The term ‘Digital Transformation’ has taken its place in today’s business vocabulary. It’s on the lips of virtually every IT vendor, most management consultants and an increasing number of executives.
Much of the buzz around digital transformation has substance. Some is just plain hype. It is clear that the combination of social and mobile technologies, analytics & big data and the cloud – popularly known by the acronym SMAC – represent powerful forces that will shape the nature of competition in the foreseeable future. This trend is being further accelerated by the evolution of cognitive computing and robotics. Yet – it’s true that there are a lot of misconceptions around digital transformation. Digital transformation occurs when businesses are focused on integrating digital technologies, such as social, mobile, analytics and cloud, to transform how their businesses create value for customers. If there’s not a clear emphasis on customer value creation it’s not transformation. If the effort is simply focused on applying IT tools to the same business model – it’s not transformation. If the initiative is largely around cost reduction – in the context of the existing business model – then it is surely not digital transformation.
There is good reason to consider jumping on the digital transformation bandwagon. The pace of change today is astounding. According to research conducted by Singularity University, the average half-life of a business competency dropped from 30 years in 1984, to a low of 5 years in 2014. Equally noteworthy is that nearly 90% of the Fortune 500 companies which were listed in 1955 were no longer on the list in 2014 and the average life of an S&P company has decreased from 67 years to 15 years. Perhaps even more significant is the prediction by the authors of Exponential Organizations that as many as 40% of the companies listed on the S&P 500 in 2014 will cease to exist by 2024.
A new breed of upstart organizations are X times faster and better than traditional firms – these are the so called “exponential organizations” that deploy digital technologies in a new and novel way. These companies have demonstrated the ability to reach a market cap of a billion dollars much faster than the typical Fortune 500 Company or even Google for that matter and include firms such as Facebook, Tesla, Uber and WhatsApp.
The cumulative effect of digital technologies, exponential organizations, and external threats means that more traditional organizations will have to change the way they do business to compete in the evolving environment. That’s why it will become increasingly important for companies to focus on large scale change. As a 2015 MIT Sloan Management Review global study found “strategy, not technology, drives digital transformation.” Successful companies understood the importance of integrating digital technologies such as social, mobile, analytics, big data, the cloud and even cognitive computing in transforming how their business operated – while less advanced firms stressed solving discrete business problems using individual technologies.
Given this background, let’s consider the four critical factors in digital transformation:
1.Measure what matters to customers
2.Challenge the current operating model
3.Adopt an end-to-end business process based view of work
4.Make it easier for employees to serve customers
The fastest and arguably the most effective way of drawing attention to performance problems is to measure what matters to customers. This typically involves metrics around the timeliness and quality of the products and services provided – and these set the stage for viewing the business in the context of the value creating, cross functional business processes. Don’t underestimate the needed shift in management attention that this involves as most companies still tend to focus on financial measure of performance and place insufficient emphasis on critical to customer metrics such as perfect order performance, variance to promise and responsiveness.
Then, in addition to thinking about just customer touching actions – it’s useful to model both the customer journey and a model of the high level the cross functional business processes that create value for customers. As the old saying goes about pictures being worth a thousand words, and most companies simply do not have pictures of the flow of work that creates value for customers.
The case of Tokyo Electron America (TEA), a subsidiary of semiconductor manufacturer Tokyo Electron Limited represents one example of an organization that reflected on these 4 success factors of digital transformation success. TEA set the objective of moving from a product to customer-outcome focused support organization.
They realized a key success factor would be to transform how the field service group – a 500-strong team of field service engineers (FSEs) – worked in creating value for customers. Their digital initiative gave this group real-time access to relevant customer, product and service information.
TEA monitored critical to customer metrics such as “mean time to repair.” As a result of this program TEA’s field service team realized major benefits such as a drop in mean time to repair times and costs per service inquiry, reduced equipment downtime, and customer satisfaction scores increase*.
While the specific factors will from one organization to the next, challenging the current business model, measuring what matters to customers, viewing work in terms of large cross functional business processes and making it easier for employees to serve customers are invariably four of the critical factors in digital transformation success.