VIEWPOINT

DIGITAL TRANSFORMATION

UNPACKING DIGITAL TRANSFORMATION

EUGENE YAP

A FRAMEWORK TO HELP IN SUCCESSFUL CONVERSION

Over the last decade, digital transformation has become an indispensable part of the corporate lexicon. Read any annual financial report today and you will inevitably come across a line or two about the company’s efforts in digitalisation. However, the ubiquitous use of the term “digital transformation” has, in turn, given rise to scepticism about its true value beyond generating work for consultants and demand for more IT solutions. The sceptics have it half right – the global market for digital transformation consulting has almost doubled in size since mid-2016 (US$23 billion) to reach US$44 billion in 2018. In fact, it is expected to grow at a CAGR of 8.2% from 2019 to 2027. At the same time, despite heavy investment into digital by executives, McKinsey estimates that almost 50% of digital initiatives fail to achieve an ROI that exceeds the cost of capital. An older study in 2013 suggests that close to 70% of digital transformations do not meet expectations. But for those that succeed, the rewards are significant. In the Capgemini’s report titled “The Digital Advantage: Digital Masters’ Strategies For Success”, the consulting firm estimates that firms which are more effective at managing digital transformation earn 26% higher profits and 12% higher valuations. At Kantar Consulting, a study conducted by our Institute of Real Growth found that 64% of high-growth organisations put data and analytics at the core of strategic decision-making compared to 35% of low-growth peers. Digitalisation is creating winners and losers, and organisations need to make sure they are on the right side of the divide. The Kantar SPADES framework is a useful tool to help senior leaders think about how to deliver successful transformations. SPADES stands for Spot, Plot, Assess, Design, Execute, Sustain.

Creating excitement and energy around transformation, and sustaining that through constant communication, celebration of early wins and consistent investment of resources, are crucial to success and the core responsibility of project managers, sponsors and senior leadership.

  • SPOT

Digital transformation begins when the organisation spots the right opportunities for digitalisation. Before embarking on any major transformation initiative, organisations need to understand which parts of the business will benefit the most from the use of data and technology. Business leaders need to ask themselves how and where digitalisation will help them create and capture most value, rather than blindly following the next major technology trend. To achieve this, leaders need to look inward to where the greatest opportunities are to drive productivity and innovation, outward to changes in the market and customer preferences, and forward to how macro and technology trends will change the supply and demand of products and services in the future. By taking a holistic perspective, organisations are more likely to identify the right places in the business to introduce transformation, and hence derive the most benefits if the initiative is successful. An example of this is Adobe, which started out as a creative software company but identified cloud-based marketing solutions as the future for the business; it has since seen its stock price more than triple in the past 10 years.

  • PLOT

Identifying the right areas to digitalise only marks the beginning of the transformation process. Organisations need to take time to plot their options for implementing transformation. They could build solutions internally, buy from external vendors, or partner others in the ecosystem to co-create the solution.

The right approach depends on a combination of factors – cost, speed and quality, but also longer-term considerations about capability-building and ownership of any intellectual property. When undertaking an initiative where the company has limited expertise and returns are uncertain, it is often easier to start by partnering others, for example, startups, suppliers or even competitors, to co-create and test solutions. Along the way, the company needs to ensure it learns and develops new capabilities, or risk losing control to its partners in the long term.

Conversely, when potential returns are clear and significant, or contribute to a sustainable competitive advantage, organisations should consider investing in developing solutions inhouse.  While this is a more difficult path, it could mean the difference between thriving or becoming irrelevant in a changing world. None of these options – build, buy, partner – needs to be permanent decisions. Rather, organisations need to constantly revisit their decisions and be agile enough to change course when necessary. Apple, for example, started by building most of its iPhone components internally, but as certain technologies mature and become less differentiated in the market, it gradually outsourced their development to trusted partners.

  • ASSESS

Plotting your course effectively requires a structured and data-driven approach to assessing the cost and benefits of each option. While it is difficult to quantify the short-term financial impact of many exploratory digital initiatives in the short term, an organisation needs to establish other measures to gauge its success and whether it is worth further investment. Professor Pisano from Harvard Business School talks about the importance of introducing discipline to the innovation process. While many companies may be keen to emulate the free-wheeling and “fail fast and break things” culture of Silicon Valley, Prof Pisano cautions that the most innovative organisations embrace experimentation, but are also highly disciplined. These organisations set clear innovation objectives and ensure that individuals take personal accountability. They tolerate failure, but only smart failure. For organisations to succeed at digital transformation, they require an entrepreneurial spirit, but one that is well tethered to basic business discipline. For more critical investments, organisations need to build a clear business case for change and allow for robust debate to identify the best way forward and where to prioritise resources.

  • DESIGN

While plotting and assessing provide a high-level direction for transformation, designing is when organisations get into the details of how to make the transformation work.

When we talk about design, it is not just about the technology but also about how people, processes and organisational resources should be configured in a way to achieve the optimal outcome. This is where most organisations fail – by focusing all their attention on having the best technology without considering how the rest of the organisation needs to change in order to achieve the desired results.

Many banks, for example, have introduced automated phone banking software to reduce reliance on human callers and cut costs. However, this automation fails to account for situations where human contact can make a significant difference in service recovery, or spot opportunities for upselling new services. By just focusing on a “machine-only” solution, rather than a “human-machine” solution, banks may inadvertently encourage customers to switch, or miss opportunities to grow customer lifetime value.

Great designs need to be human-centric, whether we are building technologies for internal users or customers. By leveraging both data science and behavioural science, organisations can maximise the potential of the solutions they deploy.

  • EXECUTE

In the execution phase, organisations need to pay attention to both the development as well as the deployment approach. While there is an increasing interest in adopting agile methodologies in development, it may not be the best approach in all situations.

Agile approaches require constant engagement of all stakeholders throughout the process, which may be challenging to sustain over extended periods of time. The iterative nature of agile can also create more unpredictability, allowing the scope of work to creep over time with an ever-shifting goalpost. Organisations need to consider trade-offs between time, speed and flexibility in deciding the right development methodology.

Deployment comes with its own separate set of considerations. The extent of testing and the phasing of the rollout all could have an impact on the early success of the digital initiative. In some cases, an “extended beta” rollout may allow organisations to manage user expectations while gathering data to optimise the solution over time.

  • SUSTAIN

Many digital initiatives start off with great promise but eventually fail to reach their full potential because leaders do not spend enough time thinking about how to sustain them in the long term. There are two natural barriers to sustaining a digital initiative. First, technologies are evolving more rapidly, and a good solution today can very quickly become obsolete tomorrow. Second, humans are inherently resistant to change. New habits require time to form, and without sustained effort, people may return to old ways of working at the earliest opportunity. Creating excitement and energy around transformation, and sustaining that through constant communication, celebration of early wins and consistent investment of resources are crucial to success and the core responsibility of project managers, sponsors and senior leadership.

CONCLUSION

While this article provides a structured framework to think about digital transformation, organisations should be mindful that the most critical ingredient in driving success is good leadership.

According to McKinsey, “digital winners” are 2.4 times more likely to ensure that digital strategy is aligned with corporate strategy; they are also significantly less likely to have siloed mindsets and behaviours. A joint study by the Singapore Management University, Tata Communications, DBS Bank and KPMG also found that effective leadership and culture are instrumental to transformation success. In the study, 87% of respondents agreed that culture has the potential to create bigger barriers to digital transformation than technology. Creating an open, collaborative and agile organisational culture is a prerequisite for leaders pursuing transformation. Furthermore, by adopting the SPADES or other similar frameworks, organisations can cut through the noise surrounding digital transformation and apply a disciplined approach to driving business growth in a data-driven and digital-first world.


Eugene Yap is Head of Digital and Marketing Effectiveness, Kantar Consulting.