Those of you following this channel, you know this. I’m obsessed with finding out what makes some companies succeed with digital transformation while others struggle. Companies of the same size, same industry, same access to talent, but very different results. \
One key factor is how the digital project gets initiated. Does the transformation start with the CEO or a line manager? Does it really need to happen for the business to reach its goals? Or is it someone’s science project?
In my experience, transformation projects seem to take 3 possible paths and the results can be predicted almost on day 1. Here’s why.
Those of you following this channel, you know this. I’m obsessed with finding out what makes some companies succeed with digital transformation while others struggle. Companies of the same size, same industry, same access to talent, but very different results. \
One key factor is how the digital project gets initiated. Does the transformation start with the CEO or a line manager? Does it really need to happen for the business to reach its goals? Or is it someone’s science project?
In my experience, transformation projects seem to take 3 possible paths and the results can be predicted almost on day 1. Here’s why
In the early 2000s, I worked on endless business transformation plans and business cases as companies were revamping their ERP systems.
Because the ERP project costs were sometimes eyewatering and the benefits far in the future, there was a lot of rigor around these investments…..
Unless the CEO really wanted the transformation.
The joke back then was this: “You only need a business case for projects the CEO doesn’t want”. There is profound truth in that.
The First Path to a successful transformation is having the project on the CEO’s Agenda
Projects that struggle mostly have resource or funding issues, most of which can be resolved by the executive team. If the CEO or the board is driving the transformation, it will likely be sufficiently funded and have executive accountably for the results. This is why top-down transformations ultimately succeed. But it will take time.
The drawback is the business scale required for enterprise-level impact. CEOs would want to see significant improvement in key business metrics like market share, revenue or profitability.
For that to happen the scale of the program needs to be sizable, which makes coordination and program management difficult and time-consuming.
So while top-down initiatives have the highest value potential, they also tend to be the slowest to gain momentum and complete the journey.
The top-down mandate is typically best for companies with experience running large-scale transformations. The first enterprise transformation is always hard and sometimes ends in disappointing results.
Of course, businesses know this so most recommend starting small and low risk.
So the second path to digital transformation is tactical and typically IT-driven.
The digital teams here are experimenting with new technologies. They are looking for ways for making the business more efficient and customer-centric.
The big advantage of the IT-driven digital transformation is them building in-house expertise and capability. As new demands come from the business, the IT innovation team already has some well-tested ideas to respond with.
The biggest challenge with the IT innovation approach is when there is not sufficient demand from the business for innovation. They have to advocate and evangelize for the new digital ways.
In most businesses, this results in a set of small-scale pilots and proofs of concepts with limited scale. Some of these teams feel like they are pushing the rope, so to speak.
Sometimes the IT digital innovation teams adopt an internal value selling approach, learning and focusing on business outcomes and quantifying the value. Over time this can create collaboration with the business and good momentum for transformation. The value tends to be slow to build. Business ownership takes time. Ultimately IT-driven innovation can work just as well.
Then there is the middle way, between enterprise-wide major transformation and small scale digital pilots:
This third common path to digital transformation is about addressing specific performance issues in the business
The middle way is all about fixing business performance issues. This is when a business function or process is underperforming and they want to fix that quickly. It may be a cost problem or a revenue shortfall.
The business is looking for a tool, any tool that can plug that gap.
The business outcome comes first, digital technology comes second. This is also the ultimate value creation formula and likely the most successful. The business is driving the program. They have a well-defined goal. They have a sense of urgency. Success can only be achieved with clear value created.
This scenario will not waste time with pilots and science experiments. The business unit executives have a problem to fix and can release the necessary resources to do that.
The business unit-level digital transformation typically does not cut across multiple functions and is, therefore, easier to control. As a side benefit, this approach can launch successive incremental improvements and keep delivering more and more value.
So what does this mean?
Businesses are not born with a certain transformation culture. Through trials and errors, they settle on an approach that best fits their operations. Some take on large enterprise-wide transformations and do them well. Others let their business units dictate the types of digital transformation needed. Yet others have their IT groups bring breakthrough ideas.
There are many ways to get digital transformation right. And many ways to get it wrong. The key is to match the program to how the business has successfully transformed in the past.
You have to do digital transformation your way. Not how your peers do it. Not how your consultants do it.
But how you know you can get things done.