Digital Transformation

Digital Transformation is real. It’s not a buzz word. It’s happening at large scale in corporate world and in most cases is generating tangible business outcomes untapping hidden business value. But also in some cases, it’s generating frustration, results below expectations or just confusion across organizations. In this article I’d like to share my view about what Digital Transformation is, what are the drivers behind it and some principles to implement when a company is planning to embark on Digital Transformation journey. This view is based on my observations and learnings from many customer engagements whom I’ve been involved with.

So What is Digital Transformation?

Basically it means to digitalize all business process along the company value chain. From demand generation, customer engagement, sales, though, services or product delivery, admin, supply chains, product development and R&D, impacting deeply company culture. It reaches end to end the whole organization impacting company strategy. Whereas many companies are currently running projects that impact some of these areas, very few are covering the full spectrum, limiting the benefits of their DT efforts. Nevertheless, it’s understandable companies are entering into transformational journeys with caution due to the big effort required.

Two questions should be formulated and debated by any board and Leadership Team: why our company should run ?DT program? And Why is it possible to do it nowadays with a high degree of success? These questions are intrinsically linked to company strategy and its bets for future growth. In today’s business world “new business realities” are completely changing business and competitive landscapes. Reflecting on these “new business realities” will provide the answer to these two questions to any leadership team.

New Business Realities.

Markets are now Digital Markets. Either for leisure, shopping, networking, learning or working purposes, most of people nowadays, in both, developed and developing countries, spend significant increasing time in Digital platforms of all kind. Hence customer experience is basically a Digital experience or at least it has a digital component. Not surprisingly, demand generation and market places where initial phases of the Digital revolution. Improving customer digital experiences, streamline sales process through digital tools, grow brand recognition in social media networks and other digital platforms, building direct relationships with consumers despite existing distribution channels are goals every company should have as part of their DT efforts.

Technology and talent: New Strategic assets. Airbnb is the largest hospitality company with no physical assets, Uber is the largest mobility company with no single vehicule in its balance sheet, Amazon is the largest retailer but making almost all its profit from its technology division AWS, Google is the largest advertisement company fully operating on Digital platforms or PayPal double in value largest Eurobank in market capitalization. So what does it have in common all these new companies? All of them are incredible young, develop new business models and most importantly the source of their competitive advantage is coming from its Technology and the Talent who is building it.

Cloud technologies combined with software availability has changed completely the competitive landscape. In today’s business environment, a just born startup has access to the latest technology, including the one needed to run sophisticated business process with a pay per use model, which requires low Capex. Even more concerning is that old entry barriers, which were protecting incumbents, are becoming a heavy burden for traditional players, as legacy technologies are becoming more expensive, less agile, supporting outdated slow business process not in line with new consumers and market demands.

We’re observing the Great Resignation where the US economy is facing 2 million employees resignation from their jobs every month and currently with more than $11M vacancies not filled. Technically the US economy is in recession but unemployment rates are at historic low levels. UK has recently announced an initiative to implement 4 days’ work week across many of their enterprises. Flexible, hybrid or remote work remains in place once Covid-19 pandemic is over as a way to keep employees loyal to their companies. Inflation rates are at the highest levels since the 70s and many companies are rushing to increase salaries without being push by unions or employees demands. What’s changed here? What’s driving all these initiatives? Are CEOs suddenly got mad about social care? Talent acquisition and talent development is behind these initiatives. Attracting, developing and retaining talent should be number one priority for any CEO. There is no alternative, at least, in the short term; perhaps Artificial Intelligence, AI, will change the game in the future but still might take some time, and to get there, a lot of good talent will be needed.

I’ve gone through multiple interviews to hire new employees during last years at Microsoft and most highlighted reason to join the company it’s been our culture and company values. Personally, I believe Satya’s greatest achievement has been changing Microsoft culture. From having a fix mindset to embrace a growth mindset. From “knowing it all” to “learning it all” culture. From competing with your colleagues to collaborating with them. From monetizing value from customer to creating value with customers. No company will succeed with its DT journey without adapting its culture to XXI century paradigm. And this is the hardest part of all. This culture evolution requires commitment, time and lot of communication from the top and it should happen in parallel to the other DT efforts.

Data is generating new business opportunities. As Walmart CEO, Doug McMillon, recently said when asked about Walmart entering in new business as Advertising and health care: “One of the interesting things that I’ve learned over the last few years is when you make the switch from being purely analog to being more of a digital company, it unlocks opportunities to grow a lot of other business… When I was going to ?business school, we were taught about silos and conglomerates. In a digital world, it all feels a lot more connected. It just feels like you are designing for a family or a customer or for members. And these other things kind of naturally come together and result in one experience for them. And that’s what we are trying to build”

This is the ultimate phase of DT, when companies start developing new business models, new products or services, or entering into new markets thanks to the smart use of data. It’s possible thanks to the explosion of data and the ability to manage it in new and different ways to generate new business models. Only companies with high digital maturity and sophisticated technical capabilities would be able to manage this phase successfully. Here we’re talking about building company’s future with 2x, 3x potential. Major complexity here is not technological, though it requires deep technology expertise, but the ability to ideate and envision real and powerful new business scenarios with clear business outcomes. Mixed teams with technology and business skills should work together with common and shared goals. Again, to make this work, a new company culture attracting the right talent will be a must.

Principles

So now we understand what DT is, and what are the driving forces behind it, I would like to set a few principles that should guide any DT program. It’s not a detailed playbook but a set of high level guiding principles that regardless your company maturity level or the industry in which operates should provide clarity about how to lead a DT journey.

Board and CEO accountability. As described earlier, DT should be at the core of the strategy to face an increasing ?complex competitive landscape. Crafting and shaping company strategy is a non-delegated Boards and CEOs accountability. Hence DT Plans must be explored, discussed and approved at board level. No delegation is possible. This will required CEOs and board members becomes literate with tech terms but not experts. Most likely, searching for proper support, internally and externally, will be required.

New Vision connected with company mission and purpose. ?In most cases DT will have profound changes within the organization, generating new roles, evolving others and stretching teams with additional assignments while running the business on its existing way. “Performing while Transforming” mantra will become familiar for many teams. Hence it’s extremely important to connect new company vision with traditional company values, making it easier for all employees to understand the journey and why it’s so important in order to achieve company mission and purpose. ?All of this requires a big internal communication effort fully supported by the whole company Leadership Team.

It’s a journey. DT will not happened over the night. It’s not one tech project once done, it’s over. DT as part of company strategy will be executed over the years and it requires to have a detailed Plan to monitor execution with expected outcomes. Setting a Digital Enablement Office or DEO, an office to guide the journey and to support CEOs on the task is seen as a best practice not always being implemented.

Cultural Change. As I highlighted earlier, talent acquisition, development and retention of it, is number one priority for any company in the XXI century. It cannot be achieved without crafting a modern corporate culture, where flexibility, transparency, inclusion and social responsibility are attributes of it. Modern corporations are evolving towards more flatten organizations. A new company culture where new roles with new skills and capabilities will flourish.

Building Ecosystems. Running a successful DT program will require support from external companies to complement lack of internal skills, but also it will generate new business opportunities that require new partnerships. Customers becoming partners with sell through business models, suppliers integrating supply chains with own company ones thanks to smart contracts powered by blockchain technology or joint investments in new ventures combining technological, financial and knowledge capabilities and sharing risks are new business scenarios that are currently happening across multiple industries.

Pillars

Microsoft’s approach to digital transformation focuses on four digital transformation pillars: Empower employees, Engage customers, Optimize operations, and Transform products. These pillars apply generally across industry, with nuances especially in public sector, where customers become citizens, and products become services. These pillars in turn underpin the scenarios that are specific to industry.

???????Empowering Employees: Help employees achieve more by creating a work environment that fuels productivity, while remaining flexible, and secure.

???????Engaging Customers: Use technology to interact with customers in new ways, ranging from personalized digital experiences such as targeted offers and specific recommendations, to more efficient and effective customer service.

???????Optimizing Operations: Accelerate the responsiveness of business, by improving service levels and reducing costs.

???????Transforming Products: Differentiate and capture emerging opportunities by using data as a strategic asset and shifting from hindsight to foresight.

The framework we use to highlight how digital transformation is enabled is what we call digital feedback loop.?And at the center is data.?Data is coming out of everything.?Every single product at this point is being wired up with telemetry and the ability to collect data.

As Satya Nadella, Microsoft CEO, states: “Every company is a software company. You have to start thinking and operating like a digital company. It’s no longer just about procuring one solution and deploying one. It’s really you, yourself, thinking of your own future as a digital company.”

At Microsoft Industry Solutions our goal is to enable every company to become a digital business leveraging the power of Microsoft Cloud, through Digital Transformation and Modernization. Is your company ready??