Digital Transformation, Explained.
There are three types of digital transformation programs:
Type 1: digitalization of the internal business processes
This includes both the generic processes that all companies have e.g. HR, CRM, SCM, F&A, etc. and the industry-specific processes e.g., policy management (Insurance), administration of banking accounts, credit assignment (Banking), management of health records (Healthcare), etc. The goal of transformation programs of this type is to increase profitability and competitiveness through leaner and more efficient processes. Such programs typically aim at reducing operating costs and improving customer satisfaction, and therefore retention.
Type 2: Development of new products and services
This goes beyond the incremental improvement of current products and services to the strategic development of completely new ones. Programs of this type have high external visibility and are the most common and obvious forms of digital transformation.
Type 3: Holistic programs that combine Types 1 & 2
There are industries in which products and services are closely connected with the performance of internal, back-office systems and processes – for example, Banking, Insurance, and those types of industries that have a strong e-commerce or online element – e.g., Retailers.
Yes, technology plays a major role in all the above types of digital transformation programs. But that is not what makes a digital transformation difficult - technology can be addressed properly by the right experts. Digital transformation is more than technology though; it is rather a mindset and a culture of people and organizations – and this is what adds huge complexity to any digital transformation program. It is not easy to establish this ´agile mindset´ - as this requires a massive change in people’s way of thinking, at both leadership and employee levels.
Behavioral and organizational change can be driven by systemic and simultaneous tackling of exploitation of the current basic and the exploration of the unknown future towards innovation. This is what the term organizational ambidexterity means. It is nothing else than what IT organizations are already driving, for years now, with their DevOps initiatives: they operate the existing IT and in parallel develop and innovate it further.
That underlies a special mindset that needs to be shaped and established. Gartner uses the nice metaphor of ‘Samurai & Ninja’: “two distinct but coherent approaches, deeply different, both essential.” So, it is the ‘Samurai mindset’ that operates within the borders and hierarchy - a Samurai is reliable, plan-driven, linear, and not that creative. Then there is the Ninja mindset that operates towards the new, the untapped space being close to the customer, reactive to their needs, and therefore iterative, creative, non-linear, and good at dealing with uncertainty. To establish this mindset, a special leadership style is required. New denominations are describing leadership styles like the ´Servant leader, and the ´People Leader´ which are characterized by the following common things :
Leaders are not expected to make the right decisions themselves alone; instead, they are encouraged to share their responsibility with team members who might be much better suited to solve complicated problems.
Leaders are ‘servant leaders’ – they assist their teammates to do their work in a collaborative, transparent manner. Servant leaders clear the difficulties out of the way.
Leaders play the keyboard from exploitation of the current to exploration of the new
In my opinion, every company needs such a program. Until recently, organizations and corporations in highly regulated environments like Banking and Insurance used to be hesitant about digital transformation. But those who don’t face the challenges of our VUCA world will not be able to stand the high pressure from their demanding digital customers. The vibrant energy of the global intelligent human digital crowd forms Startups that meet customer needs in a never-seen-before way. Those little Startups evolve quickly, from sailing boats to tankers on ´Red Oceans´ - the existing, traditional, highly competitive markets. Or those little Startups suddenly sail on their own unique unexpected ´Blue Ocean’ - the new market that they created and had not been imagined before. The old ´Red Oceans” get softly supplanted.
Only a few industries are lacking behind – typically governmental-owned companies or other companies in monopolistic niche markets are not so much under pressure from their clients to go for a digital transformation. Other drives for change play stronger here like governmental cost-cutting demanding for a higher level of automation or just the ´war for talent` as such organizations appear unattractive for new talent.
Running a digital transformation program requires a very special team – having among others, the following characteristics:
- Heterogeneous, inclusive, representative. The DS team should represent the combined brainpower of all internal experts from all business areas and all hierarchical levels. It could include external experts or moderators, as needed - for example, to help identify blind spots.
- Empowered. It should be authorized to run the program with ongoing support from the top. Hence, it is best to implement it on the headquarter level in proximity to the C-level minus one.
- Digitally Enabled. Able to work effectively in a fast-paced, agile mode.
- Connected to the world. Externally connected to get signals and inspiration.
In terms of planning and execution of Digital Transformation programs, I find OKRs (Objectives & Key Results) very useful – also as the means to measure success and steer the program accordingly. OKRs are closely linked to the long-term Vision & Mission of a company which usually spans 3 to 5 years.
While the Vision/Mission provides the North Star, OKRs break down this long-term goal into smaller short and mid-term objectives that can be achieved within a year. The more qualitative objectives can be further broken down into key results which are measured with quantitative KPIs (Key Performance Indicators). OKRs therefore can be seen as the ‘agile operating system for modern organizations.'
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