Digital transformation?? Oh, not again! Everything seems to be a digital transformation today and there’s nothing left under the sun that hasn’t been written about such disruptive change. We felt the need to demystify digital transformation and separate the truths from the misconceptions based on our hands-on experience:
(1) Start with the external customer
Focusing on your customers’ needs and making the digital experience more convenient than the offline experience is at the forefront of many digital transformations. However, most of the cost, speed, and quality improvement opportunities will have internal customers. Each facet of the organization must have a clear understanding of who they support. What are their needs? Are there existing solution frictions? This becomes tangible by simply talking with each other, establish structured interviews, and put yourself in their shoes throughout the process. In turn, the business case must consider both external and internal customers to enact real change.
(2) It needs to be radical
Under pressure to come up with a groundbreaking North Star? Design thinking tells us to put smart people in a room, challenge them, make them uncomfortable, and make sure they know what problem they are solving—as long as it’s radically different from today’s processes. Although design thinking can be helpful, it cannot be the sole driver. In reality, not every digital transformation is radical, but when it is, three aspects are most important: a minimum viable product (MVP) must serve as a stepping stone toward the end goal, multiple rounds of use case focused initiatives are necessary to build competencies and capabilities, and the business case must evolve from MVP to stepping stone to North Star. Think big, but prioritize what drives the financial impact, even if it’s incremental.
(3) Disrupt yourself before others do
Disruption is coming, but keep in mind two seemingly contradictory concepts: Ignoring your incumbent products or revenues while being obsessed about start-ups, venture capital, and labs will kill the company in the short term, but focusing too much on the healthy margins of the legacy business might prevent a viable future. Nobody can afford not to fight on both fronts, yet there isn’t a single case where aggressively disrupting a core business has been value accretive for shareholders—no matter how cool “disrupt yourself” might sound. Don’t disregard the cash cows and don’t pretend you have the secret to upending your own historic practices.
(4) We need to be agile, scrum, SAFE
At their core, digital programs create ways to work across functions. What works for a major tech company may or may not work for your organization. Of course, digital transformations require MVPs, iterative testing, and flexibility, but throwing a few scrum masters into the legacy organization while management keeps asking for stable plans, business cases, and hierarchical decision making is a recipe for failure. The need for “trilingual” talent well-versed in the languages of analytical modeling, technology, and business is increasingly critical. Furthermore, digital transformations need to consider the holistic organization design, talent recruitment and management, and meaningful cultural change to achieve their targets – much more than just ways of working.
(5) AI and RPA will solve everything
Deconstructing a laborious process into individual parts is fundamental to understanding where and how to apply digital. Artificial intelligence (AI) and robotic process automation (RPA) are having a profound impact on the fundamental components of many businesses—from financial reporting and inventory management to customer service, but both require a deep understanding of the problems and processes they’re attacking to make the difference. Disregard vendors who says, “RPA will reduce costs by X percent” without being able to walk you through the individual steps.
(6)Build a data lake, and the analytics will flow
It’s a safe bet that consolidating legacy and local IT systems will add value. Data lakes however are necessary but not sufficient. Digital transformations must be intimately connected to the desired business outcomes or fall short. Visioning the end objectives and solutions can be invaluable to back-cast data structure and data acquisition strategy needs. Otherwise the organization will fall into a trap of hoarding data without a purpose. Long-term success requires creating a proper data management structure based on the end objectives. Think about this in terms of data definition and quality, governance, storage, integration, presentation, and access and archiving.
(7) Become a start-up
Forward-thinking companies instill speed and accountability in everything they do. They use MVPs, and remove silos, but also recognize where being a start-up makes sense and where it doesn’t. For many start-ups, focus is at the core of their success. Many large multinational enterprises, however, have an array of commitments that prevent a start-up culture from simply being flipped on. Instead, assess from the top down when to make and when to buy.
(8) Where we’re going, we don’t need humans
Automation does reduce headcount. But it also requires high-cost data scientists to maintain it and serve as a co-worker on the more creative tasks. The investment is worthwhile, but it must be accounted for in cost and timing. Finding and hiring these experts won’t be easy as you’ll be competing with others that understand the power of analytics. Plan the investment, and start recruiting immediately.
Of course, these misconceptions of digital transformation are not purely myth or truth. Understanding reality, cutting through the hype, and involving the right cross-functional experts are essential steps. Done right, the impact can be massive. Gather the right team, challenge yourself with new ways of thinking, and you’ll see significant changes across cost, quality, and speed.
View Infographic PDF here
Michael Hu | BCG 