Decisive Implementation of DX-3

In the first 2 articles of the same topic, we covered REFINE and REALIZE phases. Here, we address the 3rd phase of DX implementation.

Ramp-up the Digital Organization

This involves the following:

1. Think whole
2. Weaponize your IT
3. Collaborate closely
4. Be fast

1. Think Whole

When Max Viessmann took up his position as chief digital officer (CDO) at heating systems manufacturer Viessmann, the digitization of the family-run firm moved into its second phase. His quote:

“The first thing I did was to freeze 80 percent of initiatives. Once we had thoroughly analyzed and understood all aspects of digitization in the first phase, it was about concentrating all our resources into growth drivers.”

“Every day, we learn something new because things change so quickly, including the target scenario. It puts the organization under huge pressure to derive new targets from the findings—but it also does it good.”

Transitioning to a digital enterprise involves several key steps and strategies:

1. Focus on Customer-Facing Processes: Start digitization with a manageable number of customer-facing processes. Customers' feedback and data are central, making them integral to the digital transformation process.
2. Sequential Approach to Digitization: After addressing customer-facing processes, shift focus to internal processes like production, supply chain, sales, marketing, and administration.
3. Dynamic Planning and Milestone Setting: Set milestones for the digitization of the entire enterprise. Release budgets based on achieving these milestones. Continuously evaluate and adjust the plan based on results and feedback.
4. Adapting to New Findings: Digitization is an exploratory journey requiring flexibility and adaptability. The transformation plan should evolve with new insights and experiences.
5. Risks of Outsourcing and Spin-Offs: Outsourcing digital work or forming spin-off companies with digital partners can create dependency and disconnect from the traditional business.

The following diagram gives the overall picture of the DX journey.

Digital Build/Operate/Transfer (DBOT)

If more speed is needed, we can borrow an approach born in the auto industry: build-operate-transfer (BOT). Automakers commissioned their suppliers to build and operate facilities on their factory premises. Once the specialist firm had brought the facility to full working order, control of the equipment was transferred to the automaker as previously agreed.

With digital BOT (DBOT) it’s no longer about plants, but it’s certainly about specialists.? To speed up digitization, companies on the transformation journey can call on the services of digital specialists to rapidly digitize the initial processes. After a given period, usually six to nine months, these specialists can then be gradually replaced by the companies’ own employees. DBOT is far superior to other methods of accelerating the transformation. Permanently outsourcing the digital work to a third-party service provider, for example, means that the business always lacks the necessary expertise in digital, and becomes dangerously reliant on the service pro- vider. Forming a spin-off company with a digitally experienced partner is also fraught with risk: it uncouples the digital future from the traditional business; it transfers out important pillars like the customer relationship, technology, and products; and it limits the company’s ability to feed posi- tive impulses back into the existing organization.

Walmart, the world’s biggest retailer, is a perfect example of how a large corporation can move from the analog world and take the digital world by storm. WalmartLabs grew from a small core of 60 digital experts and now has offices in India, Brazil, and the United States. In 2016, the organization employed 3,500 specialists, all working on ways to redefine the shopping expe- rience of Walmart customers, whether in the physical stores, on the website, or on mobile devices. The aim was bold: “Redefining e-commerce globally.”

Weaponize your IT

Your IT capabilities provide bedrock of DX. How to turn it into a weapon? Here are some pointers:

Integration of Development and Operations: Adopting the DevOps paradigm, which merges development and business operations, is crucial. This approach ensures that these two traditionally separate areas work closely together.

Shared Incentives and Processes: DevOps emphasizes shared incentives and processes for both developers and operational staff, fostering a more collaborative and efficient working environment.

Investment in Technology and Personnel: Significant investment in both technology and skilled personnel is essential to facilitate the transition to a DevOps model and to support ongoing agile development practices.

Recruitment Strategy: Like Capital One, companies should focus on building internal capabilities rather than relying on outsourcing. This involves a strategic recruitment drive to acquire talent that aligns with the company's digital transformation goals.

Adoption of Agile Development: Embracing agile development methodologies is key. This approach allows for continuous learning, testing in the market, and iterative improvement of products.

Expanding Agile Philosophy Across IT: Successful implementation of agile methods in pilot projects should lead to the expansion of this philosophy across the entire IT department, as seen in Capital One's transformation.

Continuous Improvement and Market Testing: The approach should involve constant market testing and refinement of products to ensure they meet customer needs and can compete effectively in the market.

Vision for the Future: Companies must recognize that the future of their industry lies in operating like high-tech firms, as highlighted by Capital One's CIO. This vision should drive the digital transformation strategy.

Commitment to Digital Transformation: A strong commitment to driving digital transformation is essential. This commitment must be evident in the company's strategic decisions, investments, and cultural shifts towards a more agile, tech-oriented approach.

Transform Agile into the leading system

Agile IT Overcoming Legacy Systems: Initially, agile IT acts as an overlay on traditional systems. Gradually, agile practices permeate and transform the legacy IT.

Architectural and Management Shifts: Eventually, agile structures become dominant, requiring careful adaptation of legacy systems. Management of IT may need to be transferred to a new team to facilitate this transition.

Digital Competence at Management Levels: Digital expertise is essential not only in IT departments but also at executive and supervisory board levels. The CDO should play a significant role in management decisions.

Collaborate with Start-ups

New business ideas stimulate the organization and deliver fresh impulse. Several major corporations, including Under Armour, ING, and General Motors, have strategically acquired or invested in start-ups to support their digital transformation goals:

• Under Armour's Digital Health Platform: Acquired MapMyFitness, MyFitnessPal, and Edmondo. Gained control of the world's largest digital health platform, accessing extensive consumer data.
• ING's Online Mortgage Broker Platform: Operates Interhyp, enhancing its digital capabilities in the financial sector.
• General Motors' Investments in Future Mobility: Invested $500 million in Lyft and bought Cruise Automation for $1 billion. Launched Maven, its car-sharing service start-up. These investments provide GM with pathways to future markets and hedge against current automotive industry trends.
• Learning from Digital Natives: Traditional company employees and managers learn digital thinking and practices from acquired start-ups. Example: Robin Thurston, former CEO of MapMyFitness, became Under Armour’s chief digital officer, leading connected fitness initiatives.
• Role of Start-Ups in Transformation: While start-ups alone can't implement digital transformation in large corporations, their agile development methods offer valuable insights.
• Institutionalizing Stakeholdings into Business Units: Companies often transform their investments in start-ups into dedicated business units, as seen with Under Armour’s connected fitness business.
• Corporate Venture Capital/Investment Funds: Companies like Toyota and SoftBank have established significant investment funds for tech start-ups. 2.Toyota invested in 15 tech start-ups through a $310 million fund. SoftBank Vision Fund, one of the world's largest, includes investments from the Saudi Arabia government and Apple.
• Strategic Importance of Investments: Investments in digital and tech start-ups are seen as strategically important for future development and alignment with emerging technologies.

Be fast - speed as the guiding principle

Speed is infectious: an organization that uses agile methods, develops fast, quickly tests products in the market, and immediately incorporates market feedback into further developments no longer has anything in common with the customary, ponderous methods of the traditional enterprise. In a comprehensive digital transformation, maintaining speed is crucial to prevent doubters from hindering progress. Agile methodologies and the focus on rapidly deploying Minimum Viable Products (MVPs) can significantly expedite development processes. MVPs can cut classic development times by up to 90% as shown below.

Summary

The scaling of the organization follows a clear diagnosis and plan as shown below. In the 3 articles (including this one), I have presented an implementation approach for DX called REFINE-REALIZE-RAMP-UP. Here is a view covering all the 3.

Let's look at 2 cases regarding how they went about their DX in terms of identifying and prioritizing the processes that were taken up for pilot implementation of REALIZE phase.

Case 1: In the initial phase of its digital transformation, an energy supplier undertook a comprehensive analysis of its key processes to identify areas where digitization could yield significant benefits:

Production: The goal was to use big data to align supply and demand curves, a complex task given the variability in renewable energy sources.

Transportation and Maintenance: Focused on enhancing maintenance efficiency through predictive analytics. Considered the implementation of smart pipeline networks to optimize distribution.

Field Service Management: Ensured field engineers had continuous access to essential resources like maps, data, and software tools.

Sales and Customer Interaction: Utilized data analysis and customer segmentation to improve customer interactions.

Real-Time Energy Trading Platform: Explored the creation of a platform for real-time trading of energy supply, including options from third-party suppliers.

Automated Back Office: Considered the development of an automated back office for streamlined operations.

Case 2: An energy utility company went about this in a different way. It defined four areas to start first: processes relevant to the customer, suppliers, field engineers, and administration.

Customers: The company identified customer-facing processes on the customer journey as those offering the greatest potential. Opportunities exist throughout the value chain to digitize customer contact, and thus reduce costs while improving the service. It starts with production with apps that allow customers who produce and supply green energy to stay up to date with their sold quantities. In the areas of transport and distribution, the energy supplier can install digital alarm systems that notify customers of outages and bottlenecks in real time. In terms of customer contact and service, the company can provide its customers with an app that shows key data at a glance. The company can also use advanced analytics to form the millions of customer data points into a detailed customer profile. The smarter the household becomes, the more data it generates, meaning the ability to handle big data became a vital core competency for the energy supplier.

Suppliers: The second area on the path toward digitization relates to supplier-facing processes or the supplier journey. At the produc- tion stage, it’s about providing digital trading platforms for excess supply. In transport and distribution, it’s about real-time data on deliveries and disruptions. In sales and customer contact, it’s about paperless billing. And in administration, it’s about integrating data on suppliers and energy companies.

Field engineers: At the production level, field engineers are provided with apps for safety checks, predictive maintenance, and repair tips. In transport and distribution, two apps for tablets were created. The first is team management in real time, which provides managers with a constant overview of where their engineers are working, what problems they’re working on, and the progress of their work. This app was a great success, helping engineers increase the number of repairs by around 50 percent. The app was developed using textbook agile development practices: programmers and the later users of the app were in constant dialogue on the team, a rapid pilot version was tested by engineers in the field, and the feedback was quickly incorporated into further development, which all led to an attractive app that’s easy to use and has vastly increased pro- ductivity. The second is a complementary app that was developed in the same way and helps schedulers plan and prepare their service teams and deployments. Both apps have significantly increased the productivity of field engineers.

Administration: At the production stage of the value chain, an app was developed for the real-time forecasting of supply and demand. At the transport and distribution level, an app was created for cus- tomer service advisers that shows the customer’s service request and provides the data they need to evaluate the request and provide the customer with a quote. Required services can also be activated and billed, covering the end-to-end process.

To Sum up:

• Everything starts with a good roadmap that encompasses the entire business, thinks of the customer first, and systematically breaks down organizational silos.
• Identifying the pilot processes that would switch to the digital ways of realization is crucial. Enterprises can go about in different ways to arrive at this list. Most of them make use of customer journeys.
• It’s essential to make a decisive switch to the digital operating system, proactively steer change, and systematically motivate managers to lead, at every level. Depending on the level of digital maturity, companies can set up a new digital unit or accelerate the digital competence centre.
• The transformation must be scaled purposefully and unhesitatingly throughout the enterprise. In the process, it’s vital to heed three key philosophies: weaponize your IT, work closely with start-ups, and let speed be your new guiding principle.
• One element that stands out as critical is the speed of DX. The timeline for a successful transformation is concise, with just a few weeks for diagnostics and planning, three to eight months for piloting, and one to two years for full organizational implementation.
• However, the essence of digitization extends beyond mere organizational restructuring. It fundamentally requires a shift in mindset, embracing Team Collaboration Over Hierarchical Structures, Networks Instead of Silos, Prioritizing Pace Over Perfection and Learning from Customers, Competitors and Start-ups.