Deliver Successful Digital Transformation: Take a Value-First Approach
This blog post is the last in our three-part series exploring why digital transformations fail, and what businesses can do to make them real.
Transformations fail when they are undertaken simply for the sake of transforming. They fail when egos or urgency get in the way of delivering what is right for the long-term needs of the business and its customers. They fail when they forget to look at value.
Fundamentally, every company wants continual growth, a healthy balance sheet, and happy customers, employees and partners. The ways of driving those core benefits can vary greatly from organization to organization, however. For some, the focus might be on customer acquisition or increasing loyalty and average order value (AOV). For others it may be about finding cost efficiencies or lowering the overall cost base. Then there’s creating business agility or reducing risk or increasing satisfaction with different target audiences. Without understanding and quantifying these, your digital transformation could be focusing on the wrong areas to deliver actual business value. You may be investing in areas that won’t deliver the greatest ROI, —or worse: on fads or personal showpieces that actually produce a negative return.
Customer-centricity is a deservedly popular concept, but it can’t be sustainably maintained without also considering the revenue and margin each customer experience (CX) initiative could deliver. Give away a free trial and you could have happy customers hooked on your products and services for years. Give those things away for free permanently and you’ll have an ecstatic audience for the months your cash reserves last.
Value is a multifaceted concept, with many different definitions and even more ways to measure it. This complexity can often lead to a company ignoring it or paying it only lip service in the pursuit of “what must be done” or “it just makes sense,” or, worse, “because I said so.” Value needn’t be an intricate, time-consuming headache within a transformation — if approached in the right way. Value should inform, enable and empower stakeholders to make the best decisions for the business and deliver the most successful transformation possible.
Create Early Alignment on Value Drivers
Even within an organization, different functions and business units can view value in very different ways. Transformations need to create value across the organization, which necessitates a common approach to thinking about it, talking about it and acting on it.
Our digital transformation research found that more than half of business owners and C-suite executives still perceive IT as no more than a general support function, while only slightly more than half of technology leaders believe that their work is viewed primarily as a business driver.
Senior stakeholders, across business and IT, should be brought together early in defining a transformation to align them on a common language to discuss drivers. It can be tempting to only focus on the sub-set of value drivers perceived as the most important, but every part of a business will have their own perception, and such assumptions around significance would introduce bias to the process. Businesses need to consider all the potential drivers of value, aligning on terminology and KPIs for each of these to facilitate collaboration and communication throughout the transformation.
Aligning on drivers early helps stakeholders consider all the areas that could bring value when you move to exploring opportunities for the future. Once identified, each opportunity should be mapped to all the drivers it can impact. Only once those opportunities are surfaced and mapped should a prioritization lens be brought to bear on the drivers, to inform which opportunities are worthy of further elaboration and begin to consider how they may land on a roadmap.
Quantify and Decompose the Potential Value
Identifying drivers is only the start of the value journey. Transformation strategies can all too easily become forgotten decks, left unread in a file system, if they don’t make an actionable and compelling case for change. For a board to approach a transformation, the strategy guiding it must contain a clear set of cohesive actions that will deliver the change, as well as a quantified view of both the cost to enact that change and the benefit it will bring the organization.
There are different approaches to take to defining these elements, with a careful trade off needed between simplicity and speed versus the detail and time needed to make informed decisions. While there is certainly value in taking a top-down approach to estimating the size of the prize, it doesn’t give you the specificity to make prioritization decisions or inform your roadmap. There may even be elements of your transformation plan that won’t pay back, and should be cut, but a single big number doesn’t give you the data or tools to identify them.
Composable gives us a structure to define a clear business case. Each business capability in a composable approach encapsulates the components of technology, people and processes required to make it real. These components describe the holistic actions to take (for example the introduction of an analytics team or defining a process for global/local demand management). The effort involved in delivering each component can also be estimated separately, providing timings and costs for each capability. Where market or BU adaptions are needed for capabilities, costs can be split into a fixed, foundational component and a flexible component that increases with the number and complexity of markets/BUs to roll out to. In this way, cost profiles can be created based on which capabilities are to be rolled out to which markets/BUs, and in what order.
A similar approach can be taken to quantify the value. For each market/BU, you can understand the current revenue lines, conversion funnels, process timings and cost centers. Then, for each capability, against each market/BU, work with stakeholders to align on the incremental revenue and/or cost saving that could be achieved based on the current baseline. This defines a benefit view per capability, and per market/BU, owned by business stakeholders.
In this way, your transformation strategy can quantify the total size of the prize and cost, while also understanding and calculating the contribution of each capability, and each market/BU, to that value equation.
Plan to Deliver Value Early
Defining the value that a digital transformation will bring may help win approval on starting the work, but unless you can show the value as the work progresses, the transformation itself could soon find itself stalled or shut down.
Big bang transformations risk pushing all the value realization to the end, asking a business to trust that value will come years down the road. Composable can be delivered through a big bang, but it also offers a far more flexible approach, delivering the capabilities through a series of projects within a wider transformation program. In this way, each project can realize value once it is deployed, rather than waiting until the end of the transformation. This approach also reduces risk, especially if migrating from a monolithic platform, allowing the team to work on, test, deliver and optimize each capability in turn.
This brings a great deal of optionality to the roadmap, considering which capabilities to deliver to which markets/BUs, in which order. There are multiple factors to take into account here, from capacity for change, to dependencies on services within the as-is architecture, to complexity and time to value. By composing the business case into costs and benefits for each capability and each market/BU, you will have the pieces you need to explore different waypaths through these options.
Be Hungry: Don’t Squash Your Ambitions
Understanding, quantifying and planning for value realization are essential for a successful digital transformation. The value being created will be distributed across capabilities, and almost certainly not equally, so it’s important to step back and look at the transformation holistically.
Not every capability will deliver a 10x return, but it can still be a critical part of creating a consistent experience for customers and employees. Be mindful of pairing back your ambition where it doesn’t need to be. In digital transformation, the whole truly is greater than the sum of the parts.