‘Digital transformation’ relies too much on technology and not enough on strategy and processes. From a company focused on enabling technology solutions for our clients, we know this sounds a little crazy.
Advanced technologies have paved the way for a new competitive environment, unlike one we’ve seen before. Organisations have turned to adopting the same technologies their newer, younger competitors were built on, in an effort to transform themselves – embarking on what’s become widely known as ‘digital transformation’ or DX.
However, DX doesn’t seem to be paying off for everyone. Last year, businesses spent $1.3 trillion on digital transformation globally, of which
$900 billion was wasted. Closer to home, with only 8% of Australian organisations seeing results from their digital transformation efforts, something clearly isn’t working. We believe the focus needs to shift from technology to strategy – the first step to overcoming barriers to transformation.
So, why do some succeed while the rest struggle? Read on this article to explore the current transformation landscape, the barriers faced by mid-tier organisations, and discover steps you should take to accelerate your transformation.
- Barriers to adoption for mid-market businesses
- The digital transformation myth
- Six steps to overcoming barriers and accelerating transformation
- What’s beyond the myth
Adapting To The Digital Era
Australia’s Digital Trasformation Performance
Barries To Adoption
The Digital Transformation Myth
Beyond The Digital Transformation Myth
There are so many ways that technology can transform a business, it shouldn’t be surprising that many businesses end up getting it wrong.
Technology can reduce costs and improve productivity. It can provide the basis for new products and services and it can improve customer service and build loyalty – and revenue.
These are just the basic opportunities, and each is based on a range of technology options that can quickly overwhelm in terms of their complexity.
But what if the reason why technology transformation programs fail is because we are putting the emphasis on the wrong word. If we see ‘technology’ as being the solution to a problem, we run the risk of changing the problem to match the technology. And that means we don’t end up solving the real problem, so the business is no better off despite its efforts (and in some cases may actually be worse off).
Another common reason why transformation programs fail is because we are applying new technology to existing business models even when our business model may be the thing that needs the upgrade. Adding new technology to an outdated business model is like getting the latest iPod when the world has moved to music streaming.
The best technology-driven transformations are the ones where the emphasis is placed on the second word – ‘transformation’. That means thinking about the strategy first, the problem to be solved, and then examining whether the current business model can ever achieve that. If not, then change the business model.
Most of the successful companies that have launched over the past 20 years owe their success not to technology per se, but to the new business model it enabled. Only when you’ve got the business model locked down should you then be looking at the technology you’ll need to take you there.
Adapting To The Digital Era
The digital era has introduced a never-ending progression of new technologies and services. But it has also ushered in a new competitive environment.
Organisations now find themselves battling competitors that didn’t exist a decade ago, and many of these upstarts are based on remarkably different business models to those of the incumbents they challenge. They have also been built using the latest generation of digital technologies which means they can enter new markets quickly and scale-up with ease.
Most importantly, they are delivering a superior service experience, which is raising the expectations of customers when dealing with all players in a market.
For established businesses, the pressure to meet the challenge of these new digital rivals is intense, and the obvious response is to use the same digital tools to transform themselves. While some are doing so to defend their territory from digital upstarts, many established businesses have been inspired to use new technologies to improve business outcomes by improving customer experience and extending their offerings into new markets.
The result of this thinking has become known as ‘digital transformation’, and it has swept across Australian business with a fervour not seen since electrification 100 years ago.
But as many leaders are learning, transformation is not a project, and there is a vast difference between using a tool to change a process and using that same tool to change an organisation.
Australia’s Digital Transformation Performance
Unfortunately, the idea that digital transformation will provide a simple pathway to a brighter future has very quickly proven false, as numerous reports show Australian organisations are not fully embracing digital transformation.
Gartner for instance found that just 8 per cent of Australian organisations are getting results from their digital transformation activities, and are lagging the rest of the world. In 2018 the International Institute for Management Development (IMD) ranked Australia 15th out of 63 nations for digital competitiveness , while the Dell Technologies Digital Transformation Index found only 7 per cent of Australian businesses were digital leaders.
If digital transformation was easy, more organisations would be doing it successfully. The data shows most aren’t, either because they are unwilling to commence transformation, or they are failing when they do.
- 8% of Australian organisations are getting results from their digital transformation activities. Source: Digital Business Transformation: An Australia perspective
- 15th Australia’s digital competitiveness ranking out of 65 nations. Source: 2018 IMD World Competitiveness Yearbook
- 7% of Australian businesses that are digital leaders. Source: Dell Technologies Digital Transformation Index
Barriers To Adoption
If digital transformation is difficult, it is especially so for Australia’s mid-market organisations. They can’t spend their way out of trouble as larger companies can, and they lack the agility and adaptability enjoyed by smaller ones.
The barriers they face include:
- Legacy Technology: Mid-tier organisations often rely on systems that are several generations old and lack the flexibility needed to easily integrate with the newer technologies that underpin digital transformation.
- Lack of Skills: Tight funding also makes it difficult to hire the skills they need to develop and execute an effective transformation program. This is made worse by the overall lack of digital skills in Australia, as suitable candidates are likely to drift towards existing digital leaders or larger organisations with established transformation initiatives.
- Lack of Vision: Seeing six to 12 months into the future is difficult enough, let alone when preparing for new competitors that play by different rules. The need to focus on immediate problems further restrict a leader’s ability to define a clear path beyond just maintaining business-as usual.
- Lack of Time: Mid-tier organisations face constant challenges simply to remain operational. Leaders may find it difficult to free up enough time to even develop a comprehensive transformation strategy, let alone implement it.
- Unwillingness to Change: The leaders in mid-tier companies have achieved their status through years of solid performance. If digital transformation requires them to operate in a significantly different way, this sets the proposed strategy at odds with existing business practices. This often plays out as a clash between the founders and the next generation of leaders.
- Lack of Investment Funds: A tighter budgetary position means mid-tier companies can’t invest in a large-scale technology refresh or development programs.
- Lack of Urgency: For many industries, the threat of competition from digital entrants remains a problem for the future. Australian retailers for example had two decades to prepare for the arrival of Amazon, but most did not invest in new systems and processes until it had set up onshore (and some are yet to do so).
That mid-tier organisations have been able to succeed using legacy technology and processes can create a culture where success is based on sustaining the status quo. If the business model that has been utilised for decades has proven successful over that time, why change it?
Digital era companies however succeed through continual experimentation, investment, and renewal. And that is why organisations are turning to digital transformation.
The Digital Transformation Myth
We have already discussed how Australian organisations are performing poorly in terms of digital transformation and the reasons why. But another question worth posing is whether digital transformation as it is currently understood is the right path forward?
Firstly, digital transformation defies an agreed description, covering full strategic overhauls to point projects and upgrades. These programs might all utilise some digital technology, such as ecommerce systems or mobile application deployments, but few could be considered transformative beyond one area of the business.
Secondly, the term ‘digital transformation’ places undue focus on ‘digital’ as the defining characteristic. While the use of digital technologies is a common factor among new market entrants, their success is based on business models. Focusing on ‘digital’ places emphasis on the tool rather than what it enables.
The digital transformation myth as it stands today suggests that by investing in digital tools an organisation can transform itself to be more competitive.
However, this can give rise to outcomes that are anything other than transformative. for instance:
- Insufficient scope: Organisations approach digital transformation as a series of sequential projects. This has the attraction of offering quick returns, but failure to devise an overarching transformation strategy can lead to a series of point projects that only transform specific activities and lack integration, and any failure of a specific project provides impetus for cancellation of the rest of the program. In the worst-case scenario these projects become the legacy applications of the future.
- Management Turnover: Any transformation program must be able to outlast the tenure of the executives driving it. All too often a leader will launch a transformation program which might run for several years, but then quickly grinds to a halt should that executive leave. For the transformation strategy to succeed it must be agreed at the highest levels and embedded in the overall strategy of the business.
These outcomes, combined with the impediments listed previously, give rise to the myth of digital transformation in Australia. While many organisations are struggling to get started, those that have might ultimately reach a result that cannot truly be described as transformative.
At Tecala, we believe the first step in overcoming the barriers to digital transformation is to remove the emphasis on digital and to focus on the transformation itself.
This begins with defining what a future operating state might look like. This step provides the basis from which a strategy can be developed to take the organisation towards the new model. The future state should not be overly prescriptive but must focus instead on creating an operating model that is highly flexible and adaptable to market changes. There are several exercises that we have seen prove essential to realising the future state.
- Setting a vision: No vision for the future will be perfectly realised. Rather, the organisation sets a vision to be more flexible and adaptable, and hence able to reshape itself as future contingencies require. This enables it to start quickly, saving time that might otherwise have been devoted to extensive scoping studies.
- Ensuring team alignment: Tearing down barriers between the technology team and the business units it serves is essential for enabling all parts of the business to become clear regarding their objectives and the role they play in reaching them — especially for ensuring the technology can deliver in line with those objectives. This will ensure that the vision is well understood by all parties it will impact, in terms of its necessity and progress path, and can serve to break down resistance to change.
- Developing a skills framework: Transformation requires an infusion of new skills, but these skills are in high demand. By determining what skills an organisation needs and mapping that against the skills they have, leaders can determine which roles can be filled through training and which can be achieved via hiring, and where they might also seek to partner with external organisations. This will help address the skills barrier while potentially reducing costs by identifying where skills can be developed rather than hired in.
- Building for agility: The technological foundation must be as flexible as possible so as to cater for scenarios which can be envisioned and those which can’t. This means architecting systems in ways that avoid contractual and technical lock-in and enable applications to be swapped in and out at will. This requires a commitment to funding new technology investment, but with the goal of using those investments to retire more costly legacy technologies.
- Plan for robustness: The network is the backbone and nervous system of modern organisations, so it needs to be resilient and adaptable. This means investing in infrastructure which can be scaled as needed, with solid capabilities in security, directory services and access management. This will ensure it does not restrict future initiatives such connecting to multiple cloud services and endpoint devices.
- Invest in the basics: Some core technologies are essential for any organisation, such as collaboration tools, directory services, storage and so on, and provide the foundations on which other applications are built. While the temptation can be to invest in front-end technology, failure to invest in these core technologies can quickly lead to poor experiences for users and customers. This also reduces the potential for disruption as the business changes by ensuring the basic tools that staff require are always available.
Our experience has shown that when digital transformation programs fail, it is because some of these steps have been overlooked. Only after these foundations have been defined should the transformation journey begin, as they provide a framework to assess which projects to tackle first, secure in the knowledge these investments will align with the long-term vision. And should market conditions or management decisions lead to a change in that vision, the organisation has a technology foundation that will enable it to adapt readily.
There is an additional upfront bonus too. Rebuilding the foundations can take significant cost out, by ensuring use of the latest low-cost solutions and through only paying for services the organisation needs. They also provide the basis for investing in additional time- and moneysaving initiatives, such as robotic process automation, and make it easier to integrate with third party service providers to offload non-core tasks. This means leaders and their staff are better able to focus on those activities that make a genuine difference to performance.
Beyond The Digital Transformation Myth
The idea that an organisation can rapidly adopt the tools that are being used against it and emerge stronger is compelling. But focusing on the digital aspect without investing in the foundation work of strategy and supporting infrastructure means such projects are likely to fail.
But there are two more reason why we should move on from the concept of digital transformation.
Those companies that are ‘born digital’ are in a constant state of transformation, as they test and launch new services to fuel their growth ambitions and stave off competitors. Suggesting an organisation can ‘digitally transform’ suggests there is an end to the process, whereas changing market conditions will ensure such transformations are ongoing.
Also, given the prevalence of digital technology as the toolset for organisational change today, it is likely there will come a point in time where ‘digital’ is simply the way things are done – and no one will talk about digital transformation.
Businesses were transforming long before digital technology came onto the scene, and they will continue to transform long after the use of the term ‘digital’ has fallen from common business usage.
At Tecala, we believe the real question is not whether an organisation will succeed or fail in its digital transformation, but whether it will invest in building the solid foundations that ensure it retains the ability to transform and grow well into the future. Because that will put it on the right footing for any kind of transformation.