As I noted in the initial installment of this article, discussions about digital transformation (DX) often include foundational concepts upon which successful digital transformations can be built. The articles discuss such things as digital transformation strategies, stages, pillars, building blocks, and layers — and they are often provided in a bulleted format or “by the numbers.” In my earlier article, I discussed some recommendations for getting started (i.e., taking the first steps on a digital transformation journey). In the concluding portion of this article, I want to continue my examination of the digital transformation journey by exploring some foundational concepts experts believe will help any company achieve transformation success.
Exploring the Numbers: Continuing the Journey
As experts noted in part one of this article, companies best begin their journey my assessing where they are, where they want to go, and by putting into place strategies that will help them along the way. Didier Bonnet (@didiebon), a Professor of Strategy & Digital Transformation at IMD in Switzerland, insists, “Most digital transformations fail. Various studies from academics, consultants, and analysts indicate that the rate of digital transformations failing to meet their original objectives ranges from 70% to 95%, with an average at 87.5%. Yet, digital transformation has been at the top of corporate agendas for at least a decade and shows no sign of slowing down.”[1] He insists there are three primary reasons for these dismal statistics. First, companies are too optimistic about what they can achieve. Second, their execution is poor. And, finally, they try to rush the process.
3 Stages of Transformation Success.
Despite the statistics he reported, Bonnet doesn’t believe companies should be discouraged from undertaking a digital transformation journey. He suggests companies concentrate on success at three different stages. He explains, “The first two stages, modernization and enterprise-wide transformation, are focused on reshaping the existing business. The last phase is about new business creation and uncovering new sources of value.” He adds, “Experience shows that it’s hard to avoid the school of hard knocks at each stage. If you jump to step 2 or 3 before succeeding at step 1, you’re likely to fail. ”
Stage 1. Modernization. Bonnet writes, “Modernization is about simplifying and digitizing existing processes and functions. … Just like the foundations of a house, it makes the organization digitally stronger and smarter. It also provides reasonably quick returns that can fuel more complex digital investments. And it is a great chance for the organization to improve its digital capabilities.” At this stage, it’s important to assess your processes. Bill Gates (@BillGates) once noted, “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.”
Stage 2. Enterprise-wide transformation. According to Bonnet, “Enterprise-wide transformation is a complex cross-value-chain change effort.” Is change difficult? Of course. But Bonnet insists the effort is worth it. He explains, “Aligning traditional organizational silos, establishing proper governance models, adding new talents and the like — these are all critical muscles to develop for transformation success. … Enterprise-wide transformations are … mandatory learning phases on the journey to digital-transformation maturity.”
Stage 3. New business creation. According to Bonnet, “New business creation is about increasing the size of the existing pie or creating new revenue lines. … Leadership is key, as this is about transitioning from the existing model of operations to new ones. Often, this phase also demands rethinking the boundaries of the organization as it moves from traditional linear supply chains to ecosystems. It requires a high level of digital transformation maturity.”
5 Layers to Build On.
During Bonnet’s first stage (modernization), business consultants Kate Yuan and Rui Chen suggest that companies look closely at five layers of the organization to ensure they are ready to transform.[2] Those layers are:
1. The infrastructure/hardware layer. Yuan and Chen write, “It’s a common misconception that ‘digital transformation’ is just another way of saying ‘moving to the cloud.’ But it’s true that the infrastructure layer is an easy place to start: Consider moving from legacy systems to private, public, or hybrid cloud environments. It can bring many benefits, including cost savings, increased flexibility, unparalleled scalability, and more.”
2. The foundation layer. According to Yuan and Chen, “The foundation involves common components like multi-cloud management, system configuration, and micro-service management. It provides common components like resource management, service discovery, service orchestration, logging, and auditing. This is where you get things ready to provision complex and advanced systems.”
3. The platform layer. Anurag Shah (@anuragkshah), Vice President and Head of Products and Solutions (Americas) at Newgen Software, asserts all companies need to become platform companies.[3] Yuan and Chen add, “The platform is where you host your data lake, service engine, and artificial intelligence (AI) engine. Some possible initiatives include building a data foundation, developing a service-oriented architecture, and enabling AI capabilities. The data foundation should be inherently unified and interconnected end to end. … The AI engine should provide cutting-edge AI capabilities in optimization, prediction, and intelligence in sales planning, logistics, fulfillment, and other areas.” You can’t become a platform company without the right platform layer.
4. The domain application layer. According to Yuan and Chen, “The domain application layer is where you really harness the power of data, build integrated applications that fit end to end, let the AI algorithms evolve and adapt quickly, and replicate the success to cover more business cases. This is where domain knowledge meets powerful digital technologies, and where your digital transformation initiatives inspire innovations.”
5. The channel layer. Yuan and Chen write, “The channel layer includes all the external parts that users or customers can see and interact with. With solid support from the platform layer and the domain application layer, the channel layer can offer many applications that are missing, such as supplier relationship management, a B2C e-commerce platform, and the B2B marketplace.” Using the channel layer is necessary for engaging in Stage 3 activities to create new business.
Concluding Thoughts
Victoria M. Grady (@pivotpnt), President of PivotPoint, and Patrick McCreesh (@PatrickMcCreesh), Managing Principal of Simatree, note, “Change doesn’t happen overnight. The key to success is the ability to adopt and use new forms of technology.”[4] And, as Bonnet stated earlier, “The key to more successful digital transformation is to not skip ahead.” Take your time. Do it right. That doesn’t mean you can’t be working on several stages and several layers at once. Bonnet admits digital transformation horizons are seldom completely linear. He explains, “Most organizations will manage a portfolio of initiatives that may cover all three areas. For instance, they may undertake a certain amount of modernization to deliver quick wins, while at the same time having enterprise-wide global programs and/or innovating business models through experiments and controlled pilots.”
Yuan and Chen agree that trying to move linearly through all three stages and all five layers would be an almost impossible task. They explain, “A successful digital transformation roadmap will likely include all five layers, but they don’t need to be planned out in order. For instance, even if your infrastructure and foundation layers are not ready, you can start with planning the core platform functionalities you need. Flexibility in where to start ensures that you don’t need to wait for everything to happen all at once.” This messy implementation process is why it’s so important to have a digital transformation roadmap to help ensure you continue to move in the right direction. The roadmap is not exactly a by-the-numbers approach, but it does help keep things on track.
Footnotes
[1] Didier Bonnet, “3 Stages of a Successful Digital Transformation,” Harvard Business Review, 20 September 2022.
[2] Kate Yuan and Rui Chen, “Digital transformation: 5 layers to build on,” The Enterprisers Project, 22 March 2022.
[3] Anurag Shah, “Digital transformation: 5 reality checks before you take the plunge,” The Enterprisers Project, 25 May 2022.
[4] Victoria M. Grady and Patrick McCreesh, “Digital transformation: 3 simple strategies to get yours moving forward,” The Enterprisers Project, 23 May 2022.
