The Seven Traits of Successful Digital Transformation

To stay competitive in today’s exponential economy, companies must fully commit to transforming themselves into full digital businesses. Here are seven traits that successful digital enterprises share.

E-commerce is growing at double-digit rates in most of the world and the global economy is more connected than ever at every level. Digital enterprises are booming across Asia and opening new markets and new ways of doing business across the globe. Companies need to move beyond experiments with digital and transform themselves into digital businesses. Yet many companies continue to rely on their current processes and stumble as they try to turn their digital plans into new business and operating models.

 Digital transformation is uniquely challenging, touching every function and business unit while also demanding the rapid development of new skills and investments that are very different from business as usual. It also means literally throwing away some of the processes, infrastructures, and behaviors that have helped make businesses successful in the past. To succeed, management teams need to act focus on “hard wiring” digital into their organization’s structures, processes, systems, and incentives and actively use change management.

There is no one roadmap that works for everyone, but there are plenty of examples that offer insights into the approaches and actions of a successful digital transformation. By studying dozens of these successes—looking beyond the usual suspects—I discovered that effective digital enterprises share these seven traits. 

1. Create Collective Ambition for Change

Leaders are struggling with how to reconcile the increasing need for the digitization of their business models while trying to create organizational climates that have an authentic sense of being human, creating an overarching sense of purpose and collective ambition. Digital technology is at the core of virtually every company’s business model today. Entire value chains are being digitized. But the onset of this ubiquitous digitization is occurring at the same time that individuals are yearning for a sense of meaning in their organizations. Leadership teams must be prepared to think quite differently about how a digital business operates and, to be successful, they need to work hard to create a clear vision for digital change that lets everyone involved understand how those changes will be accomplished, measured and rewarded.

Leaders of digital change efforts will necessarily set aspirations that, on the surface, will seem unreasonable. I say “necessarily” because digital change efforts must begin with organizations accepting that digital change is a business that creates value, not as a channel that drives activities. Some companies frame their targets by measures such as growth or market share through digital channels. Others set targets for cost reduction based on the cost structures of new digital competitors. Either way, if your targets aren’t making the majority of your colleagues feel nervous, you probably aren’t aiming high enough.

The practical and economic successes of the new digital reality are already widely known. As digital businesses, companies like Amazon, Google and Microsoft are clearly already leaders. But lesser known success stories like high-end fashion retailer Burberry, or the transformation of Netflix from DVD rentals to a video-streaming powerhouse show a clear direction for consumer facing businesses. But now even traditionally industrial businesses like real estate, mining, must digitize their entire value chain to remain relevant and viable. Consider the German metals company Kl?kner who sent executives to “embed” into the startup scene in Berlin. The result? The endeavor ultimately changed Kl?ckner’s supply chain, made the organization more efficient, and created platforms that make steel pricing more transparent for consumers. Clearly the future is digital for all businesses in every market sector.

2. Acquire capabilities to move fast

Leadership teams must be realistic about the collective abilities of their existing workforce and the potential to accept and manage digital changes. The skills required for digital transformation may need to come from new approaches or personnel. In the case of Kl?ckner effort they told executives to “trade in their ties” and pushed them out of the building into an incubator startup space. This exemplifies a change in thinking about change management, that you will need to hire, retrain and repurpose well outside the traditional corporate thinking.

Another lesson I see from Burberry is that the best people in digital product management or user-experience design may not work in your industry. Hire them anyway. For many companies the fastest option has been to “acqui-hire” or purchasing companies with talented digital assets to grow your business. Google, Apple and Amazon all routinely enter new sectors by acqui-hiring – or buying talent needed to build capabilities or enter new markets. No matter what your strategy, significant lateral hiring is required in the early stages of a transformation to create a pool of talent deep enough to execute against an ambitious digital agenda and plant the seeds for a new digital culture.

3. Cultivate Your Digital Talent

Company’s that acqui-hire digital talent and then places those assets into its existing operations is more likely to lose the team than to assimilate it. Digital talent must be nurtured differently, with its own working patterns, sandbox, and tools. Often, new teams are seen as a threat to the status quo and change management is made more difficult by artificial competition between new and existing teams for resources, recognition, and status.

One of the best examples of a successful transition is Wal-Mart. Four years ago, Wal-Mart’s online business was lagging. They were late to the e-commerce market because executives protected their traditional physical-retail business, which was a clear market leader – why change? But, when Wal-Mart executives finally recognized the threat of Amazon’s exploding retail business which hit $107 billion in 2015 they established WalmartLabs, an “idea incubator,” as part of its growing e-commerce division in Silicon Valley—far removed from the company’s Arkansas, headquarters. The group introduced a unified company-wide e-commerce platform helping Wal-Mart increase online revenues by 30 percent in 2013, outpacing Amazon’s rate of growth. Wal-Mart then turned its e-commerce business into a separate vertical with its own profit and loss and today has revenues of almost $16 billion, still a long way behind Amazon but more than triple the $5 billion in ecommerce sales before their idea-incubator. Wal-Mart plans to invest up to $1.5 billion in 2016 to continue growing their global digital efforts.

4. Don’t Accept Past Success as an Indicator of the Future

Digital innovation requires examining at how everything is done with “fresh eyes”. Clayton Christensen in his seminal work, The Innovators Dilemma, saw that every company must aggressively challenge the status quo rather than looking to historical norms as a measure of future growth. Effective digital leaders become change agents, examining every aspect and process of their business. They recognize that the traditional methods for everything from forecasting to production, shipping and fulfillment and billing must have the rules rewritten. In this case history is not the best guide for future plans.

Digital transformation is both customer facing and back-office systems and processes, and must be pushed up and down the supply chain—to achieve digitally driven transformation. One reason so many companies move their digital efforts outside the core of company operations is because they recognize that the depth and scope of digital change is more like a start-up asking the exact same question as it plots to disrupt your business. Silicon Valley has become the center of digital disruption because of the cultural bias created by startup culture - to always look for the next disruptive idea. Think of Apple’s transformation from computer maker into (among other things) the world’s largest music retailer, or eBay’s transition from online bazaar to global e-commerce platform. 

I also see leaders of digital change thinking more globally about partnerships to deliver new value-added experiences and services. This can mean alliances that span industry sectors even in the most basic industries. For example in mining new digital technologies spans operations from pit to port across the entire value chain. Digital technology adoption will help mining companies become more agile in planning and more efficient at every stage of operation.

5. Be Data Driven

Dynamic digital technologies can provide even the most basic industries with new tools to improve rapid decision making with expanded planning windows and lead indicators when changes begin to occur. As organizations of all kinds move to a cycle of continuous delivery and improvement, adopting new methods such as agile development and lean business model canvas-type customer testing supported by big data analytics, the pace of innovation will increase. Continuous improvement requires continuous experimentation, along with processes that generate lead indicators that allow companies to respond more quickly to competition, economics and global trends.

Integrating multiple data sources into a user driven system that is accessible to everyone in the organization will improve the velocity for innovation. New digital technologies will allow companies to tag their data and publish it to the cloud where it is instantly available to every user with permissions and location. New desktop dashboards will allow users to instantly build “Virtual Databases” and look for the correlations that are most relevant to their application. This next generation of crowd-extracted data insights will be a primary driver for changing processes. This of it as a network that now has intelligence at the core and at the edges – in the form of users who can access the information they need most.

6. Follow the money

Digital teams must quickly zero in on the digital investments that create the most value—and then double down to develop coherent solutions and implement them quickly. Most company’s can easily see the benefits of focusing digital investments on customer-facing solutions. However, in most cases they can extract just as much value, if not more, from investing in back-office and process functions that can drive operational efficiencies. Digital transformation is more than just gain creation like finding new revenue streams; it’s also about creating value by introducing ways to reduce ineffective and inefficiencies inherent in most traditional processes. It’s no longer the costs of doing business – it is how to minimize the pain in every aspect of every process. 

7. Be obsessed with the customer

In my work with startups I frequently say, a startup is not a smaller version of a big company. A startup is a team in search of customers. I’ve learned that this is actually true for companies of every size. The execution and change management challenges are bigger with scale but rising customer expectations continue to push every business to improve their customer experience across all channels. Leaders in every industry have developed an obsession with improving the customer experience because they recognize that it is the foundation of any digital transformation. This has given rise to a new generation of customer focused customer survey enterprises like Qualtrics that continuously survey customer experiences. Constant customer interrogation programs have been shown to significantly improve the effectiveness and efficiency of customer marketing programs. Lead indicators and integrated analytics helps companies reduce customer insights reporting time, enabling faster reactions to feedback and resulting in increases in new customer acquisition and millions in incremental revenues. With more flexibility and agility in our customer marketing operations, all companies large and small, can better anticipate and respond to evolving market demands to attract new customers and keep existing ones happy.

 No enterprise is perfect, but leadership teams should aspire to fix every error or bad experience. Processes that enable companies to capture and learn from every customer interaction—positive or negative—help them to regularly test assumptions about how customers are using digital and constantly fine-tune the experience.

A radical focus on customers is what enables companies to go beyond what’s normal and into the extraordinary. If online retailer Zappos is out of stock on a product, it will help you find the item from a competitor. That fanatical obsession with customer “happiness” is one why 75% of Zappo’s orders come from repeat customers.

Leaders of successful digital efforts know that it’s not enough to develop just one or two of these traits. The real innovators will learn to excel at all seven of them. Doing so requires a radically different mind-set and operating approach. 

What is your guidance for leading digital transformation at your company? Feedback is welcomed!