3 Definitive Steps in Digital Transformation

3 Fundamental Steps in Digital Transformation

First Published on Noteworthy on Dec 14, 2019

Digital transformation has been the need of the hour, for at least for the last 5 years. However, a whopping 84% of digital transformation attempts fail at their transformation. Quoting Michael Gale (from Pluspoint Group) within the article:

One of the most basic impediments to moving forward on the road to digital transformation is whether or not enough people within the organization are aware of the challenges. The other issue is understanding the drivers of digital transformation so that organizations know where to focus their time and resources.

After witnessing digital transformations in 3 large conglomerates and following many other industry incumbents, I can safely say that there are, at least 3 fundamental steps that are needed across the organization, to succeed at digital transformation. Without these steps in play, within 6 months, any strategy you place is set to fail.

Note: This view is partial to retail organizations. Various extrinsic factors like market forces, the business environment and cultural attitudes impact the pace of transformation. I’m focusing only on intrinsic factors. Your mileage may vary.

Digital Transformation has to be swiftly brought in to the organization. A slow induction only increases the chances of it being derailed.

1. Definition of digital transformation & its objectives

When you’re starting with digital transformation, there is a belief that digital means you have an e-commerce site — that’s wrong. Owning digital properties doesn’t mean you’ve completed digital transformation.

Definition

Digital transformation is, fundamentally:

Integration of digital technology into all areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to customers.

This means, at every customer touchpoint, digital technology should be present and has to be utilized to deliver better value to the customer. A simple example would be — enabling loyalty program sign-ups directly via POS rather than through some tedious paperwork with a million fields.

Further, digital transformation requires:

organizations to continually challenge the status quo, experiment often and get comfortable with failure.

This means, taking the previous example, that the process of signup should be looked at constantly — reducing the barrier to sign up — and provide options of sign up — using tap/QR code to sign up using social, etc. The key is to review existing processes and through the lens of data & customer experience optimize or provide options.

Objectives

To achieve digital transformation, a committee needs to set up to monitor and update on the progress. This committee consists of relevant stakeholders and digital coaches that help in setting the goals, the cadence, and reviews.

With objectives, vagueness is intolerable. Quantification of objectives should be done with precision and collaboration. This means all the relevant stakeholders should agree on:

a. A set of phases that are relevant to the organization

3 Definitive Steps in Digital Transformation 1
Source — https://www.dincloud.com/blog/stages-of-digital-transformation

b. A list of objectives are essential towards the achieving the first few phases. These could be adding digital properties for X% of businesses, modifying Y% of business processes — internal & external etc.

3 Definitive Steps in Digital Transformation 2
Source: https://engagehub.com/blog/how-do-you-measure-roi-on-digital-transformation-to-drive-growth

c. Timeline of achieving the changes with milestone objectives set

Every objective should have a timeline associated with it. Again, no vagueness. Quantifiable objectives should be prepared with agreed-upon timelines. If something takes more than 6 months to complete, try to break it down to simpler, achievable milestones.

Remember, it may not be possible to achieve the objectives within the set time. There are challenges every step of the way. The trick lies in regular committee meetups to ensure there is alignment. The steering committee should focus not on reasons of failure, but on how they can move forward.

2. Organizational structure

Traditional organization structures like the one below are not efficient in achieving the above objectives:

3 Definitive Steps in Digital Transformation 3
Typical organization structures

There are Business As Usual (BAU) activities that might out-prioritize the DT goals. However, you can modify your organizational structure by including digital champions in every brand that ensure the objectives are met, with the authority to steer resources as necessary.

3 Definitive Steps in Digital Transformation 4
Gearing up the organization of digital

Here are the key changes:

  1. Digital champions in the leadership
    Every leadership team should have a nominated digital leader accountable for ensuring that the objectives are met. Ideally, all the stakeholders are responsible for digital — but accountability should reset of an individual. They’re ideally cross-functional and represent the brand in the DT committee steering meetings. They are also responsible for knowledge sharing and exposing business challenges to teams to solve
  2. Digital champions in each department
    Once the objectives are defined and locked, each department — both central & brand — should have a digital champion nominated to ensure the goals are met. These could be rotated monthly to ensure total buy-in.
  3. Digital as a service
    Also called as innovation as a service, this team is responsible for delivering the larger digital backbone — working with the incumbent IT services — and developing POCs for trialing out. Their P&L is handled separately, as a central cost. They report to the committee.

The key objective of the digital layer is to make itself redundant: when an organization is truly digital, there is no need to separate out digital as an objective — it is already a part of every action the organization takes!

3. Paradigm Shift

A critical aspect of why organizations fail digital is that they’re still thinking of digital in traditional ways. Let’s look at it from different departments point of view:

ROI view of Digital Transformation

Digital transformation is essentially business transformation. When it comes to return on investment of digital, organizations usually take the traditional route:

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Traditional ROI on Digital

This is only a partial view towards the value digital drives. Not all digital value is quantifiable — which is a challenge for the finance team — and can sometimes be confusing. The ideal approach towards this is to widen the scope of returns, including:

  1. Customer satisfaction
  2. Repeat purchases
  3. Referrals
  4. Increase in customer value (spend)
  5. ROPO (Research online purchase offline)
  6. Network effect

Think of it like this — you spent $100 to build a digital property. You got direct revenues of $70 from this. However, due to this property, you were able to get:

a. savings of $10 for marketing (personalized targeting)
b. savings of $20 for inventory optimization in your stores
c. incremental revenue of $20 more in store X through digitally targeting the customers living close to the store
d. better customer retention in stores & online — increasing LTV & reducing churn rates
e. business insights into customer behaviour for effective decision making

Now your ROI calculation looks different. Now, you’re looking at the value you derive from digital:

3 Definitive Steps in Digital Transformation 6
ROI on digital taking into account the network effect of digital

It is difficult to judge the ROI immediately. Unlike retail properties, digital ROI takes time to materialize. If possible, try to use market metrics to monitor and align.

Cultural view of Digital Transformation

Within the first 6 months of your journey, some sort of digital cultural change has to take place. Within this change, the following are critical — often requiring a top-down approach:

The power of Purpose
At every level, the teams need to be aligned to a single set of goals. They should know their purpose — their objectives and their WIFM (What’s In it For Me?). They should have achievable, independant goals that they can achieve to grow in a certain way. The risk/reward structure has to be articulated successfully through —

Communication
Communicate early, and communicate often. Every change has to trickle down to the last working member of your staff and they have the responsibility to clarify their doubts. Keep your doors open, and welcome questions.

Openness to change
There is cultural inertia of change that hinders digital transformation. With DT, comes automation and simplification & redundancy of tasks. These can only work when your team is willing to participate in the process of transforming these processes.

Agility
Or accepting that completeness can only be achieved through iterations and not in a single windfall. This sets up the mental models for teams to accept innovation.

In one of my previous organizations, we set up a system that would help finance teams balance the books, moving them away from 90% of tedious work they did through Excel. However, the team did not accept the solution since it was not complete!

This need to have complete solutions, that solve every imaginable problem, become hiderances to DT. Instead, help them realize that the only way a true solution can be implemented is by working closely with the development team and iterating solutions along the way.

They need to think of themselves as more than basic robots who hold the knowledge to certain internal processes.

Transparency
Openness in insights and process optimizations is key. Team objectives need to have clear rationales — which can be questioned and regurgitated to achieve total buy-in.

Innovation
While this is a long-term objective, a simple view of innovation — that it is not the purview of a select group of individual s— but of every individual working, is essential.

Willingness to learn
Every employee, whether a CXO or a store staff, needs to have the willingness to learn from those above and below their position. One way to initiate the learning is to mandate the learning and discussions with digital coaches/team members.

Note: The cultural changes can be brought through strict KPI setup in the monthly objectives of employees. HR plays a critical role in communicating & enforcing these objectives. At the same time, HR should be an active participant in these activities — not just a policing force.


Digital transformation is not easy. It takes a level of patience and maturity across the top and the middle management to ensure it succeeds. The retail war is upon us soon. And not being ready with the digital backbone would be akin to bringing a sword to a gunfight.


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