As the digitalization of business continues to accelerate, research highlights that more than 70% of digital transformation efforts fail or underachieve in their aim of turning a traditional enterprise into a top performer in today’s digital-first world. Company leaders have the role of choosing how to pursue their transformation ambitions. To help, Professor Joe Peppard, an international authority on digital strategy and innovation who teaches at BMI, spoke to executives in a recent BMI webinar about viable pathways for digital transformation.
Much at stake
Prof Peppard suggested that when exploring digital transformation, it is useful to consider the step improvements in performance that most organizations are seeking as they look to improve their competitiveness and become Future-ready. These are likely to be a combination of (1) driving efficiencies in operations and improving organizational agility, and (2) how well they delight customers.
He pointed out that progress on both fronts is hindered if an organization is burdened by a complex landscape of processes; legacy technologies that are often poorly integrated, frequently based on product- rather than customer-centric logic, costly to maintain, and not very flexible; and poor quality data. Tacking these is key if an organization is serious about becoming Future-ready.
Research on over 1,300 organizations found 22% are well on their way to becoming Future-ready, providing a great customer experience and doing so efficiency. These organizations report a net margin that is 19 percentage points higher than the industry average. Meanwhile, those companies lagging in both areas had a performance that was 8 percentage points below industry average next margin. Others were delivering a good customer experience inefficiently and losing money or operating efficiently but not giving customers much to get excited about.
“This illustrates starkly why it’s important to move towards that Future-ready state,” Prof. Peppard said, noting his talk was an excerpt from BMI’s Innovation & Digital Transformation Programme.
The goal of digital transformation then is to be able to deliver a great customer experience with maximum efficiency. Depending on their starting point and strategy, companies can pursue this ambition in different ways by following four distinct pathways.
The first pathway is a sharp focus on first boosting operational efficiency. Spanish bank BBVA took this approach when starting its digital journey 22 years ago. By making their operational backbone as efficient and modern as possible and implementing APIs, BBVA was ready to quickly offer customers mobile banking when the iPhone first appeared. It still has award-winning apps today that provide great customer experiences.
The second pathway is to focus resources on improving customer experience. This could be appropriate, for example, if a new competitor enters the market and is stealing market share and you need to enhance your value proposition for customers quick. Note though, the lecturer warned, that staying in the game this way is increasingly costly, and you eventually will have to address inefficiencies in your operations. You can have happy customers, but they are costly to serve, impacting margin.
The third pathway is to work simultaneously on improving operational efficiency and customer experience. DBS Bank of Singapore very successfully executed this type of transformation, Prof. Peppard noted. More investments in back-end operations early on at DBS, gave way over time to much more focus on building great customer experience, he said.
The final pathway is when an organization has so much complexity, legacy technologies, and crucially, a deeply entrenched culture ill-suited to the demands of being a digital competitor that digital transformation would take too long to address competitive necessities that it decides the best approach is to set up a new separate organization. ING Bank took this approach at one point with ING Direct. So too did German agricultural manufacturer Claas, which created European’s leading precision agricultural platform,365FarmNet.
Leadership is key
The challenges likely to be encountered along each pathway, along with specific considerations, and analysis of real cases, are covered in detail in the Innovation & Digital Transformation Executive Programme at BMI.
This and other frameworks set the stage for discussion by a company’s leadership team, which must define and lead the company’s digital strategy, drive the transformation agenda, and manage the portfolio of digital assets, Prof. Peppard said.
“At the end of the day, digital transformation is not so much a technology challenge as a leadership challenge,” he stressed. Tech development can sometimes be outsourced, but not the digital strategy. Nor can digital transformation be left to the IT team – it is integral to the overall business strategy.
Finally, top management buy-in and leadership is vital since transformation tends to take time, years, and perseverance is key. Research shows the performance impact only kicks in when a company has completed a least half of its digital transformation journey, the lecturer noted.