Decisive Implementation of DX-1

Let's start with a sample action plan by the CEO for digital transformation (DX).

1. Bring together the senior CXO team as the DX engine.
2. Appoint a CDO with authority and budget.
3. Work incrementally to get quick wins and capture business value.
4. Forge a strategic vision in parallel and get going.
5. Draft a DX roadmap and communicate to stakeholders.
6. Pick your partners carefully.
7. Focus on the business case with the mindset of a VC (Venture Capitalist)
8. Create a transformative culture of innovation.
9. Reeducate your leadership team.
10. Invest in self-learning; continually reeducate your workforce.

By looking at this sample, we can understand what it covers. But, what are the steps involved in the implementation?

We follow a REFINE-REALIZE-RAMP-UP model.

1. Roadmap: Create or Refine if you have a draft version from the earlier stages
2. Realize the digital organization
3. Ramp-up throughout the enterprise

Create/Refine the Roadmap

A roadmap can manifest in many ways. Here is a sample one.

Key questions to be considered are:

• How do we place the customer at the centre of change?
• To what extent does our roadmap cover the transformation of the entire enterprise?
• What type of structure is required to support the required change?

To build/refine the roadmap, some of these principles will help.

1. Thinking big
2. Customer Centricity
3. Break down the silos

Thinking Big

• Beyond Piecemeal Approaches: Digital transformation requires a comprehensive strategy that encompasses the entire organization. Isolated digital projects are insufficient; a broad, multi-year plan is necessary to lead the business into new ecosystems, modernize its architecture, and prepare for digital challenges.
• Modern Strategy Development: A modern strategy for digital transformation is not developed in isolation but through active engagement with new ideas and external sources of inspiration. This involves exploring emerging ecosystems, connecting with entrepreneurs, and considering global innovations.
• Engaging with Start-ups and Innovators: Companies should actively seek out and engage with start-ups and innovators, such as those recognized in competitions like McKinsey's Digital Top 50 or “The Spark.” These entities can be potential partners, talent sources, or acquisition targets, offering fresh perspectives and solutions.
• Conducting Feasibility Studies and Prototyping: A mere digital walk-through is insufficient. Companies should conduct feasibility studies or proof of concept (POC) projects, involving the construction and testing of prototypes for the proposed digital enhancements.
• Comprehensive Planning for Success: Successful digital transformation requires careful planning and consideration of the impact of new technologies. It's crucial to understand the feasibility and practicality of implementing these technologies in the existing business framework.

How to prioritize the areas/functions by value contribution?

• Assessing Potential Value: Understanding where the greatest potential lies is crucial. This could be exploring new ecosystems, leveraging big data and advanced analytics for deeper customer insights, or digitally restructuring production or logistics for efficiency gains.
• Complex Decision-Making: Choosing the initial focus area is challenging, especially as companies often venture into uncharted territory without prior experience in such transformations.
• Organizational Readiness: It's vital to assess whether the current organizational structure is equipped to handle the transformation. This includes evaluating the skills and capabilities of the workforce.
• Talent-Driven Scheduling: Often, the availability and expertise of talent within the organization can dictate the transformation schedule. The right skills are essential for successful implementation.

Setting a Timetable with Milestones: After establishing priorities, digital transformers should create a detailed timetable spanning several years. This schedule should include specific milestones and targets to track progress and ensure that objectives are met.

Close the gap

After evaluating the positive aspects of digital transformation, it's crucial to address the negatives or areas of shortfall. Here are some typical areas that may need support.

• Handling Big Data and Advanced Analytics:
• Investing in Digital Capabilities:
• Agility in Production:
• Multichannel Offering and Payment Options:
• Partnership and Collaboration:

Customer Focus

Customer-Centric Design in Successful Digital Companies: Companies like Apple, Google, and Amazon prioritize customer needs and desires in product and process design. Customer expectations often include seamless and smooth processes from ordering to delivery and after-sales service.

Optimizing Critical Customer Processes: Successful digital companies focus on key customer-related processes. Example: A telecom firm identified five key processes, including contract management and customer communication.

Streamlining End-to-End Processes: Customers expect fast, seamless, digital processes for all interactions, from queries to complaints. Companies that deliver streamlined end-to-end processes gain a competitive edge.

Digitizing and Restructuring Processes: Companies should focus on the customer journey and touchpoints. The goal is to make each step convenient and supportive for the customer.

Applying the Concept to B2B and Internal Customers: The customer-centric approach is applicable in B2B and internal organizational contexts.

Digitization Examples:

• ING-DiBa streamlined the account opening process, reducing it from weeks to minutes.
• Schindler focused on predictive maintenance, using sensors and apps for efficient service delivery.
• Maersk developed an app for real-time container tracking and shipping information.

Key Questions for Digitization: Companies should continually ask what customers expect at each touchpoint and identify pain points. The focus should be on customer journeys that are most relevant and impactful. Companies need to ensure smooth customer experiences, especially in problem resolution. Customer journey mapping has emerged a very useful tool to keep the customer at the centre and tune our metrics based on that. ING Bank makes extensive use fof this:

Concept Iteration

One common approach is to develop a Minimum Viable Product (MVP), a version of the product that includes only the essential functions needed to satisfy early adopters. The MVP strategy focuses on speed and cost-efficiency, allowing companies to gather valuable customer feedback for rapid iterations and improvements.

Notable examples of this approach include Tesla and the iPhone. Tesla introduced the world’s first luxury electric car, addressing a specific market need without overloading the initial model with features. Similarly, the first iPhone revolutionized the smartphone market by eliminating the traditional number pads and keyboards, offering a streamlined user experience. Both companies then used customer feedback to continuously enhance their products.

In addition to hardware improvements, these manufacturers keep their products relevant and up-to-date by frequently releasing new software updates. This strategy ensures that even before the launch of new hardware, existing products remain innovative and responsive to customer needs. This approach exemplifies how companies can effectively use digitization to introduce groundbreaking products and continually evolve them based on customer feedback.

Customer feedback not only highlights the positives but also uncovers critical pain points that can lead to customer migration and revenue loss. This feedback is particularly valuable in sectors like retail and gastronomy, where issues such as long lines can be significant deterrents.

A prime example of addressing such a pain point is Starbucks' introduction of mobile ordering and payment in its app in 2015. This feature allows customers to order coffee from the nearest store while on the go, customized to their preferences. Integrated with the Starbucks loyalty program and enabling payment through the app, it allows customers to bypass lines, pick up their coffee, and leave. The app has been a resounding success, boosting revenues and providing Starbucks with valuable data on customer buying habits. This data is crucial for effective one-to-one marketing, enabling Starbucks to send personalized offers to customers based on their preferences.

Amazon tackled a different pain point: the mundane task of purchasing household supplies. The company introduced the Dash Button, a Wi-Fi-enabled device that lets customers reorder supplies like washing detergent with the press of a button. The order is automatically placed using the customer's stored delivery address and credit card information, simplifying the shopping process.

Establish a digital company

Digitization has enabled the creation of products and services that were previously unimaginable, often leaving companies uncertain about what customers will truly value or ignore. To navigate this uncertainty, many look to the strategies employed by successful digital companies. One common approach is to develop a Minimum Viable Product (MVP), a version of the product that includes only the essential functions needed to satisfy early adopters. The MVP strategy focuses on speed and cost-efficiency, allowing companies to gather valuable customer feedback for rapid iterations and improvements.

Notable examples of this approach include Tesla and the iPhone. Tesla introduced the world’s first luxury electric car, addressing a specific market need without overloading the initial model with features. Similarly, the first iPhone revolutionized the smartphone market by eliminating the traditional number pads and keyboards, offering a streamlined user experience. Both companies then used customer feedback to continuously enhance their products.

In addition to hardware improvements, these manufacturers keep their products relevant and up-to-date by frequently releasing new software updates. This strategy ensures that even before the launch of new hardware, existing products remain innovative and responsive to customer needs. This approach exemplifies how companies can effectively use digitization to introduce groundbreaking products and continually evolve them based on customer feedback.

Customer feedback not only highlights the positives but also uncovers critical pain points that can lead to customer migration and revenue loss. This feedback is particularly valuable in sectors like retail and gastronomy, where issues such as long lines can be significant deterrents.

A prime example of addressing such a pain point is Starbucks' introduction of mobile ordering and payment in its app in 2015. This feature allows customers to order coffee from the nearest store while on the go, customized to their preferences. Integrated with the Starbucks loyalty program and enabling payment through the app, it allows customers to bypass lines, pick up their coffee, and leave. The app has been a resounding success, boosting revenues and providing Starbucks with valuable data on customer buying habits. This data is crucial for effective one-to-one marketing, enabling Starbucks to send personalized offers to customers based on their preferences.

Amazon tackled a different pain point: the mundane task of purchasing household supplies. The company introduced the Dash Button, a Wi-Fi-enabled device that lets customers reorder supplies like washing detergent with the press of a button. The order is automatically placed using the customer's stored delivery address and credit card information, simplifying the shopping process.

Unlike traditional analog companies that often rely on guesswork to understand customer desires and pain points, digital companies have access to extensive data. They can precisely analyze customer preferences, identifying which products are well-received or not, by whom, and at what times and places. They also understand exactly where in the customer journey potential customers drop off due to pain points. This wealth of data enables digital companies to make informed decisions about customer targeting, providing them with a significant competitive advantage.

Breaking-up the functional silos

The transformation into a digital company is a huge task. New skills and capabilities need to be established throughout the organization. Processes need to be rethought, and structures rebuilt. Pilot projects are initiated. And finally, digital talent needs to be integrated with a completely different working style. The traditional, highly compartmentalized organization is unable to handle all of these challenges, often lacking the agility to keep up with the scope and pace of change. The first task, then, is to equip the organization with the skills it needs to break up its functional silos, but how?

How digitally advanced is the company? Using any model, we can assess the organization and classify it into:

Level 1: Companies with very little experience of digital and whose core business rarely enters digital territory.

Level 2: Companies that have already confronted the subject of digital, and whose business is attacked by digital companies.

Level 3: This is the fully digital company. It already possesses all the critical capabilities needed for the digital age, and decisively seeks to expand its business.

New digital unit

In general, companies, at level 1 or very low level of digital maturity, can make the break into digital by establishing a digital business unit. This unit is typically autonomous and has its own mandate, often separate from the core business. It needs a team with digital experience to develop an ambitious business plan, and initiate its own pilot projects while being strictly managed with milestones. Companies, operating at level 3 out 5 (medium maturity), can restructure their entire organization in stages. To this end, a digital competence center should be established that dovetails with the operations of the business units.

Initiating the first digital business unit within a traditional company is a challenging yet liberating endeavor. These early pioneers often start with limited resources and without established processes to build digital capabilities or develop digital products and services. They typically operate in isolation within the traditional organizational structure and may lack a dedicated budget. However, they benefit from considerable freedom, allowing them to establish fast decision-making processes, operate independently of existing IT systems, and utilize modern methodologies like agile scrum development. This approach breaks complex projects into short sprints, facilitating the development of the final product.

Key personnel in these pioneering teams should include a mix of new talent, top performers from the parent company's core business, and members from recently acquired startups. This diverse group forms the foundation for growth and innovation.

Success in these digital business units hinges on four critical factors:

1.Product-Focused Organizational Structure: The structure should be designed around specific products, with fixed teams having autonomous responsibility for them.

2.Close Collaboration with IT: Product owners and their teams must work closely with the IT department to ensure seamless integration and support.

3.Managerial Approach: Managers should act more as coaches and coordinators, aligning with the broader strategy and delegating responsibility to their teams.

4.Budget Management: Initially, budgets are typically small, focusing on products with minimum necessary features. If the product proves successful, the budget is increased for further development.

A significant challenge arises in managing such a business unit within traditional companies, which often lack the necessary digital skills and experience. In many cases, it's beneficial to bring in an experienced digital expert or a venture capitalist with a network of experts. Their involvement can significantly enhance the chances of success for the digital business unit, bridging the gap between the old and new business paradigms.

Key Functions of the Digital Competence Center:

1. Service Provider to Business Units: Acts as a support system for business units undergoing digital transformation.
2. Coordination and Management: The Digital Transformation Office (DTO) plays a pivotal role in setting the pace, coordinating, and managing the transformation.
3. Talent Recruitment and Development: Responsible for hiring digital talent and overseeing their career progression.
4. Digital Ventures Unit: Identifies and prepares for potential acquisitions, establishing a digital division if necessary.
5. Partner Management: Facilitates the creation of new digital ecosystems. The lab brings together experts with new skills, including agile coaches, UX/UI designers, project managers, data analysts, and digital media specialists. This team drives the initial wave of digitization through the company.
6. Supporting Business Units: Each business unit has its own DTO to coordinate with the competence center. Product owners manage cross-functional teams for digitizing customer-facing processes, initiating pilot projects with support from the competence center. Business-specific skills, such as IoT sensor deployment or data analysis, are often required.

Complexity of Establishing Competence Centers:

Due to the complexity, some companies opt for the digital build-operate-transfer (DBOT) approach, especially when time is critical. DBOT involves using external expert teams to rapidly establish digital skills and business units, later transitioning to in-house talent. The digital competence center, pivotal in driving digitization and serving business units, can effectively start with about 15 employees. This team typically includes:

• Managerial and Support Staff: A manager, a couple of employees for the central digital transformation office, one person each for HR and participating units.
• Digital Expertise Lab: Staffed with around 10 experts skilled in agile methods and analytics.
• Adaptive IT Staff: Two IT employees responsible for managing back-end systems of apps, big data infrastructure, software tools, and interfaces.

For larger companies or those at a more advanced digitization level, additional resources might be necessary for managing systems across desktop PCs, mobile devices, and servers.

A case study of a large technology firm illustrates the gradual shift to digital. The firm started by training five teams in agile methodologies, then expanded this training based on the feedback and experiences of these initial teams. This iterative training process was then applied to subsequent waves of teams. The company also established fixed, cross-functional teams for products, moved IT closer to customer-facing operations, and achieved reductions in development time and error rates.