It seems like everyone is talking about digital transformation these days. There are firms projecting massive amounts of money to be spent in the coming years – trillions of dollars according to some. There are others who will have you believe that 70% of digital transformations fail. And of course, that’s before we get into considering what exactly digital transformation is, because if you believe a lot of the definitions, it seems to be a lot more about the digital piece than the transformation piece.
So, what exactly is digital transformation? And why do you as a technology leader need to care about it? That’s what we’re going to address in this guide – in a way that actually helps you give your CEO what he or she needs to actually transform the business. Let’s start with our perspective on what digital transformation is.
What is Digital Transformation?
Digital transformation is the ability to transform how a business operates through the effective and efficient leveraging of digital technologies. That means ensuring that those digital technologies align with the business – both in terms of today’s capabilities, and in terms of the strategic and technology roadmaps that define the organization’s planned future. The purpose of this alignment is to enable the business to do things that couldn’t be done without that technology, to allow for a competitive advantage to be gained.
Ongoing digital transformation is what you do as a technology leader. It’s not just partnering with the business; it’s enabling the business to do things that they couldn’t do without you. But of course, that only happens if you get digital transformation right. How do you do that?
6 Elements of Digital Transformation
There’s more to an effective digital transformation strategy than simply investing in digital technology and then using it effectively. Digital transformation must span the entire process of understanding today’s business, planning for the future, implementing the changes and then ensuring the enhanced environment is delivering what the business needs. That end-to-end process requires the following elements:
- Defining and analyzing the current business and technology environment
- Performing strategic planning and roadmapping
- Funding and resourcing
- Delivering effectively
- Performing portfolio modeling and what-if analysis
- Managing outcomes
1. Defining and analyzing current the current business and technology environment
For a business to understand how it needs to transform, it must first understand where it is today, its current business models. That must include consideration of the business capabilities – what it is that the organization does, the associated business processes that control how those capabilities are delivered, and the digital technology inventory that supports those capabilities and business processes. These must be developed in distinct ways.
Business capability definition is part of the larger concept of enterprise architecture and consists of identifying and describing all of the distinct capabilities that the organization has and building the relationships between them. Those capabilities must then be supplemented with additional detail that provides additional context. This context includes things like value streams that describe how business capabilities are achieved. Critically for our purpose here, it also includes the technologies that support those capabilities.
For digital technology leaders, supporting this requires a comprehensive application inventory. This is the full set of applications and digital technologies that exist within the organization, along with key characteristics of those solutions. An application inventory helps identify isolated islands of technology, duplicated functionality, gaps, security and risk exposure, etc. It also provides the snapshot of today’s world to align with the business capabilities. However, a snapshot isn’t enough. Application portfolio management (APM) is required that takes this inventory and ensures that it is maintained continuously. APM also helps identify and drive some of the changes that will ultimately contribute to transforming to a digital business. But that comes later.
Once business capabilities are defined and a taxonomy developed, and once the application portfolio inventory is in place, the two can be combined. All of the technologies that support each business capability can be understood, and there is clarity over which business capabilities each application contributes to. This then allows for further analysis with a specific focus on understanding the business and technology outliers.
This is the foundation for transforming to a digital business. Successful transformations aren’t built on simply digitizing functions, or on trying to accelerate the automations and streamlining that technology has been driving for the last decade or more. They’re built on understanding the current opportunities and challenges and then delivering enhanced business capabilities through the application of the right technologies.
2. Performing strategic planning and roadmapping
The output of the above analysis will be a number of areas where investments in technology will be capable of transforming the performance of the business. But which areas should be addressed first? Which initiatives should be the highest priority? How do distinct investments come together to provide an enterprise-wide transformation? That’s where effective strategic planning comes in.
As the critical first step in strategy execution management (SEM), organizations must start by establishing their strategic priorities. This should be a collaborative effort designed to deliver the most significant improvements to those areas of the business that executives consider the most important. This cannot be solely a business effort; technology leaders must be engaged as the ultimate solutions that are implemented will be driven by investment in digitization.
The strategic planning process should result in the development of a strategic roadmap that sets out the way the business will transform. This is a graphical representation of what will be done, when the investments will be made, and the relationships and dependencies between individual investments. This roadmap becomes a powerful, intuitive tool for communicating strategy to the entire organization, ensuring all stakeholders have the same, accurate understanding of plans.
Of course, this exercise doesn’t only consider digital transformation – the business must still pursue its existing priorities and be capable of addressing ongoing needs. However, an effective transformation will dovetail the transformation driven investments with those other priorities – if a digital transformation isn’t enhancing the ability to run a successful business, then it isn’t working.
3. Funding and resourcing
Once the roadmap for transformation is in place, organizations must fund and resource the work that needs to be delivered. Funding should occur at the high-level investment level, aligning funding (and oversight) with the major program, product and capability level priorities of the business. Those investment leaders are then given the freedom to allocate funds and assign resources to the various initiatives that will combine to deliver the goals of their investments.
There must be a consolidated view of resource demand across the tri-modal reality of delivery and the tools to centrally manage resource capacity, utilization and allocation. Only then can resources be effectively managed and any bottlenecks or shortfalls identified and resolved. IT leaders are essential throughout funding and resourcing. It is their teams that will ultimately have to deliver on the technology work that drives the business improvements.
Technology leaders must ensure that the scheduling and prioritizing of work can be supported, that the resources are in place across all technical disciplines to support the parallel and sequential investments, and that the timing and expectations of each investment are realistic and feasible. Additionally, they must ensure that all functions within IT are aligned with these strategic investments, it is just as essential to ensure the that the wrong work isn’t being done, as it is to ensure that the right work is being done.
4. Delivering effectively
Technology leaders will be the owners of many of the key investments being pursued to deliver digital transformation. Those investments will be broken out into work items, many of which will be delivered by technology teams using Agile methods. However, a number of key initiatives will also have business components and IT leaders must ensure that they are capable of delivering work using all methods within the tri-modal reality.
This is the key to strategy execution management, which is itself the mechanism by which digital transformation is delivered. Unless organizations can deliver effectively on a consistent basis, they will never be able to reliably achieve their transformation goals, leaving them underperforming. On the other hand, when organizations can deliver optimally across all work structures and approaches, digital transformation and strategic progress become much easier to achieve.
Technology leaders must take care to remain focused on the investment level, allowing individual work teams to focus on the individual work items that are required to complete the output. This is a change for some CIOs, but demonstrates the that the focus is not simply on digitizing business elements, but enabling a digital business transformation. The ability to understand and apply that distinction is key.
5. Performing portfolio modeling and what-if analysis
Also important, is the ability to recognize that digital transformation doesn’t occur in a stable environment. Priorities evolve in response to external factors, technological advancement redefines what can, and what should be done, and so on. As a result, changes to investments are inevitable to ensure that work delivers the solutions needed for the business to transform in such a way that it is able to deliver its expected benefits.
Technology and business leaders must be able to see the impact of such changes, analyze different approaches and assess how dependencies are affected by adjustments. That’s where portfolio modeling and what-if analysis comes in. Scenario planning tools must be capable of identifying the different potential investment mixes as things change, presenting different options with an analysis of where impacts will occur and what those impacts are. Only then can decisions be made that enable transformation rather than creating barriers to it.
6. Managing outcomes
For digital transformations to succeed, the organization has to consistently deliver the business outcomes that the digitization efforts are designed to enable. That doesn’t happen automatically, it must be measured and managed. The success criteria must be defined at the time of the initial investment approval, as should the way that those success criteria will be measured. That will leave no one in any doubt as to why the work is being done, and what has to happen for it to succeed.
As work is carried out, and as the operating environment evolves, so those criteria might shift, and those updates will be handled as part of the delivery piece that we considered above. But key to everything is the actual measurement of performance once work has been completed. As business outcomes are achieved, so those improvements should feed the business capabilities, updating them and feeding the strategic roadmap for further downstream investments which can now be approved. That’s the secret of true transformation – it enables things to be achieved that weren’t possible before.
When performance variances occur on the benefit side of the equation, adjustments will need to be made to recover, or if that is not possible, to adjust expectations and future plans. And all the time that this is happening, the application inventory and business capabilities continue to evolve requiring all of these variables to feed into continuous and adaptive planning to continue optimizing performance in a highly dynamic environment.
Trends in Digital Transformation
Digital transformation strategies have evolved in recent years. The COVID-19 pandemic put the focus firmly on maintaining the quality of the customer experience while moving to a more digitized operating environment. But now the focus is firmly back on the customer experience, new business models, and delivering to elevated customer expectations.
McKinsey recently identified three trends to help an organization optimize its digital transformation. They focus on strategic differentiation on customer engagement and innovation, the development of proprietary assets like artificial intelligence (AI), digital data and software, and attracting and developing technology awareness among not just digital transformation leaders, but all business leaders.
This clearly shows that digital transformation projects are focusing more on enabling business strategy and delivering business value. A successful digital transformation journey has to be about more than new technologies, it must be about ensuring that those digital transformation efforts are delivering sustainable success, meeting and exceeding employee and customer expectations.
Keys To Delivering Digital Transformation
It’s not easy to deliver an effective digital transformation of a business. If it were, then Forbes wouldn’t be reporting crazy high failure rates. But ultimately, success, like for any other major initiative, comes down to good planning, good execution and good management. That’s why it’s essential to start by understanding the business capability and application landscapes. It’s why that understanding has to directly feed the strategic planning and communication process, and why that roadmap of plans has to define the key investments that need to be pursued.
As a technology leader, if you can enable that to happen you will be demonstrating to your business executives just how well you understand the business, and just how well you can support the organizational needs. When you team backs that up with effective execution and delivery, managed by IT leaders at the investment level, and when pre-agreed performance metrics demonstrate that the expected outcomes are being delivered, your success is confirmed.
At UMT360, we’re here to help you achieve that. Our strategic portfolio management solution is unique in that it combines support for enterprise architecture tools with the APM and SEM elements you need to take the concept and make it reality. Our experienced team of consultants, backed up by our proven VIC framework can work with you to provide a path to tremendous success, both now and as a transformed digital business.
FAQ
It is leveraging technology to fundamentally change how an organization operates.
It allows organizations to leverage emerging technologies and deliver innovative solutions, products, services and operations.
It is usually a combination of poor planning, poor execution and a lack of understanding of the organization’s current state and transformation goals.
AI can be one of the technologies that enables digital transformation, but organizations must be able to leverage it to improve what they do and how they do it to actually transform.
