Digital demands different strategic approaches. Radhika Palany explores six make-or-break areas
Digital is no longer just a buzzword: as Gartner’s 2018 CIO Agenda Report showed, it is a top three business priority. Yet digital transformations continue to suffer from high failure rates. Most companies struggle to move past experimentation, with only a minority reporting successful scaling or harvesting of their digital investments.
There are six critical areas where digital transformation demands a different approach to conventional business strategy and management practice. Relevant in Fortune 500 global companies, start-ups and the public sector alike, they can each be the difference between success or failure.
1 Clarity and commitment
Making digital a strategic management priority is key. A digital investment in one part of the business often requires cross-financing, cutbacks or change in another, causing conflict and delay. By incorporating digital success metrics into business-unit goals, leaders can ensure cross-functional alignment and commitment.
Paradoxically, digital visions are often unclear, based as they are on evolving technologies whose business applications are not yet fully understood. Education ministers’ inspiring visions, such as ‘digital education 4.0’ and ‘anytime, anywhere learning’, often cause widespread confusion in the public administration and resistance from teachers as they are light on detail. Visionary leadership must be combined with execution clarity.
Having the right metrics can help unblock resistance to change, as one major software firm found out. Having missed first quarter sales targets for a new flagship digital product, leaders realized that the problem lay with their conventional sales metrics: commissions were based on total revenue, across all products, and since the new product was heavily discounted to gain market access, it was demotivating sellers. By switching the metric to units sold, the company created immediate sales momentum.
2 Culture of learning and growth
Digital puts organizations under unprecedented pressure to learn on-the-go at the same time as delivering growth. A strong learning culture, open to risk-taking and failure, is crucial – yet all too often, companies underinvest and even ignore this critical soft capability.
Take the example of a global consumer electronics giant – a $32 billion business with 1,000 employees across 40 geographies. Embarking on a major digital transformation, the company president said: “We will see if we have the DNA for this.” He was referring to the Herculean effort required for people to unlearn old practices, learn new skills, and find new ways of creating value. Digital transformation presents a major test of how far the organization’s culture supports its people in that effort.
3 Workplace of the future
Digital affects organizations at functional, operational and resource levels, and often in unexpected ways. The advantages of outsourcing IT companies to manage the customer base has always trumped over other aspects. For one mid-sized office supplies company, the decision to switch to a customer relationship management (CRM) platform initiated a series of unanticipated changes that included setting up a new sales operations function, outsourcing unmanaged sales, reorganizing key accounts, making external hires, and re-aligning roles and responsibilities across various customer-facing functions.
Creating the workplace of the future means planning for a dynamic future state. It starts with transitioning to flexible and scalable resource models, investing in digital skills development, and modelling future workplace scenarios where technology and talent augment each other in deeper ways.
4 Digital portfolio
Most companies today have a website, mobile app and social media presence – essential digital assets for staying relevant. Every company must go further to ask: “How can newer technologies be exploited to enhance our mission or core competency?” The challenge for digital native businesses is doing this profitably, while for traditional brick-and-mortar businesses, the question is how to migrate towards a blended portfolio. What is the right digital/physical mix for your business?
Strategic investments over two decades have enabled Whizz Education, a British scale-up, to evolve to the right mix and continually advance its mission of delivering personalized learning at scale. Whizz switched from CD-based content to a web-based platform to reach new learners, and is currently migrating to HTML5 to further expand its reach to mobile learners in emerging markets. Continuous research and development has resulted in cutting-edge personalization, learning intelligence and implementation expertise, transforming the product to a profitable software-as-a-service portfolio.
5 Digital backbone
Leaders must take a comprehensive view of the organization’s readiness to support the digital vision, including its backbone: infrastructure, systems and processes. The leadership challenge is to ensure business continuity while switching critical business infrastructure. When the legacy sales reporting system of a leading European enterprise IT company failed to provide the level of intelligence required to support business growth decisions, the company decided to switch to a sophisticated real-time, big-data capability. This meant structural changes to the back-end, affecting both internal systems and the sales infrastructure and commercial agreements of over 75,000 external partners. A two-year transition period allowed the firm to successfully manage the inherent risks and ensure continuity.
6 Digital marketplace
New technologies tend to disrupt the regulatory, technical and commercial environment, creating high levels of volatility, uncertainty and change. When the EU’s General Data Protection Regulation (GDPR) came into effect in 2018 it effectively pulled the plug on a major cloud provider’s strategic investment in building a solution tailored to German data privacy regulation. One high-potential digital music start-up had to file for liquidation due to weak product-market fit: after spending significant time and funds on building a world-class product, the company discovered that customers were not willing to pay for it.
Participating in the digital economy calls for brave leadership, foresight, speed and sharp business acumen. Decisions on when and how to enter the digital marketplace determine competitiveness and profitability. Market leaders tend to take key positions in shaping the digital economy by providing thought-leadership, building advocacy and community engagement, influencing industry standards and regulation, forging strategic partnerships, and incubating the partner ecosystem.
As technology development cycles shrink and tech-biased Millennials drive consumption and business decisions, industry will be compelled to continuously digitize. It may be time, therefore, to re-position digital transformation as a sustainable investment strategy much like product R&D, rather than a one-time fix aimed at bolting-on the latest technology.
A longer-term view will shift the focus to building the critical underlying capabilities needed to thrive in the digital economy, which so many companies lack today.