The 4 steps to a sustainable Digital Transformation

Introduction

Dear reader,

Let me briefly introduce myself. My name is Johan, a digital transformation expert from Belgium. For more than a decade, and after studies in both management sciences and economics, I’ve been contributing to digital and data transformations of companies in the Banking, Insurance, FMCG, Retail and Energy sectors by leading the implementation of projects, platforms, products and technology ecosystems that employees and customers would love using. The aim was to help make companies more relevant and competitive in their marketplace, while becoming better employers altogether. I recently took some time to take a helicopter view, looking back in the rear mirror and wondering why digital transformation was so challenging and complex to implement.

As a result, I’ve been working on building my own compass, and wanted to share the outcome of this thinking process with a personal point of view, and by no means any approximation of “truth”. My thinking process leads me to think that by approaching digital transformation in 4 steps, companies could ease their digital transformation and process it with more serenity and greater alignment between internal and external stakeholders. I actually call these steps "changes of paradigm" because they have an impact on technology of course, but also on processes, organizational structure, leadership attitudes, general business strategy, and - lastly but certainly not least, on the general culture of an organization, which eats every else for breakfast.

Hypothesis and Executive Summary

My hypothesis, that I will try to convene in this article, is that companies would better perform - and enjoy - doing a digital transformations in 4 sequential steps.

1. A technology transformation to create a resilient, secure and scalable ecosystem of tools that guarantees business continuity and unlocks growth.
2. A business transformation to embed end-to-end processes of an organization in the technological ecosystem to become operationally excellent and at the service of their employees.
3. A customer transformation to adapt the technology, data and business processes to provide optimal customer experience and gain market share and financial soundness.
4. A corporate transformation to make sure that technology, processes, products and financial soundness are at the service of society at large and of your company's long term vision and mission.

In Figure 1 here below, you’ll have an overview of the impacts of each phase on the different material and immaterial components of an organization that I will elaborate in this article.

1. The Technological transformation: first things first.

It should come as little surprise if I write that digital transformation needs to start by a technological foundation. What might be a surprise though, is the “how and the what”. Indeed, the objective of this first phase would be to set the right technological foundations by building a scalable technological ecosystem that is at least enabling the organization to “play defence” in the modern world. And in order to play defence, the company needs a technological ecosystem of tools that meets standard requirements of business continuity, with decent cybersecurity measures, and that is made for attracting investors and talents. Indeed, without any of those, it could be difficult to compete in the long run, and a company may get in trouble without it. This would require replacing an old fashioned legacy system, with examples including an Excel running on a local machine of the CEO of a small organization, or the need for replacement of a 10 year old legacy system that no-one knows how to run anymore, furthermore without any disaster recovery measures. In a modern world, this is a potential show-stopper for any organization.

This phase actually aims to be developing a minimum viable ecosystem of products and platforms. In other words, the objective of this phase would only be the development of a minimal ecosystem, with associated hardware and infrastructure, that embeds the happy flows, and nothing more, nothing less. Companies who actually have been most successful in this phase are the companies who find the right duet between a visionary CEO and an entrepreneurial CDO/CTO/CIO who is making use of start-up methodologies to go fast. Looking at the lack of technological expertise and associated complexity, these actors must often work like benevolent leaders, sometimes literally in a garage, an incubator, or in war-rooms of your company, having little time for transversal alignment…

In this phase, the digital transformation is applying methodologies like Lean Start-Up, DevOps, Extreme Programming, done by a very small agile, highly gifted number of individuals with very mature IT knowledge, but who often need to cope with limited human and financial resources. Oftentimes, it also requires to call upon external partners to outsource a lot of “non-core” IT activities - such as software development or eventually hardware maintenance-, which makes it important for the CFO, if any, to keep an eye on its Capital Expenditures program that can get pretty out of hand. Indeed, the company should be building an ecosystem that has to build the right foundations for the next years. This mission often requires massive upfront effort and investment, to avoid taking too simplistic technological changes to be changed every once in a while for scalability reasons.

2. The Business transformation: getting people on board and embedding processes.

Once the company, or rather the “heroic IT start-up department”, has delivered that scalable and secure technological ecosystem together with some basic “happy flows” built-in the technology, it can start sophisticating and industrializing its processes within the newly created ecosystem in order to gain operational excellence within it. That’s where you’ll need to connect the dots between lead generation and order fulfilment, invoicing, after-sales and looping back to retention. You’ll notice that the data handicap, coming either from an absence of data or of non-qualitative data originating from the old legacy system will gradually decrease in this process transformation phase. Indeed, although there are data quality tools out there, on the long term, data quality may only originate from streamlined processes, with the appropriate data governance, consolidation and data validation aspects. This phase, as a result, does just that: delivering the technology stack to the business so that alternative and exception flows and processes start to be built in the platform and products, and raises the bar on data quality.

That is why I call this phase the “business transformation”, or the “process transformation” phase, if you prefer. In this phase, you’ll need an important Operational Expenditure investment, by scaling up your organization, meaning investing more in people than technology. Indeed, you’ll need to enable your operations department to document and know its AS-IS processes, with proven business analysis methods like BPMN or UML and alike, and enable the IT department to adapt the technological ecosystem to the “ground floor”. The organization turns from being a technology-centric organization to a process-centric organization, enabling alternative flows, exception handling, and ultimately facilitating business lines or product extensions, … Beware, I would highly advise not to tweak the technology stack with all the AS-IS old fashioned process that may rely in some shadow IT tools implemented so far. The purpose here is to digitalize processes by having a collaboration space – talents, resources – between business and IT, to be able to decide whether it’s technology or process that needs to be changed.

The business and the “ground floor” are now in governance of the technology stack, and need to be trained, via change methodologies in software development practices, so that they can understand and buy-in on the trade-off between changing an old fashioned process or changing the technology. This phase should, as a result, be governed by the COO, with support of the CTO, who needs to perform change management. The CHR is also in? support an d at the service of its organization to enable it to scale up with middlemen between business and IT who facilitate collaboration. At the end of the day, you find a technology stack that the whole organization is using to provide outstanding operational excellence to the employees, and a good enough experience to the customers.

3. The Customer transformation: start winning in the marketplace.

Up to this point, you might think there is nothing really appealing to the end customer, and you would be partly right, and partly wrong. When I, as a customer, go to a brand, I expect it to protect my data, and to deliver the bottom-line product and services I’ve ordered, including the ability to file some specific complaints I have along the sales and/or product lifecycle. That is still, for many organizations in 2023 still quite a challenge, if you ask me.?

The next phase, called Customer transformation, is all about that. Looking back, an operationally excellent organization has benefited from Word of Mouth and will witness an increase in Sales and Marketing figures in the previous phase, but being operationally excellent is often not quite enough to maintain a happy customer base. Indeed, don’t forget that most of the time, you have competitors, or potential new entrants, and that they are probably also heavily investing in their technology stack and operational excellence, hopefully not faster than you.

This customer transformation, aims to do just that: building upon your operational excellence and technological ecosystem to start offering great customer experiences that are going to drive market share and profit. The Chief of Sales and/or Marketing Officers, who have been extremely patient until then, can finally get into action and create the most “lovable” brand and customer experience out there. Processes will now be at the service of the customers for them to ease access, purchasing and loyalty to the brand. A design system will allow customer hurdles to be discovered and solved either by process exceptions, or by new technological enhancements that are going to ease their life. Please note that a customer transformation contains changes in Platforms (Mobile Apps, Portals, Automated Communication, …), but also in Processes and flows, as well as in Technologies. That is why customer transformations are often much more complex than previous ones, and you’ll need to harvest the benefits of the two previous phases of cultural changes and knowledge sharing. Because, don’t be mistaken, until then, life has neither been easy for the IT department, nor for operations, but it’s only a start.

The CMO will also probably need a solid and industrialized transformation governance system that is going to classify all customer complaints into a ROI-driven roadmap finally appealing to a CFO. This governance is solved by putting strategy, transformation and/or portfolio management offices in place, as well as UX and a genuine customer data and analytics platform to gather feedback from the customers. In this phase, data will gradually become a service offering, because it has been cleansed in previous phases thanks to streamlined processes and data validation/cleansing activities. Leadership now turns to studying data and takes democratic strategic decisions towards them. That’s where you can finally start building portals, extranets, app’s, personalized and automated communication channels,…

This phase should generally be managed by a Chief of Sales and/or Marketing Officer, with support of the CTO, COO, and can be both CAPEX and OPEX intensive to become a “change machine”. There is also a more and more pressing need of having a Chief Compliance Officer on board since the company is making more and more of customer data, which are data points that are not under the ownership of company itself. Furthermore, whenever you have the feeling that your Chief of Sales or your Chief Marketing Officer is not a digital (transformation) savvy person, this is probably the time to get a Transformation or Strategy Officer on board, for him or her to coach the CSO/CMO in keeping its creativity in balance.

4. The Corporate transformation: have a positive impact in the world.

Last but not least, after the “customer transformation” phase when you’re becoming the “talk of the town” by providing excellent customer experience, have gained market share and hopefully have outperformed the competition, then the company may want to enter into a “corporate transformation”. This phase is all about leveraging technology, processes, data and customer experiences for the purpose of a higher good. Companies become benevolent and at the service of the collectivities it is operating in, since it now also has the financial means to ?engage massively in social responsibility and even charity. They often find themselves too narrow in their environment and start doing M&A, not only horizontally but also vertically, for instance by deepening their association with one of their suppliers, spinning-off one of their products or business lines, or buying a competitor in a different market, to name a few.

In the corporate transformation phase, technologies, people, processes will of course be scrutinized and face attempts to build synergies, but the biggest asset in that phase is probably data. Because yes, in this modern world where data is the new gold, and when put together with disruptive technologies like blockchain, AI, and/or Quantum to name a few, data can revolutionize almost any process, tool or technology. In this phase, technology, tools and processes are adapted in the context of data. You have data left and right that aren’t leveraged? Adapt your experience, products, processes and platforms! Data even evolves from a service offering in the previous phase, to a business model in itself, and that’s where you see society-large clearing platforms emerge, marketplaces, “white labelling platforms” or platforms-as-a-service.

This is without a doubt the most complex phase in Digital Transformation as far as I’m concerned, and many have failed, in my perspective, when they are being attempted too early. Companies may try to scout disruptive technologies without having the right collaboration and entrepreneurial culture, enough experience in strategizing, enough shared and transversal understanding of digital or methodologies to get things happen, or even cleansed data thanks to streamlined processes. That's where transformation efforts may be considered as gadgets and create a failed "proof of concept" culture.

This phase, though, is generally under leadership of the most visionary and developed leaders of the company, and probably where the CEO should be focussing most of his/her attention. Of course, it needs support of CMO, COO and CTO, and is extremely intensive in CapEx, which is the reason it should be under governance of the CFO. In case not enough strategizers can be found in the board and all over the place, I would highly recommend to onboard and mandate a Chief Transformation or Strategy Officer who is going to take care of this extremely important and difficult endeavour.

Conclusions and looking forward:

Now you probably noticed how much I emphasize that those four phases are being done sequentially, and the pace at which they are being done would heavily depend on your investment capacity, as well as on the possibility to attract and retain talent along the way. Depending on those factors as well as your size and complexity of the organization and sector, I see each phase, or what I call “paradigm shifts” lasting approximately between 6 months and 3 years. Going over the 4 phases could, as a result, last between 2 years (for scale ups with easy access to capital and talent) and 12 years for more “change resistant” organizations. If you start noticing that your digital transformation is moving slower than that, I highly recommend to changing way of working with some simple questions:

1. Which phase am I in and how should I adapt?
2. Do I try to do more than one phase at the same time?
3. Do I have the right talents, in the right proportion and in the right place?
4. Do I adopt a leadership style that is coherent with the phase I’m in?
5. Do I provide enough financial, methodological, people and material resources to the transformation I’m in?
6. Do I have the right culture in place to be able to break down silos, both horizontally and vertically, both inside and outside the company?

It does not mean however, that, as a company, you should consider working on one phase exclusively, and totally obliterate all other phases. I truly believe that most companies need to start with the basics, but should still focus at least some resources on anticipating changes in the value chain as well as in society if they want to stay relevant – and in business - on the long run. For example, some companies who have less financial means would have only their CEO on the corporate transformation phase to be able to anticipate changes in the marketplace and perform some corporate risk management, while the rest of the company is working on the technological or business transformation. This method would avoid being overwhelmed whenever issues actually occur (Cyberattack, Lock-downs, Regulatory changes, …).

Whenever the company has the chance to have more resources, the CEO could be joined by corporate strategists, innovation managers, M&A experts, and so forth. But you’ll start to be in trouble if you don’t focus most of your resources in getting the “must do” job done – the earlier phases - before putting too many efforts on the “should do” or “like to do” jobs – i.e. the later phases.

Last but not least, if there is a thought on the fact that every change of paradigm would go flawlessly, I regret to announce that every change of paradigm goes with loads of crisis, which have the tendency to slow down every digital transformation. However, crisis are actually a natural way of going through change. The subject of crisis management in the context of digital transformation will be part of another article, coming soon.

At this point, if you want to go further, I highly recommend the book “Hacking Digital” by Wade et al.