation succeed or fail. In any reconstruction there will be problems. The question is how the problems will be dealt with. The foundation of any response to a problem, howeever, rests with the people who will be affected and understand the business and how it works.  These are also the people who will use the new solutions and can recommend improvements. It is critical that managers pay attention to this aspect of any transformation and take steps to make certain the people are involved and own the solution if it is to be accepted and “made” to work.

By engaging the business managers and staff from all parts of the affected business and technology areas the solution can get widespread buy in. This is a much greater level of collaboration than in the past.  It is also in direct opposition to the business manager statement of “why do we need to get involved, this is an application and that is IT’s responsibility”.  Unfortunately, I run into this sentiment all too often. The fact is that this is not IT’s problem. It is a culture problem.  IT staff members are builders and they can build anything you want. The better the collaboration, the better the outcome – just as if you were building a house.  If you want it to be the way you envision it, you need to be involved.

Summary

The bottom line is that Digital Transformation represents an opportunity for a new start. It represents a way to beat the odds cited above and modernize while you have funds to do it. But actually transforming will require a multi-year commitment and the ability to manage related concurrent efforts over several years – building part by part and setting each into production.

And now for my usual heresy.  Cost containment is important – I will not argue against that. However, to stay in business long term, it is time to redesign the company and create an integrated new operating design. It is time to invest and set the foundation that will allow you to upgrade your company’s digital and ecommerce capabilities to be competitive.

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