Methodology for Formulating Digital Strategy

This is a re-posting of a Throput blog article.

We have just completed an eight-month consultancy to help an 800-employee organization formulate their five-year digital transformation plan. We have devised a methodology for creating the digital strategy suitable for our client. Thinking our methodology may also help you jumpstart the digital transformation in your organization, we are going to summarize it in this article.

Strategy Formulation Process

The following chart shows the process of how we formulate a digital transformation strategy.

First of all, we should study the existing corporate strategy of the organization in the coming years as well as their vision, mission, and values (VMV). Based on the corporate strategy, we craft the Digital Vision — the vision of the digital transformation, as discussed in our previous article. The Digital Vision should provide employees and external stakeholders with the key goals that the organization can ultimately achieve with the digital transformation. For example, a digital transformation goal may be to enable the organization to provide an one-stop shop for their customers to access all services via an omnichannel platform. To keep the organization focused, the number of goals should be limited to three at best and five at most.

With the Digital Vision defined and agreed at the management level, we need to formulate an actionable plan. The plan should consist of a list of Digital Programs, each of which will generate a list of implementation projects.

We have designed a framework called Digital Transformation Quadrants to help us think through what Digital Programs can be covered. In parallel, we also use a Digital Transformation Roadmap to prioritize and plan the Digital Programs for execution based on the available expertise and resources. Finally, the Digital Transformation Governance provides the framework to govern the execution of the Digital Transformation.

In the following, we will further elaborate Digital Transformation Quadrants and Roadmap.

Digital Transformation Quadrants

We have devised this Digital Transformation Quadrants framework as shown below for defining the Digital Programs.

The Digital Transformation Quadrants framework consists of the following four domains divided by two axes Innovation vs Rationalization, and Internal (for internal staff and processes) vs External (for external stakeholders, e.g., suppliers and customers). Rationalization programs focus on process re-engineering and application consolidation for efficiency improvements and cost savings. Innovation programs focus on business re-modeling and technology innovation for new value creation. For each domain, we propose suitable Digital Programs.

1. Internal Rationalization: to simplify and consolidate internal resources, processes and systems to increase operational efficiency and service capacity. (Digital Program examples: application consolidation, Center of Digital Excellence).
2. Internal Innovation: to apply innovation and technology internally in order to build upnew capabilities. (Digital Program examples: operational intelligence using big data and AI.)
3. External Rationalization: to simplify and consolidate the processes as well as the business and marketing channels for interacting with external stakeholders, e.g., customers, partners, suppliers, the general public. (Digital Program examples: omnichannel customer services.)
4. External Innovation: to apply innovation and technology to create new business models and deliver new values to external stakeholders. (Digital Program examples: open data / API for service co-creation with partners.)

Usually, an organization can start with Internal Rationalization because the result targets through refactoring the existing processes and systems (e.g., better efficiency, lower costs) can be more easily defined and measured. In addition, the organization can also conduct some proof-of-concept projects in External Innovation because this is usually a greenfield domain with least dependency on the legacy processes and systems. From the Internal Rationalization and the External Innovation domains, real business requirements for Internal Innovation and External Rationalization can naturally be generated for creating Digital Programs.

For each Digital Program, we look for what existing improvements and new values can be brought about through digitalization in the areas of people, processes, and technology. Most importantly, we should also find out what data can be gathered from these areas and analyzed to enable the organization to become data-driven.

Digital Transformation Roadmap

The Digital Transformation Roadmap provides the timelines of executing Digital Programs defined in the Digital Transformation Quadrants based on the business values and available resources. In view of the changing business needs and technology trends, the Roadmap should be defined and refined in an agile fashion. The organization should leverage proof-of-concept projects to experiment with various new technologies and understand what business values the technologies can actually bring. Some digital transformation stages or streams can be defined so that the organization can focus on achieving different objectives.

For example, the following work stream can be defined.

1. Enabling work stream: to foster the culture and develop the capabilities necessary for digital transformation, e.g., reorganizaion, training, tools.
2. Digitalization work stream: to streamline and digitalize the existing processes for efficiency improvements, and collect and analyze data from people, technology and processes for becoming data driven.
3. Innovation work stream: to achieve sustainable innovation that can bring new business values to the organization and the customers. In addition to new technology innovation, business models may also need to be renewed in order to reinvigorate the whole organization.

Digital Transformation Governance

Since the lean and agile approach is adopted, the governance plays a very important role in making sure the execution of the digital transformation is on the right track. We recommend to form a digital transformation organization like the following.

A Digital Transformation Steering Committee (DTSC) should be formed by the top management. DTSC should provide the necessary directions and governance, performing the duties, such as approval of projects, management of changes, and progress measurement through Key Performance Indicators (KPIs).

A Digital Program Lead (DPL) who can be an division manager should be nominated to oversee each Digital Program. Note that the DPL should not only look after the division she is working in but should also be empowered to drive her Digital Program across the entire organization. She should be trained with new skills (e.g., Enterprise Architecture, Design Thinking) so that she can use a bird’s eye view of how digital transformation can make positive and profound changes in the whole organization. The Centre of Digital Excellence (CoDE) can be established with all DPLs to drive the execution of all Digital Programs. The CoDE should report to DTSC.

In addition to the above organization, we should also establish a governance process. For example, monthly CoDE can be scheduled among Digital Program teams to exchange experiences from Digital Program execution and report progresses. Seminars can also be organized for Digital Program Teams to share their experience to all interested parties. Quarterly DTSC meetings can be organized for discussing directions, analyzing progresses, and approving changes. Finally, an annual assessment and planning workshop can be organized near the year-end for developing and approving the concrete digital transformation plan for the next year.

Summary

According to a Gartner survey in 2018, 87% of business leaders say that digitalization is now a priority; 67% of them believe that their organizations would lose their competitiveness if they could not be further digitalized by 2020. Many leaders understand digital transformation a “must-do” imperative but it is never a random happening. We should devise a suitable methodology that can help the organization tailor a digital transformation strategy that fits the existing needs and the future directions. We hope the methodology based on our real-world experience can give some hints for developing your own. Should you need further information and assistance, please feel free to contact us at info@throput.com.