Digital Transformation needs Strategy

Digital Transformation or DX is a term that gets thrown around liberally to describe seemingly any initiative that involves the use of technology. True DX fundamentally alters how an enterprise operates or goes to market, and usually has an impact on both its people and processes, and perhaps even how it is organized. Business transformation, digital or otherwise, is a major undertaking and needs strategy. As I’ve written in a number of articles, strategy is a means to an end, so a DX goal needs to be clearly defined before the strategy team can do their job. So, what is the profound change that the company is seeking to achieve through the application of digital capabilities? Is it internally focused or external, or both? If external, will the effort be centered on the customer or its trading partners, or both?

What is the goal and how will you know when you have arrived? Is the company looking to overhaul its supply chain to improve its speed, accuracy, and ability to get the right products to the right place at the right time? Or, is it looking to drive more of its customers to electronic channels? Perhaps the firm sees it as an opportunity to move much of its repetitive work to robots, improving quality and lowering costs, while providing an amazing opportunity to shift their workforce to higher value work. Digital brings endless potential.

The goal defines the ‘what’ and strategy brings the ‘how’. While it may seem obvious that DX won’t happen on its own, I am quite certain that many initiatives leave the gates without an overarching strategy for success.

Before jumping headfirst into the strategy, I think it is useful to spend a bit of time furthering the organization’s collective understanding of the target. It is important that all stakeholders from the C-suite to the front-lines appreciate the undertaking as this will improve buy-in, or at a minimum, the broader team will understand the motivation for change and that it is coming, noting that surprises seldom play out well in enterprises. Being able to describe the scope of the initiative across some basic dimensions will help in the early communications and also provide an ideal starting point for strategy:

• Rationale: why is the company doing this in the first place – is it responding to a known opportunity, a competitive threat, or is it working to create a new market, or something else?
• Goal(s): what are the expected outcomes?
• Business area: which parts of the business are the initial targets of the transformation?
• Time horizon: when are results expected and what is the likely duration of this initiative?
• Location: if known and applicable, which geographies will be affected, early on and through the program?

Now comes the hard part – how are you going to accomplish this herculean effort? Strategy includes making tough decisions as there is seldom one ‘right’ way to do things. The central strategy will require a number of key decisions and will inevitably lead to more choices and evaluation, but you will need to find a logical place to stop defining the approach and/or end state and leave the balance of the work to the detailed planning, design and execution stages. I’ve highlighted some key areas below that I think should be accounted for in the initial strategy:

• Scope: A re-statement of the scope elements described in the section above is warranted with an additional focus on the purpose and reasoning behind the transformation.
• Business/solution architecture: This will become a critical area of the discussion and is really the ‘pièce de résistance’ of the DX initiative and the underlying reason for the effort. Understanding how the business will change as a result of the transformation needs to be well understood. How will the business meld with the enabling technology? That is, what business changes are expected and what shifts will occur in the associated processes? Or will this be defined in concert with the enabling technology and as the solution is envisioned? Or, will the implementation of the technology indeed define a set of new business processes?
• Technology architecture: Digital involves technology. At the strategy stage, the team should have an idea of how the technology pieces might fit together to support the overall solution. This is not the time to have debates on product X vs Y necessarily as that can come later, but it is the time to convey that the strategy is informed with a plausible technological approach.
• Illustrations: I have found that describing a scenario or two for the future state post transformation helps stakeholders outside of the strategy team ‘see what they see’ and brings the solution to life.
• Policy: Significant changes to the business usually result in equally substantial moves in the policy arena. Identifying these in the strategy stage will help highlight the level of transformation and be a strong indicator of the decisions that are being made and the expected downstream impacts. The shifts may result in how people are paid, or the type of work they will be performing. Adjustments to how the company deals with its partners and customers may be in the cards, and a solution that provides greater insights and access to decision-making information may fundamentally change how a company’s products and services are priced, warranted, and so on.
• Implementation: The strategy should highlight a straw model for the implementation approach (not the implementation itself) where stakeholders will learn how the team plans to execute the transformation. For example, will the work be done internally or externally, or through a combination of resources? Will the work leverage mostly existing technology or require new capabilities? What is the approximate cost of the endeavor and what are the primary sources of funding? How long will it take? Will the strategy be implemented in stages or will it need to be a ‘big bang’?
• Organization: Given the scale of change expected, it is likely that there will be shifts in the organization to support the future state. While the strategy does not need to include final details, it should provide some direction with respect to the areas of the business most likely to be impacted.
• Measuring success: The strategy will have already described the reasons why the company is embarking on the effort but what will success look like? What are some of the key performance indicators that will begin pointing to the Promised Land and what metrics will be used to show that the initiative was successful?
• Governance: It is important to describe at this stage how the initiative will be governed. Will a steering committee be struck and who will need to participate? How will key decisions be made and how will disputes be resolved and by whom? What is the cadence of key meetings?
• Critical risk factors and mitigation: Significant risks are usually part and parcel of transformational work. It is imperative that major risks are highlighted at this early stage to ensure that stakeholders view the strategy as realistic, e.g. has the team truly thought through the potential areas of issue, and how does it plan, at a high-level to mitigate?
• Change management: Transformation without robust change management is destined for disappointment. While a detailed CM plan needs to be formulated, the strategy should highlight specific areas of focus given the expected changes to acknowledge the considerable impact to critical actors, policies, processes, etc. in the enterprise’s ecosystem. It is also important to underscore some key adoption strategies at this point and include commentary on difficult to characterize areas such as culture.

Strategy needs to embody the effort but not be the effort itself. It should be iterated among key stakeholders to gain agreement and be used as a guide for follow-on phases of work, from planning and design to solution development and deployment. As with many of my articles of an instructional nature, the above list is not designed to be exhaustive nor definitive but rather serve as a starting point. You may find that some elements are unnecessary and others not mentioned vital – that is to be expected and really supports my belief that methodologies and frameworks are meant to be adapted rather than be used in a prescriptive way.

The origins of strategy are grounded in the battlefield where the concept of how to achieve goals and mitigate risks involves life and death decisions. While nowhere near as dramatic, digital transformation is nonetheless not for the faint of heart and requires strategy to forge a path that will affect the work lives of many. Strategy is needed to frame the scale of the effort, the requirements for execution and an approach to reduce risks and increase the likelihood of adoption. While a DX strategy will not guarantee success, its absence will certainly lead to failure.

About the author: David Tom is Managing Director at the Inthink Group and has crafted and executed numerous DX strategic plans both as a business leader and management consultant. In this article David looks at how to approach the creation of strategy for a DX initiative to vastly improve the odds of execution success. 

Review other perspectives and all Inthink Group services at: https://inthinkgroup.com/